Most headlines on Russia’s economy in July 2026 focus on the latest sanctions package or oil price cap negotiation. The more important story is structural: the model Russia has used to fund its war for four years is showing real signs of running out of road.

The core finding

A research brief from the Center for Strategic and International Studies (CSIS) argues Putin is pushing Russia toward an “economic, political, and military abyss,” according to Fortune. While Russia’s economy remains large — roughly $2.6 trillion — growth is slowing and shrinking on a quarterly basis, with 2026 growth projected at just 0.4%, worse than 2025’s 1% growth, which itself narrowly avoided recession.

Analysts describe Russia’s approach as a form of “military Keynesianism” — the state investing heavily in militarizing the economy while extending financial support to households affected by the war. But per Fortune’s reporting, “after more than four years of war, that well is running dry.” Russia’s fiscal reserves are dwindling, and 71% of the country’s gold reserves have been liquidated to sustain spending.

The number that matters most: oil and gas budget share

The most underreported data point here: the share of oil and gas receipts in Russia’s federal budget revenue fell to just 23% in 2025 — the lowest share in two decades — according to the Oxford Institute for Energy Studies, cited by Fortune. To compensate, Russia has turned to expansive taxation, including raising VAT from 20% to 22% — a move that has proven unpopular domestically.

This matters because Russia’s economy has historically been described, correctly, as fossil-fuel dependent — with oil and gas taxation making up 44% of federal revenues in the decade before the Ukraine invasion, and still around 24.5% over the first three quarters of 2025, according to a Brookings Institution analysis. A further slide to 23% signals the sanctions and diversification pressure are compounding, even as Russia continues finding workarounds through its “shadow fleet.”

The Iran-war reprieve was temporary — and it’s over

The Iran war offered Russia a brief lifeline: Brent crude surged more than 55% at its peak, nearing $120 a barrel, after President Trump eased some sanctions on Russian oil, per Fortune. But that chaos also undermined Russia’s own long-term energy and infrastructure projects in the Middle East — two Russian-linked power plants in Iran were put on hold, along with oil and gas exploration and plans to link Russia to India via Iran through new transit routes. Since then, oil prices have normalized as demand softened and the Strait of Hormuz reopened, removing that temporary cushion.

The sanctions escalation now in motion

The pressure is intensifying on multiple fronts simultaneously. US senators unveiled a sweeping bipartisan Russia sanctions bill in mid-July, which would impose mandatory sanctions on Russian political and military leaders including President Putin, and up to a 100% tariff on the top five countries — including China and India — that purchase Russian crude oil and natural gas, according to CNN. Separately, the EU has been racing to avoid an automatic upward revision of its Russian oil price cap, which would otherwise jump from $44.10 to roughly $58 per barrel if a new sanctions package wasn’t agreed by July 15, per Euronews.

Analysis from the Center for European Policy Analysis notes the outcome depends heavily on whether India and China accept the risk of secondary sanctions: “If China stands firm, Moscow’s dependence on Beijing deepens,” per CEPA. If Russian seaborne oil exports were to fall to near-zero, the budget would lose roughly a quarter of its revenue — an extreme but non-trivial scenario given the pace of legislative and diplomatic pressure building in July 2026.

Why this matters beyond Russia

For countries positioned between Western sanctions regimes and continued Russian energy purchases — including India, and by extension trade partners like Pakistan whose remittance and trade flows intersect with Gulf and South Asian energy markets — the trajectory of Russia’s budget dependency and the secondary-sanctions risk attached to its buyers is a live variable, not a settled one. A further deterioration in Russia’s oil-and-gas revenue share would likely accelerate Moscow’s reliance on China specifically, reshaping regional energy-trade alignments well beyond the Russia-Ukraine conflict itself.

FAQ

What percentage of Russia’s federal budget comes from oil and gas? 23% in 2025 — the lowest share in two decades, according to the Oxford Institute for Energy Studies.

What is Russia’s projected GDP growth for 2026? 0.4%, according to CSIS research cited by Fortune — down from 1% growth in 2025.

