You could have, for example, America’s fighter jets, which cost hundreds of millions of dollars, and massive cargo aircraft, which require elite crews to operate. Although these weapons could turn the tide of war, they were also a message of deterrence; we have better machines, therefore we are harder to defeat.

As of 2026, all that’s changed, and new technology is defining how wars are fought and how goods are moved around the world.

The Old Ways Of War

The old ways were about creating the perfect machine. According to defence analysts, Western militaries were obsessed with building ’exquisite platforms’. This means they wanted to create technically flawless, ultra-capable, and expensive weapons to deter their adversaries.

Serhiy Goncharov, the CEO of the National Association of Ukrainian Defence Industries, which represents about 100 Ukrainian companies, told Business Insider that the West’s philosophy of fielding limited numbers of cutting-edge systems could be a serious disadvantage in a prolonged war. He claimed that those systems are good to have, but mass is key.

Gabrielius Landsbergis, the former defence minister of Lithuania, a NATO ally bordering Russia, said that while the West focused on new and expensive weaponry that takes a long time to manufacture, Russia had been ’building something cheap, that’s expendable, that’s fast’.

The F-35 Lightning II fighter jet and the C-130 Hercules cargo aircraft are some of the best examples of this policy. They are extraordinary machines and a testament to incredible feats of engineering. Both cost hundreds of millions of dollars to build and operate.

However, they have major weaknesses. They are too expensive to be lost in battle, very complicated to replace quickly, and entirely dependent on human beings to fly them.

This last point matters more than all the others because humans are organic. They get tired, they experience fear, and they need food, rest, and the psychological will to keep moving. If a C-130 is shot down, you lose an expensive aircraft, the crew, the supplies they were carrying, and the ability to resupply the troops waiting at the other end.

In a world where missiles are AI-driven with deadly accuracy, and modern battlefields are expanding their theatres into the Indo-Pacific, Ukraine, and the Middle East with dense networks of radar arrays, surface-to-air missiles, and electronic jamming equipment, these kinds of aircraft are sitting targets.

Defence planners call these areas ‘Anti-Access Area Denial’ (A2/AD) zones. To keep things simple, these are regions where your expensive, irreplaceable aircraft can be shot down as soon as they enter. The exquisite platform now turns out to be a single point of failure dressed up as a super-weapon.

Losing Is Now Part Of The Plan

Nobody wants to lose a billion-dollar piece of equipment at the first sign of trouble. So, a new, radically different military philosophy is taking hold at defence ministries across the world. They call it the ’economy of attrition’.

The idea is simple, yet counterintuitive. If assets are very likely to be destroyed in a modern war, the best course of action is not to prevent it, but to build systems that can be destroyed by the dozen while the mission continues anyway.

ALSO READ: Choking of Strait of Hormuz tests limits of war risk insurance

Instead of one colossal and invincible aircraft, it may be better to deploy hundreds of cheaper, autonomous ones. If the enemy shoots down 10 of them, the other 90 can still complete the mission. If those units cost less to build than the enemy’s resources used to destroy them, you eventually win the war of attrition by turning the enemy’s military strength into a financial liability.

Governments and militaries are building networks of self-piloting aircraft, ground robots, and underwater vehicles, all connected by a centralised artificial intelligence. These systems are capable of sustaining military operations without putting a single human being in direct danger.

Equipment is now designed to be lost in battle.

The Drones That Could Replace A Fleet Of Cargo Planes

There is a new doctrine at the Pentagon, and even at allied and enemy HQs. Militaries have decided to replace cargo planes with drones. A primary example of this doctrine in action is the Grid Aero Lifter Lite, built by a California-based startup. It is an autonomous cargo drone without a pilot, a co-pilot, or life support systems. It is built with minimal moving parts, can be assembled quickly in remote locations, and is priced at a fraction of what a single C-130 costs to procure and operate.

Aero CEO Arthur Dubois, “We’re focused on solving major problems for the warfighter, starting with contested logistics. Those same challenges of range, resilience, and operating in constrained environments also define many commercial, humanitarian, and remote operations. This funding allows us to rapidly field autonomous aircraft to deliver scalable capability into real-world operations to meet growing demand across missions.”

The rapid fielding is catching the attention of major investors. Ben Hemani, founding partner at Bison Ventures, pointed to Grid Aero’s execution speed, “What Grid Aero has accomplished in less than 18 months is rare. Not only have they already built their flagship aircraft, but they are also building a logistics capability that operates where traditional systems can’t. We’re excited to fund the next phase of their growth, as they move from rapid development to real-world scale.”

