Russia
Russia’s first-half budget deficit hits 5.7 trillion rubles as oil revenue shortfalls persist
Russia’s federal budget deficit narrowed to 5.7 trillion rubles, or 2.5% of gross domestic product (GDP), during the January–June period of 2026, according to preliminary budget execution data released by the Ministry of Finance on July 9. This contraction marks the first decline in the fiscal deficit since the beginning of the year. In June, the gap between expenditures and revenues decreased by approximately 5% month-on-month, shrinking by about 279 billion rubles. Despite this marginal improvement, the deficit remains 2.3 trillion rubles higher than the level recorded during the same period last year and stands roughly 50% above the 3.78 trillion ruble target projected for the full year of 2026.
Emil Ablayev, an expert at the Center for Macroeconomic Analysis and Short-Term Forecasting (TsMAKP), told the Vedomosti newspaper that the narrowing of the deficit was driven by the gradual fading of the front-loaded advance spending outlays made at the start of the year.
Budget expenditures rose to 3.56 trillion rubles in June, representing a 17.13% increase. Total spending in the first six months of the year reached 24.35 trillion rubles, up 16.1% compared to the same period last year.
The Ministry of Finance reiterated that the accelerated pace of spending was attributable to the early signing of contracts and advance payments made under specific budget items.
In contrast, budget revenues experienced a more subdued increase compared to expenditures. Total revenues in the first half of the year rose by 5.8% year-on-year to reach 18.6 trillion rubles. In June, however, revenues surged by 25.85% year-on-year to 3.82 trillion rubles.
Non-oil tax revenues accelerate
Ablayev noted that the acceleration of non-oil and gas revenues played a key role in narrowing the budget deficit. The year-on-year growth rate for these revenues rose from just over 12% in the January–May period to 16.3% in the January–June period. Non-oil and gas revenues reached 14.96 trillion rubles in the first half of the year. In June, these revenues increased by 26.75% year-on-year to 3.1 trillion rubles.
According to Natalya Milchakova, Chief Analyst at Freedom Global, this growth was driven by the increase in the VAT rate effective January 1, along with prior hikes in personal income tax for high-income brackets and corporate income taxes. VAT revenues rose by 22.6% to 8.58 trillion rubles in the first six months of the year.
Ablayev pointed out that VAT is the tax category most sensitive to domestic demand, consumption, and imports, indicating that the increase reflects sustained domestic demand.
Ablayev also stated that improvements in tax administration and a reduction in the shadow economy supported this positive trend. He added that due to the strong performance of the ruble in the second quarter of 2025, import-related VAT revenues had a more limited negative impact on a year-on-year basis.
According to experts, the trajectory of non-oil and gas revenues in the second half of the year will depend on a slowdown in consumer demand, import volumes, the ruble exchange rate, and the tax performance of non-oil exporters.
Sergey Klisenko, General Director of the NRA Rating Service, projected that the growth rate of non-oil and gas revenues could slow from the 16% level recorded in the first half to a range of 12% to 14%. However, he noted that this would still be sufficient to meet or even exceed the targets set for 2026.
Oil revenues recovered in June
According to Klisenko, the budget surplus in June stood at approximately 280 billion rubles, largely driven by the strong performance of oil and gas revenues.
These revenues rose roughly 65% above the January–February average. The analyst attributed this increase primarily to the elevated level of Russian oil prices in May.
Oil and gas revenues in June rose by 4.7 billion rubles compared to May, reaching 683.6 billion rubles. However, the cumulative total for the first half of the year remained at 3.66 trillion rubles, representing a 22.7% decline compared to the same period last year.
Ablayev stated that the primary reasons for the first-half decline were a strong ruble, delayed tax collection effects, and the structural composition of the revenues.
Klisenko calculated that while the budget projections assumed an average exchange rate of 92.2 rubles per US dollar, the actual average for the first half of the year remained at 77.2 rubles, depriving the budget of 1.5 trillion to 2 trillion rubles in oil and gas revenues.
Oil and gas prices, which had spiked in the spring due to the conflict between the US and Iran and the subsequent closure of the Strait of Hormuz, declined again during the summer months.
According to Ministry of Economic Development data, the average price of Urals crude was $44.59 per barrel in February, rose to $94.87 in April, fell to $86.52 in May, and dropped to $63.52 in June.