What is “military Keynesianism” in the context of Russia’s economy? A term analysts use to describe Russia’s strategy of heavy state investment in militarizing the economy alongside financial support for war-affected households, functioning as a form of stimulus that is now showing signs of fiscal strain.

China posted a record export month in June 2026. Nearly every outlet covering it led with the same number — $412 billion, up 27% — and largely missed the quieter, more consequential story running in the opposite direction: a 34% monthly drop in rare earth exports.

The headline number

China exported a record $412 billion worth of goods in June 2026, blowing past all forecasts as the global AI investment supercycle turbocharged demand for chips and computing equipment, according to Bloomberg. Exports climbed 27% year-on-year — the fastest pace in four months — while imports jumped 36%, a five-year high that easily beat the 24% growth economists had forecast, according to Daily Sabah. China’s monthly car exports topped 1 million for the first time in June, and the country sold 32 billion integrated circuits to the world, per Reuters, via Investing.com.

The trade surplus hit $125.6 billion in June, keeping China on track for a second consecutive year with a surplus topping $1 trillion, per the same Reuters report.

The number almost nobody led with

Buried well below the headline in most coverage: the volume of China’s rare earth exports fell 34% in June and is down 6.4% year-to-date, as Beijing tightened restrictions on the critical elements, according to Daily Sabah. China accounts for around two-thirds of global rare earths production — materials used in everything from smartphones to missiles — and has “wielded its dominance” as leverage in trade negotiations, per the same report.

This is arguably the more important story of the two, and it’s being systematically underreported relative to the AI-export headline. A record trade month built substantially on AI-chip demand is happening at the exact same time Beijing is deliberately constraining exports of the minerals that chip and defense manufacturing depend on. That combination — surging exports of finished high-tech goods, alongside tightening control of upstream raw material exports — is a much more strategically significant signal than the aggregate trade number suggests, because it points to China consolidating leverage at both ends of the AI and defense supply chain simultaneously.

The domestic demand problem the export boom is masking

Julian Evans-Pritchard, head of China economics at Capital Economics, cautioned that the strong import figure “should not be taken as evidence that domestic demand is booming,” per Reuters. Xu Tianchen, senior economist at the Economist Intelligence Unit in Beijing, echoed this: “domestic demand remains a drag. Retail sales remain pretty flat and fixed asset investment was negative last month.”

China’s oil imports hit their lowest level since October 2016, and China appears to be drawing down existing energy stockpiles rather than paying up amid regional disruption — while coal imports jumped 29% annually in June, suggesting a shift back toward coal to fill the gap, per Reuters. In effect, China’s headline growth engine right now is almost entirely external (AI-linked exports), while the domestic economy — consumption, retail, fixed investment — continues to lag.

The trade friction this is generating

China’s trade surplus with the European Union alone hit $32.9 billion in June, up from $30.7 billion in May, according to Daily Sabah, a gap Zhang Zhiwei of Pinpoint Asset Management said “puts further pressure on the trade tension between China and its trading partners, Europe in particular.” Ties with Washington have stabilized somewhat since President Trump’s May visit to Beijing, but the persistent imbalance remains a friction point.

What this means for global businesses

For manufacturers and investors dependent on China’s supply chain — including Pakistani textile and electronics importers — the signal to watch isn’t the trade surplus headline. It’s whether Beijing’s rare earths tightening becomes a broader tool for leverage as AI-chip demand keeps China’s export engine running hot despite domestic softness. A country simultaneously dominating AI-linked exports and constraining upstream critical mineral supply has more geopolitical leverage than the trade balance alone conveys.

FAQ

How much did China’s exports grow in June 2026? Exports rose 27% year-on-year to a record $412 billion, driven largely by AI-related chip and computing equipment demand.

Why did China’s rare earth exports fall even as overall exports hit a record? Beijing tightened restrictions on rare earth exports, which fell 34% month-on-month in June, as China leverages its roughly two-thirds share of global production.

Is China’s domestic economy also growing at a record pace? No — economists including Capital Economics’ Julian Evans-Pritchard note that retail sales remain flat and fixed asset investment was negative in the most recent month, even as export-driven trade data surged.