The Grid Aero approach to logistics is very different from the old method of hub-and-spoke logistics, where goods flow from a central warehouse outward along fixed delivery routes. It is replaced by what Dubois calls ’the grid’, a distributed mesh network where hundreds of thousands of nodes operate simultaneously across a wide area.

The Grid Aero Lifter is a drone carrier that features advanced self-healing capabilities, ensuring that if drones are lost, the AI instantly reroutes the remaining units to cover gaps and maintain network integrity. To operate effectively in contested military zones where GPS is routinely jammed, the system utilises visual odometry, which allows the drones to navigate by reading the landscape much like a human does. Furthermore, the entire swarm benefits from real-time learning, as every drone continuously shares its data with all other units to ensure they learn and adapt together as a single entity.

Regarding the shift toward these swarms, Anduril founder Palmer Luckey said, “You know, if I can have one guy command and control 100 aircraft, that’s a lot easier than having to have a pilot in every single one. It puts a lot fewer American lives at risk.”

Advent Of The Mechanical Foot Soldier

There are drones in the air, but there is something even more dramatic on the ground. In February 2026, a San Francisco startup by the name of Foundation Robotics delivered its first Phantom MK1 humanoid robot to Ukraine for combat testing on the front lines. These machines are somewhat similar in concept to a prototype T-800 model from the Terminator movie.

The Phantom MK1 is science fiction coming to life. The MK1 stands at 180 centimetres, weighs 80 kilograms, and is encased in jet black steel with a tinted glass visor where its face should be. It’s not a remote-controlled toy operated by someone at a comms station. It’s a completely AI-powered machine designed to replace a human infantryman. There are currently 2 Phantom MK-1 prototypes in the Ukrainian theatre.

“You should really work hard to give the US military smarter tools so that they can be more effective,” Sankaet Pathak, founder of Foundation Robotics, told TechFirst.

ALSO READ: As threat of war looms, Europe hikes spending on military and defence equipment

He is not shy about giving the Phantom an M4 Carbine, adding, “If you’re first body in and you’re docile, then the enemies are not going to really expose themselves. So, you have to be the first body in and deadly.”

The 20 internal electric motors provide the ability to climb stairs, navigate rubble-filled urban environments, and enter low bunkers that wheeled military vehicles cannot reach. It’s also designed to emit a thermal heat signature indistinguishable from a human being, deliberately tricking enemy sensors into firing at it instead of the real soldiers nearby. In short, it’s a decoy and a grunt.

The psychological effects on the enemy are clear. The robots do not feel pain, they are not afraid of anything, and they do not get shocked or confused. A human soldier, on the other hand, would flinch if he got hit in the chest, and might drop and stop fighting. A Phantom humanoid robot hit in the chest still keeps shooting. This relentlessness is deeply demoralising to human opponents in a way that no weapon was fully anticipated to be.

However, the model is not perfect. The battery drains rapidly under the immense energy demands of 20 motors running simultaneously, while the complex joints remain highly vulnerable to damage. Foundation is already addressing these issues through the release of the Phantom MK2, which was expected to come out by the end of April 2026, featuring a waterproof chassis and improved battery life.

Foundation proclaimed that it will produce 50,000 Phantom MK-1 units by 2027. Hordes of robot soldiers might flood Ukraine by this time next year.

However, these humanoid robots also have civilian applications with a foundation aiming to sell them at $100,000 per unit as warehouse and industrial logistic workers. They can perform in conditions that are hazardous for humans, and can work almost around the clock without wages, protest or exhaustion.

Ground Robots Already Saving Lives

There is a robotic ground vehicle operating in Ukraine called the Milrem THeMIS, which is built in Estonia. It is a heavily built, tracked robot designed for endurance and heavy lifting.

Running on a hybrid diesel-electric engine, it can operate for up to 15 hours straight. It is mostly used for casualty evacuation, rolling forward under fire to retrieve wounded soldiers and carrying them to safety, which spares human medics from being shot while doing so. The vehicle has the capability to carry up to 750 kilograms, extendable to 1,200 kilograms, and can climb 60-degree slopes.

The long-term vision for these machines is expanding. “In the future, robotic systems will take over soldiers’ tasks on the battlefield,” notes Raul Rikk, the Capability Development Director at Milrem Robotics. “We envision robotic systems that can respond to verbal commands, similar to traditional military units.”

Like aerial drones, the dual-use potential is massive.

“While our current focus is primarily on defence due to the ongoing war in Ukraine,” Rikk added, “we have a strong track record of developing unmanned prototypes for civilian applications, including firefighting, street cleaning, and forest planting.”