Ablayev noted that oil and gas revenues could show a noticeable improvement in July as additional income tax from the second quarter is reflected in the budget. Nonetheless, he cautioned that year-end performance would depend on oil discount levels, demand for Russian crude, the ruble exchange rate, and developments in the domestic fuel market, adding that rising refinery subsidies and damper payments could limit revenue growth. The expert expects year-end oil and gas revenues to exceed 2025 levels but remain below budget targets.
Experts expect year-end deficit to exceed targets
Ablayev stated that budget execution remains under pressure, with expenditures running significantly higher than last year and the deficit exceeding initial forecasts. He estimated that the year-end deficit could reach 3% to 3.5% of GDP, or approximately 6.5 trillion to 7.5 trillion rubles, which would require deviations from the fiscal rule and increased borrowing.
Rodion Latypov, Chief Economist at VTB Group, projected that the main reasons for exceeding the planned 3.8 trillion ruble deficit would be an estimated 1.5 trillion ruble shortfall in oil and gas revenues due to the strong ruble, alongside potential spending overruns. Excluding potential additional spending increases, Latypov expects the year-end deficit to be around 5 trillion rubles.
Milchakova stated that the budget deficit at the end of the year would most likely remain around 2.5% of GDP, driven primarily by weak oil and gas revenues and anticipated increases in public spending—particularly due to the fuel crisis, refinery subsidies, and damper payments.
Klisenko, meanwhile, estimated that the deficit would reach 2.5% to 3% of GDP, amounting to approximately 6 trillion to 7 trillion rubles.
Ablayev noted that a high budget deficit supports domestic demand, making a rapid slowdown in inflation more difficult, though certain mechanisms, such as damper payments, limit price pressures specifically within the fuel market.
Klisenko remarked that the rise in the budget deficit from 1.6% to 2.5% of GDP is not critical and that its impact on inflation does not exceed 1 percentage point.
Latypov argued that the budget’s impact on the money supply and total nominal demand is more accurately measured by the change in net claims on public administration, rather than the federal budget deficit itself.
He highlighted that this indicator has increased by approximately 3 trillion rubles since the beginning of the year, remaining significantly lower than the accumulated budget deficit.
Russia
Valdai Forum debates superpower survival amid global anarchy
The survival strategies of superpowers were addressed at a meeting of the Valdai Discussion Club held in Russia.
Speaking at a session titled “Geopolitical Re-division: Power as a Guarantee of Peace or a Pledge of War”, John Mearsheimer, Professor of Political Science at the University of Chicago, argued that the best way for superpowers such as Russia, China, and the US to sustain their existence under conditions of international anarchy is to increase their military and economic power.
During the session, Mearsheimer drew attention to the fact that the fundamental priority for every state is survival.
Stating that there is no higher authority in the international system, Mearsheimer made the following assessment:
“Every state wants to survive, because survival is the number one goal. Let me conclude by returning to my main point: never forget that you operate under conditions of international anarchy, meaning there is no ultimate authority. The moment you recognise this reality, you realise that the best way to survive is to maximise your relative power. The concept of relative power is synonymous with the balance of power. If there is a great power in the system, the balance of power assumes immense importance; because power is the key to survival.”
Expressing that only three true great powers exist in the world, Mearsheimer listed these countries as the US, China, and Russia.
Stating that India is not included in this category because it lacks sufficient economic wealth despite its massive population, the professor noted that a large population and substantial economic resources form the foundation of military power.
Stating that the competition between the US and China continues not only in the military sphere but also in the field of technology, Mearsheimer emphasized that the race in artificial intelligence and other advanced technologies determines both wealth and military capacity in today’s world.
Dmitriy Trenin, Research Supervisor at the Institute of World Military Economics and Strategy at the Higher School of Economics (HSE) and President of the Russian International Affairs Council (RIAC), also stated during the discussion that Russia must preserve its great power identity, otherwise it will not be able to survive.
Pointing to the question of whether the US can maintain its global leadership, Trenin said that the future of all humanity could depend on this balance.
Expressing that the concepts of power and survival carry a distinctive relationship, Trenin conveyed that theories in Western political science do not fully align with the reality in Russia. Touching upon his country’s past, Trenin said, “Russia faced an existential survival risk twice in less than 100 years. The state collapsed first in 1917, and then in 1991. There is no guarantee that it will not collapse once more.”
