Russia: Despite High Oil Prices, Growth Remains Weak and the Budget Deficit Is High

August 11, 2026 · 20 min read · By Klaus Dormann · Original (German)

Author: Klaus Dormann

Just how weak the Russian economy’s growth was in the first half of the year remains quite controversial. The “Institute for Economic Forecasting of the Russian Academy of Sciences” (IEF-RAS) estimates the increase in real gross domestic product in June and in the second quarter to be significantly higher than the research institute of the state development corporation VEB. The Federal State Statistics Service (Rosstat) is expected to publish a preliminary estimate of overall economic output growth for the second quarter on August 12 (TradingEconomics).

Those who expected that the sharp global rise in energy prices following the war in Iran would also lead to an increase in oil and gas revenues for the Russian federal budget have been proven wrong so far. In the first seven months, however, these revenues were about 17% lower than a year ago.

IEF RAS: Russia’s GDP grew by 1.2% in the second quarter

The “Institute for Economic Forecasting of the Russian Academy of Sciences” (IEF-RAS) estimated last week in its monthly “Short-Term Analysis of Gross Domestic Product Trends” that real annual economic growth in the second quarter of 2026 stood at 1.2%. The annual increase in real gross domestic product accelerated to 1.7% in June (see the blue column on the right in the figure below).

Estimate of the monthly trend in real gross domestic product
: black line—real GDP index, Jan. 2019=100
; blue bars—estimate of year-over-year GDP change in percent

IEF-RAS: Schätzung der monatlichen Entwicklung des realen Bruttoinlandsprodukts Russlands, Index und Veränderung zum Vorjahresmonat

IEF RAS: Short-Term Analysis of GDP Trends; Aug. 4, 26

The black line shows that the real gross domestic product index, which had nearly stagnated in May, rose again in June. The IEF estimates the seasonally adjusted GDP increase in June compared to May at 0.6%.

The institute emphasizes that the most important outcome of economic development in the second quarter of 2026 was the recovery in production following the decline at the beginning of the year; production in the “civilian” sectors of the economy is stabilizing. The economy is growing despite the impact of a number of unfavorable factors. Among these, the IEF cites sanctions, as well as the effects of the increased tax burden and restrictive monetary policy. It identifies the military attacks on oil refineries and warehouses in Russia as “new stress factors.”

The VEB Institute estimates growth to be lower than the IEF

In its “GDP Index” for June 2026, published on August 6, the research institute of the state-owned development corporation VEB estimates the annual growth rate of the Russian economy in the second quarter of 2026 not at 1.2%, as does the “Institute for Economic Forecasts,” but at only 0.9% (in line with the Russian Ministry of Economic Development, according to Interfax). Andrey Klepach has been VEB’s chief economist since 2014. He previously served, among other roles, as Deputy Minister of Economic Development.

According to the VEB Institute’s estimate, real GDP in June did not rise by 0.6% compared to May, as projected by the IEF, but by only half that amount, 0.3% (seasonally and calendar-adjusted).

According to the VEB Institute, real GDP in June 2026 was only 1.2% higher than in the same month of the previous year; the IEF Institute, on the other hand, estimates the annual growth rate at 1.7%.

The Central Bank expects growth to slow in the third quarter

In the first quarter of 2026, real gross domestic product was 0.2% lower than in the previous year, according to Rosstat. In the second quarter, however, annual growth of 0.8% was achieved, according to an estimate by the Russian Central Bank. This is shown by the gray bars in the following chart from the Central Bank (the black dots indicate that the annual growth rate fell from 4.9% in 2024 to 1.0% in 2025).

Real Gross Domestic Product, annual rate of change in percent*

Bank von Russland: Reales Bruttoinlandsprodukt Russlands, jährliche Veränderungsrate in Prozent

* The GDP figure for the second and third quarters of 2026 is an estimate by the Bank of Russia.
Sources: Rosstat, calculations by the Bank of Russia.
Bank of Russia: Commentary on the Bank of Russia’s Medium-term Forecast , PDF , August 5, 2026

The central bank has also published a forecast for GDP growth in the third quarter. In a commentary on its “Medium-Term Forecast,” updated in July, the central bank notes that economic activity likely slowed in July at the start of the third quarter. It now expects annual economic growth to slow to 0.5% for the third quarter as a whole.

For 2026 as a whole, real gross domestic product is expected to range between complete stagnation and 1.0% growth, according to the central bank’s “Medium-Term Forecast” (blue dots in the central bank’s chart above).

“Kyiv School of Economics”: Slowing Growth Despite High Energy Prices

The “Sanctions Hub of Excellence” at the Kyiv School of Economics published a new edition of its semi-annual analysis of the Russian economy in early August. The analysis, titled “Sanctions and the Russian Economy,” examines, among other things, the impact of the global rise in energy prices following the start of the war in Iran in late February on the Russian economy. The KSE Institute addresses the following points, among others:

While the sharp rise in energy prices provided Russia with considerable additional revenue, the short-term outlook for economic development improved only slightly.