A single-country GDP forecast upgrade rarely tells the full story. Malaysia’s does — because it happened at the exact moment $23 trillion in institutional capital converged on the region to make the same bet.

The upgrade

Maybank Investment Banking Group (Maybank IBG) sharply upgraded its 2026 GDP growth forecast for Malaysia to 4.9%, up from a previous estimate of 4.4%, according to BigGo Finance. The bullish revision is attributed to resilient manufacturing output, and Maybank IBG maintained its year-end target for the FBM KLCI index at 1,750 points, supported by projected 7.5% earnings growth and strong foreign participation, while separately upgrading its outlook on the technology sector.

The capital flows behind the number

The forecast upgrade wasn’t issued in isolation — it coincided with the 13th Invest Asean conference in Singapore, which brought together 200 institutional investors managing a combined US$23 trillion in assets, alongside 54 companies with a combined market capitalization of US$553 billion, spanning Malaysia, Singapore, Thailand, Indonesia, the Philippines, Vietnam, and India, per BigGo Finance. Maybank IBG CEO Michael Oh-Lau said attendance exceeded expectations, and identified energy transition, supply chain reconfiguration, and AI-led digital transformation as the dominant themes at this year’s gathering.

That scale of institutional attendance — $23 trillion in assets under management represented in one room — is a far more significant signal about regional investor conviction than the headline GDP number itself, yet it has received a fraction of the coverage.

The underreported infrastructure story: Johor-Singapore

Running in parallel to the investment conference is a policy development that connects Malaysia’s growth story directly to Singapore’s: the Johor-Singapore Special Economic Zone (JS-SEZ). Malaysia’s Ministry of Economy has said the launch of the JS-SEZ Master Plan needs to be strategically coordinated to ensure policy alignment and smooth implementation, reinforcing investor confidence, according to Malay Mail. Prime Minister Anwar Ibrahim’s decision to align the master plan’s launch with the fourth-quarter Malaysia-Singapore Leaders’ Retreat suggests both governments are treating this as a headline deliverable for later in 2026, not a minor administrative update.

The JS-SEZ matters because it’s a direct policy bet on cross-border capital and talent flow between Malaysia and Singapore — precisely the kind of “supply chain reconfiguration” theme Oh-Lau flagged at Invest Asean. If executed well, it could function as a lower-cost manufacturing and services extension of Singapore’s economy, absorbing some of the capital currently weighing options across the broader Asean-6.

Why the AI supercycle theme matters here specifically

Malaysia’s technology-sector upgrade by Maybank IBG connects directly to a broader regional pattern: Singapore’s Q2 2026 GDP deceleration was also attributed partly to electronics and AI-linked export dynamics, while Malaysia is being upgraded on the back of the same trend. That’s not a coincidence — both economies sit inside the same semiconductor and electronics supply chain that’s currently being reshaped by AI infrastructure demand, and capital allocators are differentiating between them based on manufacturing resilience and policy clarity rather than treating “Southeast Asia” as a single undifferentiated trade.

What this means for regional investors

For Pakistani and other emerging-market investors evaluating Southeast Asian exposure, the signal here is less about Malaysia’s specific 4.9% GDP number and more about the scale and coordination of capital now flowing into the Asean-6 as a structural bet on energy transition, supply chain diversification away from single-country concentration, and AI-linked manufacturing. The JS-SEZ, if it delivers on its Q4 2026 master plan timeline, would be a concrete test of whether that capital conviction translates into executed cross-border infrastructure rather than remaining conference-room enthusiasm.

FAQ

What is Malaysia’s 2026 GDP growth forecast? Maybank Investment Banking Group raised its forecast to 4.9%, up from a prior estimate of 4.4%.

What is the Johor-Singapore Special Economic Zone (JS-SEZ)? A planned cross-border economic zone between Malaysia’s Johor state and Singapore, with its master plan launch being coordinated with the Q4 2026 Malaysia-Singapore Leaders’ Retreat.

How much capital was represented at the 2026 Invest Asean conference? 200 institutional investors managing a combined US$23 trillion in assets attended, alongside 54 companies with a combined market capitalization of US$553 billion.