Trenin recalled that although the Soviet military was at the peak of its power in 1991, this military might failed to save the USSR from dissolving.
Emphasizing that might does not consist solely of military force, Trenin brought up lines by the poet Aleksandr Pushkin depicting the struggle between gold and steel.
Trenin also cited the saying, “A donkey laden with gold can conquer any fortress.” The Russian analyst concluded that the country’s survival depends on Russia’s own internal dynamics and domestic condition, rather than on relations established with other states.
Alastair Crooke, a British diplomat and founding director of the non-governmental organisation Conflicts Forum, argued at the session that military force constitutes only one dimension of influence.
Citing the Palestinians as an example, Crooke expressed that the people sacrifice their lives for the sake of their own civilisational idea, way of life, and worldview.
The diplomat stated that even without substantial military power, Palestinians rally support in their struggles for sovereignty by relying on different elements of power, rather than merely on the number of tanks, money, or fighter jets.
Stating that a system of a “concert of powers” reflecting a compromise between civilisations could emerge in the future, Crooke expressed that in this order, states would preserve their sovereignty and would not abandon their own native civilisations.
The British diplomat said that old international structures, including the existing United Nations mechanism, must definitely be transformed.
Earlier, an analysis in Politico reported that US President Donald Trump sought to develop relations with Russia in order to prevent the construction of a Beijing-led global order.
Trump, for his part, expressed that Washington and Beijing could achieve great things together, and described President Xi Jinping as a “great leader” following his official visit to China.
Zheng Yongnian, Dean of the School of Public Policy at the Chinese University of Hong Kong, emphasized that despite its relative decline, the US maintains its global hegemony, and that underestimating Washington would produce a fatal mistake.
US Secretary of State Marco Rubio also characterised China as the greatest geopolitical challenge for his country, but noted that relations with Beijing constitute one of the most critical portfolios for Washington.
Russia
Mearsheimer says Trump seeks Ukraine peace but lacks diplomacy skills
Simultaneously with contacts conducted by US President Donald Trump’s representatives Steven Witkoff and Jared Kushner, a delegation of prominent American political scientists visited Moscow.
Professor John Mearsheimer, a faculty member at the University of Chicago who took part in the delegation, answered questions from the Russian daily Kommersant on the sidelines of a round-table meeting jointly organised by the Russian Council on Foreign and Defence Policy and the Higher School of Economics.
Mearsheimer said that while the Washington administration possesses the potential to play a constructive role in ending the war in Ukraine, it has not yet translated this capacity into action.
Stating that an American effort to encourage the Kyiv administration to reach a compromise with Russia and halt the war would make a positive contribution, the political scientist said: “Having potential is one thing, realising it is another matter. In this sense, the US has not yet used its potential and has not taken noteworthy steps that would contribute to ending the war in Ukraine.”
Evaluating Trump’s dispatch of negotiators Witkoff and Kushner to Moscow and Kyiv over the weekend, Mearsheimer emphasised that the American president is maintaining his efforts.
Recalling that the representatives had previously travelled to the Russian capital, the professor offered the following assessment:
“Trump is striving to achieve progress. The fact that he sent Witkoff and Kushner back to both capitals, despite having failed in the past, shows that he has not abandoned this objective. Yet at this stage, I see no concrete reason to believe these initiatives will succeed. There is no ground to think that Witkoff and Kushner have developed a magic formula that will end the war in Ukraine.”
Mearsheimer also addressed the motivation underlying Trump’s desire to end the conflict. Stating that the US president definitely wants to stop the war, the political scientist noted that Trump wants to be recognised as a peacemaker and receive the Nobel Peace Prize.
Arguing that Trump, who regards ending the war as serving American interests, is inexperienced in diplomacy, Mearsheimer remarked: “He does not know how to resolve this extremely complex problem. When his novice diplomacy combines with an issue of such intricacy, it is not surprising that he cannot make progress.”
Stating that although Trump previously described the conflict frequently as “Biden’s war”, the present picture shares out responsibility, Mearsheimer said that the conflict has now become Trump’s war.