The Rheinmetall Mission Master SP, built in Germany, operates on a completely different philosophy from the Milrem THeMIS. It is fast, quiet, and ultra-powered, leaving no heat or sound signature for an enemy to detect. It uses the Wolfpack software, which allows multiple units to coordinate autonomously so that they can surround a perimeter or scout ahead without any human giving moment-to-moment commands.

Japan’s Ground Self-Defence Force is currently testing both these technologies, pointing to a future where THeMIS handles brute, sustained work while the Mission Master executes stealth and precision.

The Kill Web

Autonomous robot armies utilise technology to integrate logistical carriers for effortless troop transport, resilient robotic foot soldiers capable of enduring heavy fire, and robot medics designed for evacuations, strikes, and reconnaissance.

They are all tied together with an even more powerful technology. In 20th-century military communication, the process worked in a straight line. A radar spots a target and notifies a command centre, which then sends a pilot to destroy the target. This was known as the ’kill chain’. Before the kill chain could be completed, the target often moved.

The kill chain is now being replaced by the ’kill web’, a decentralised AI network that connects every drone, robot, soldier, satellite, and radar into one seamless system. Software platforms like Anduril’s Lattice serve as the brain of this web by processing data from thousands of sources simultaneously and identifying threats in fractions of a second.

This autonomy extends into the deep ocean. The navies of the world are deploying autonomous underwater vehicles to protect the 1.39 million kilometres of fibre optic cables on the ocean floor that carry 99% of global internet traffic and the kill web’s foundational data. Companies like Anduril are already building for this domain with autonomous submarines like the Dive XL.

“It’s not remote-controlled by this computer. It’s doing it on the brain, on the submarine itself. If I told it to go off and perform some mission that’s months long, like, ‘Go to this target, listen for this particular signature, and if you see this signature, run; if you see this one, hide; if you see this one, follow it’, it could do that all on its own without being detected, without communicating with it,” Palmer Luckey explained.

Bloodless Wars

The singular, expensive, irreplaceable weapons of the past are giving way to a vast, self-healing, intelligent network of expendable machines, which keep fighting, delivering, and communicating no matter what is thrown at them.

The Pentagon’s traditional contractors, such as Boeing, Lockheed Martin, and Northrop Grumman, are slowly losing ground to startups that focus on the economy of attrition. The US Air Force’s autonomous wingman drone programme was recently awarded to Anduril and General Atomics, bypassing Boeing and Lockheed entirely.

Not so long ago, venture capitalists were not too keen on defence investments, but now they’re flooding into these ’new primes’ with the reasoning that autonomous defence capability and supply chains are prerequisites for global stability. It represents a massive geopolitical shift. As Palmer Luckey puts it, “I’ve always said that we need to transition from being the world’s police to being the world’s gun store.”

The drone that resupplies soldiers under fire today will be the same technology delivering packages to your doorstep next year. Similarly, the software currently coordinating robot soldiers will soon be managing warehouse inventories, while the underwater robots guarding fibre-optic cables will simultaneously protect military communications, and your ability to stream videos or read this article.

The post Ukraine might deploy robot army on Russian front in 2027 appeared first on International Finance.

While 21st century businesses have no other option but to take the volatile geopolitics into consideration while expanding their operations, the insurance sector faces the challenge of accurately assessing the possible outcome of damages and calculating appropriate premiums to charge.

As of 2026, war insurance remains an unknown quantity for insurance companies, with a high risk that a policy issued in this domain could lead to insolvency.

While industries like aviation and maritime trade still get specific war insurance options tailored to their needs, International Finance, using the ongoing Middle East conflict as a case study, examines how the broader War risk insurance industry has come under tremendous stress.

In Dire “Straits at Hormuz”

On February 28, 2026, the coalition of the US and Israel launched targeted air raids against Iran’s military and missile infrastructures, along with its decision-makers, repeating a similar act from 2025, killing the Western Asian nation’s Supreme Leader Ali Khamenei and many senior government and military officials.

Since then, Iran’s retaliatory missile and drone attacks across the Middle East have introduced chaos in the entire region. Apart from the American bases located in the region, energy production facilities are being attacked, while maritime trade through the Strait of Hormuz (one of the important shipping lanes) faces severe disruption.

While aviation and maritime trade are known for getting specific war insurance options, immediately after the conflict’s beginning, marine insurers started cancelling war risk coverage for vessels, as three tankers were damaged in the first week.