However, when considering the impact of rising energy prices on the Russian federal budget, it is important to note that the Russian government spent approximately 620 billion rubles between April and June to curb domestic fuel prices and significantly increased subsidies for energy companies. Taking these increased expenditures into account, only about 0.8 trillion rubles remained of the 1.6 trillion rubles increase in Russian government revenue from the oil and gas sector in the second quarter.

Furthermore, Ukrainian attacks on Russian refineries and energy infrastructure further limited Russia’s ability to capitalize on rising global energy prices. At the height of Ukraine’s attacks, approximately 40% of Russia’s refining capacity was affected. Gasoline production fell by about 25% below the June 2025 level.

Growth in the Russian economy continues to be hampered by restrictive monetary policy, weaker domestic demand, and labor shortages. Sanctions are limiting access to technology.

Growth has declined significantly in many sectors of the economy

The KSE Institute summarizes the current economic situation in Russia as follows:

Developments in the “manufacturing sector” remain highly uneven:

While “defense-related” sectors are benefiting from government contracts, production in “civilian” sectors has slowed considerably.

At the same time, ongoing Ukrainian attacks on refineries have triggered a “fuel crisis.” Logistics costs have been driven up, and fuel supplies to agriculture, transportation, and industry have been disrupted.

Consumer-oriented sectors have lost momentum because high borrowing costs and a slower rise in real incomes are weighing on household demand. As a result, retail and market-oriented services lost momentum after two years of rapid growth.

This trend was exacerbated by Ukrainian attacks on the logistics infrastructure of “Wildberries,” Russia’s largest e-commerce platform. By the end of July, repeated drone attacks had damaged about 10% of the company’s warehouse capacity. The company’s distribution network—which also supplies many small and medium-sized enterprises—was severely disrupted as a result.

Construction activity has also slowed, as high financing costs continue to dampen residential construction and private investment.

Unexpectedly High Federal Budget Deficit in the First Half of 2026

The KSE Institute reports on the development of the Russian federal budget:

In the first half of 2026, the deficit reached approximately 5.7 trillion rubles, or 2.7% of GDP. This means that, even in the first half of the year, it already exceeded the deficit planned for the entire year of 2025. It was 51% higher than projected in the original budget (3.8 trillion rubles; 1.6% of GDP). Although the budget has since been revised, the new deficit target was also exceeded by 19%.

Cumulative balance in the federal budget, in trillions of rubles

KSE-Institut: Kumulierter Saldo im russischen Föderationshaushalt in Billionen Rubel

Kyiv School of Economics: Russia Chartbook: Stalled Domestic Borrowing Poses Threat to Budget Financing; Energy Windfall Fades as Oil Prices Moderate, July 29, 2026

Financing the budget deficit is becoming increasingly difficult for Russia. In the first half of the year, the Ministry of Finance relied heavily on domestic borrowing and its cash reserves, while the “National Welfare Fund” was used only to a limited extent.

Toward the end of the period, rising borrowing costs and weaker demand from domestic banks led to a lack of buyers at government bond auctions (see videos from TLDR News EU: Russia Suspends Bond Auctions: Could Putin Default? July 23, 26; “Russia’s Bond Yields Spike: Is Putin in Trouble?” July 8, 26). Although the government can still borrow through state-owned banks, it can do so only at a higher cost.

The conflict between monetary policy and fiscal policy has intensified

The KSE Institute views the Russian Central Bank’s monetary policy as being at odds with the sharp increase in spending to finance war expenses:

The Russian Central Bank is attempting to curb the inflation triggered by high war expenditures through a restrictive monetary policy. In contrast, the government continues to increase spending and borrowing to finance the war.

Concerns about “fiscal dominance” are growing. Recent legislative changes allow spending and public debt to exceed the limits set in the previous budget law. Persistently high interest rates could further restrict private-sector activity.

Russia’s outlook remains dependent on energy markets

According to the KSE Institute, the performance of the Russian economy in the second half of 2026 will depend largely on the pace of “normalization” in global energy markets and the continuation of Ukrainian attacks on Russian energy infrastructure. The institute outlines the following two scenarios:

A continuation of the “global oil crisis” would continue to support Russian exports and government revenues. However, this would neither resolve the “fuel crisis” in Russia nor reduce the budget deficit to a sustainable level.

A rapid return to a supply surplus in the global oil market would mean lower oil revenues for Russia. With the economy continuing to stagnate, Russia would face growing fiscal problems.

Federal budget revenues from the oil and gas sector have declined

Despite the rise in energy prices following the start of the war in Iran in late February, government revenues from the oil and gas sector in the Russian federal budget fell significantly again in the first half of 2026 compared to the previous year.

At 3.66 trillion rubles in the first 6 months of 2026, they were 22.7% lower than a year earlier. The KSE Institute published the following overview on this topic.