Pointing out that the US administration continues weapons supplies via Europe, intelligence sharing including for strikes targeting Russian territory, and satellite internet support, the political scientist said:
“Before Trump returned to the White House in January 2025, this was Biden’s war. But when he became US president and could not end the war, this conflict turned into his own war. It is clear that the US continues its support by providing direct intelligence and indirectly giving the Europeans weapons to be transferred to Ukraine. Therefore, the US, and President Trump in particular, continue to provide support to Ukraine and contribute to the continuation of the war.”
Russia
Russia aids Iran in covert supersonic cruise missile project, FT says
According to a report by the Financial Times (FT), Russia is assisting Iran in developing advanced supersonic cruise missiles through a covert programme.
The multi-year secret collaboration, described as one of the most comprehensive strategic military technology transfers between Moscow and Tehran, reportedly bears the codename “C430L”.
Based on an examination of leaked correspondence, travel records, and military patents, the report stated that the programme, which began in 2023, continued during the war waged against Iran by the US and Israel.
Under the programme, experienced Russian missile specialists were reported to have supported Iran in developing a new class of weapons capable of threatening US aircraft carriers and warships in the Middle East.
Ramjet technology aimed at breaching air defence systems
According to the report, the primary objective of the C430L programme is to assist Iran in developing a ramjet propulsion system that enables a cruise missile to fly at several times the speed of sound.
Military experts point out that the technology in question is designed for use in anti-ship and land-attack cruise missiles.
Fabian Hinz, an expert at the UK-based arms monitoring group Conflict Armament Research, emphasised that this strategic transfer, which the Iranians have sought to obtain for decades, would require approval at the highest political level in Russia.
Jim Lamson, an expert at the James Martin Center for Nonproliferation Studies and a former CIA analyst, stated that this system would provide Iran with a new strategic weapon capable of threatening US naval assets.
Supersonic cruise missiles combine high speed with low-altitude flight capabilities, narrowing the time available for advanced air defence systems to detect and intercept the missile. This represents a strategic advantage for the Tehran government along the Persian Gulf line, where the US and its regional allies possess land- and sea-based defence systems.
The report noted that while Iran had built the ramjet system and conducted flight tests, there was no concrete evidence that a Russian-backed supersonic missile had yet been deployed in the field.
State enterprises and chief engineers involved
The supersonic missile assistance programme is reportedly coordinated by Russia’s state-owned arms export company Rosoboronexport, with the project being executed alongside NPO Mashinostroyenia.
NPO Mashinostroyenia, which was placed on the US sanctions list in 2014, is known for its work on cruise missile systems launched from ships, submarines, and land platforms, as well as Russia’s nuclear forces comprising intercontinental ballistic missiles.
Leaked travel records show that senior Russian engineers and export officials travelled to Iran multiple times before a contract was signed with Iran’s Ministry of Defence and Armed Forces Logistics in November 2023.
These figures include Aleksandr Dergachev, chief designer of naval missiles at NPO Mashinostroyenia; Aleksander Chebakov, a ramjet specialist; Yuri Prokhorchuk, head of the aerodynamics department; and Vladislav Kuzmichev, head of the Defence Technologies and Space Department at Rosoboronexport.
The documents indicate that by 2025, the company had received extensive Iranian technical materials regarding the ramjet propulsion system, analysed telemetry data obtained from a flight test, and submitted detailed queries to Tehran on topics including the fuel system, combustion stability, and the air intake.
In April 2025, Rosoboronexport proposed sending a delegation of around twenty experts to Iran for technical consultations.
Military cooperation between the two countries deepens
The programme is regarded as part of a deepening military partnership between Tehran and Moscow. Iran had previously supplied Shahed-type armed unmanned aerial vehicles used by Russia in the Ukraine war and assisted in their production within Russia.
Western officials also accuse Russia of providing satellite imagery and weapon components to Iran during the ongoing hostilities with the US and Israel.
The report recalled that Russian President Vladimir Putin, during his meeting with Iranian President Masoud Pezeshkian in Kyrgyzstan, said Moscow was “striving to provide the necessary aid and goods in this difficult period”.
Nicole Grajewski of Sciences Po University in Paris stated that the covert ramjet programme demonstrated “Russia’s effort to widen the war in Ukraine and draw the US to different fronts”, noting that Moscow no longer attached as much importance to regional red lines as it once did.
Leaked correspondence reveals that the C430L programme continued into 2026, with the parties continuing to negotiate technical reports and the next phase of the development process.
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