Federal Budget:
Revenues, Expenditures, and Balance in Trillions of Rubles

KSE-Institut: Föderaler Haushalt Russlands – Einnahmen, Ausgaben und Saldo in Billionen Rubel

Kyiv School of Economics: Russia Chartbook: Stalled Domestic Borrowing Poses Threat to Budget Financing; Energy Windfall Fades as Oil Prices Moderate, July 29, 2026

Atlantic Council: Oil and gas revenues were about one-third lower than in 2024

Charles Lichfield, director of the Atlantic Council’s GeoEconomics Center, and his colleague Brendon Chen also point to the decline in oil and gas revenues in the Russian federal budget. They report:

While the closure of the Strait of Hormuz this year gave Russia the opportunity to sell its oil at higher prices, these price-driven increases in revenue were offset by a decline in export volumes.

In early 2026, Ukrainian drone attacks also crippled 30 to 45 percent of Russia’s refining capacity, leading to fuel shortages in Russia and lower oil exports by sea.

Western sanctions were also tightened, including through a lower oil price cap imposed by the European Union and new measures against supporters of the shadow fleet.

As a result, Russia’s federal budget revenues from the oil and gas sector fell to 3.661 trillion rubles in the first half of 2026. This amounted to only about 64 percent of the revenue recorded in the first half of 2024 (see red bars in the figure below).

Trends in the Russian Federal Budget:
First Half of 2022 to First Half of 2026
Total Expenditures: blue line
Revenue from the oil and gas sector: red bars
Revenue from value-added tax: blue bars
Other revenue: gray bars

Atlantic Council: Entwicklung des russischen Föderationshaushalts, 1. Halbjahr 2022 bis 1. Halbjahr 2026

Atlantic Council; Charles Lichfield and Brendon Chen:
“Russia Will Sacrifice Its Civilian Economy on the Altar of the War Effort ,” August 5, 2026

Oil and gas revenues were also lower in the first seven months

Kommersant summarized the latest developments in federal budget revenues from the oil and gas sector, including July, as follows:

According to the Ministry of Finance, oil and gas revenues from January through July totaled 4.595 trillion rubles. This was 17% lower than in the previous year. This was due to low prices in the first two months of the year. Before the war between the U.S. and Iran, Russian oil prices in January and February ranged from $40 to $45 per barrel.

Given the decline in oil prices in recent months, the prospects of reaching the planned oil and gas tax revenue target of 8.9 trillion rubles for 2026 appear uncertain. After the average price of Urals crude oil (Trading Economics) rose to $94.9 per barrel in April, it fell to $86.5 in May, according to the Ministry of Economic Development, to $63.5 in June, and to $59 in July per barrel. In the first seven months, the average price of Russian Urals crude stood at $66.6—above the $59 per barrel budgeted.

The Central Bank expects the average annual price to decline further. Its updated medium-term forecast from July 24 projects an Urals oil price of $60 per barrel this year and $50 next year. In a commentary on this forecast dated August 5, the central bank noted: “Despite the temporary price increase due to the supply shock caused by the conflict in the Middle East and the closure of the Strait of Hormuz, oil prices are expected to continue falling once the situation normalizes.”

In addition to the oil price, the ruble exchange rate also influences the level of oil and gas revenues. The 2026 budget was based on an exchange rate of 92.2 rubles per dollar. However, according to the Central Bank, the actual average exchange rate for the seven-month period was significantly lower, at 76.5 rubles per dollar (meaning that for every U.S. dollar earned from oil and gas exports, the budget received lower-than-planned revenues in rubles).

Another factor influencing the budget’s oil revenues is actual production volumes. Russian government agencies do not publish data on this. In its summary of the August 5 policy rate discussion, the Central Bank merely noted that “damage to oil refineries led to a decline in the production of petroleum products and in demand for crude oil. The capacity of the transportation and port infrastructure was insufficient to divert the freed-up crude oil volumes for export. As a result, oil production also declined.”

Russia: Despite High Oil Prices, Growth Remains Weak and the Budget Deficit Is High

IEF RAS: Russia’s GDP grew by 1.2% in the second quarter

The VEB Institute estimates growth to be lower than the IEF

The Central Bank expects growth to slow in the third quarter

“Kyiv School of Economics”: Slowing Growth Despite High Energy Prices

Growth has declined significantly in many sectors of the economy

Unexpectedly High Federal Budget Deficit in the First Half of 2026

The conflict between monetary policy and fiscal policy has intensified

Russia’s outlook remains dependent on energy markets

Federal budget revenues from the oil and gas sector have declined

Atlantic Council: Oil and gas revenues were about one-third lower than in 2024

Oil and gas revenues were also lower in the first seven months

Recommended Reading

German-Russian Chamber of Foreign Trade:

“Die Presse” Podcast: Russia—Gas, Sanctions, Oligarchs:

Current economic trends; the economy as a whole

Fiscal Policy; National Budget

Fuel Supply, Energy Sector

Warnings of a banking crisis and high corporate debt

Price Trends

Monetary Policy

Foreign Trade, Sanctions

Political Context