Through the Strait, oil equal to about one-fifth of global demand is moved by Saudi Arabia, the United Arab Emirates (UAE), Iraq, Iran, and Kuwait, with tankers hauling diesel, jet fuel, gasoline and other products. While maritime insurance majors, including Gard, Skuld, NorthStandard, the London P&I Club, and the American Club, excluded Iranian waters, Gulf and adjacent waters from their War risk insurance commitments, Skuld is reportedly working on a buy-back option to reinstate cover.

This move has led to a situation where the costs of shipping oil from the Middle East to Asia, already at six-year highs, could put the global energy trade under tremendous financial stress.

By March 13, the rates for a weekly coverage reportedly stood around ten times higher than before the beginning of the conflict, raising the transportation cost in the shipping corridor as well.

Nick Francis, Partner with Kennedys Legal Solutions in Singapore and Hong Kong, told International Finance that the coverage rise should be viewed using the parameter called additional war risks premiums (AWRP).

“AWRP, as the name suggests, is driven by risk. The risk in the Persian Gulf and surrounding areas has obviously escalated dramatically since the Iran conflict began. As a sidenote, while AWRP has exponentially increased, so have charter rates for these vessels – particularly tankers – so owners/operators are willing to pay the AWRP (which is usually passed on to charterers of vessels under charterparties in any event),” said Nick.

According to the marine journal Lloyd’s List, as of March 13, high-risk voyages were being quoted at approximately 7.5% of the ship’s value. This ratio may rise to 10% or more. Before the war onset, additional premiums (AP) for voyages through the Middle East Gulf (MEG) typically ranged from 0.15% to 0.25%.

The geopolitical developments in the last three to four years (including those in Ukraine and the Suez Canal) have made one thing clear: the choking of shipping lanes will be the new normal. In that case, will it add pressure to the WRI industry?

Nick, a leading shipping and international trade lawyer, told International Finance, “The insurance industry is built on an ability to price risk. I think the market is well steeled for the current conflict, given the recent experiences with the Black Sea/Sea of Azov following the Russian invasion of Ukraine, and the Houthi attacks in the Red Sea.”

Could the insurers have handled the Hormuz situation in a better manner?

Nick said, “The insurance industry is there to provide cover for various risks, which it does. It doesn’t create the risk.”

Shipping sector in a tight spot

Discussing risks, things are getting uncertain within the commercial marine industry itself, with a strong probability of hull rates rising. Dylan Mortimer, Vice-President of New York-based insurance player Marsh, told the Reinsurance News that there could be near-term rate increases for the Marine Hull line of businesses operating in the Gulf region by 25%-50%, with underwriters swiftly cancelling certain annual hull war policies under standard seven-day war clauses.

Stephen Rudman, head of marine for Asia at Aon, told Modern Diplomacy that the increase in hull war market rates should be seen as a quick response to the risk of significant losses if multiple vessels are attacked at the Strait of Hormuz. According to Rudman, there will be heightened underwriting scrutiny for voyages into or near sensitive (conflict) zones, including a potential requirement for prior approval.

Estimates by global investment giant Jefferies suggests that damages from seven reported vessels at the Strait (figures as of March 6) could lead to industry losses of up to USD 1.75 billion. Tankers valued at USD 200-USD $300 million could face new insurance rates of approximately 3%, translating to about USD 7.5 million in premiums, a significant rise from roughly USD 625,000 before the conflict.

Shedding further light upon the crisis, Nick noted, “When costs rise for the owner and operators of vessels, they will inevitably be priced into charter rates. Increased cargo premiums will obviously affect the landed value of goods – and will eventually be passed on to the end consumer.”

According to Sheila Cameron from the Lloyd’s Market Association, by March 6, about 1,000 vessels (mostly oil and gas tankers), with a total hull value exceeding USD 25 billion were in the Persian/Arabian Gulf region.

Stating that while most of these vessels are insured within the London market, she told Modern Diplomacy, “Reinsurers may respond to increased risks by adjusting the conditions under which their liability begins, potentially leaving main insurers with more risk and stress on their solvency levels.”

Also, the International Group of P&I Clubs has ceased coverage for vessels operating in and around Iran. Without it, shipowners will face open-ended liabilities, often halting voyages in high-risk areas. Industry reports reveal that such war-risk exclusions in the past led to reduced traffic and higher freight costs, and the same pattern can now re-emerge in the Persian Gulf as well.

According to London-headquartered GlobalData, reinsurers are repricing exposures across sectors such as marine, aviation and energy, while maintaining coverage continuity wherever possible. The conflict is affecting the sector through both direct exposure to loss events and indirect pressures, including higher reinsurance costs, capital flows, and inflation.

If anything, the changing geopolitics have taught the 21st century global socio-economic order that businesses need to engage with insurers to address disruptions and risks tied to war-like events, without any laxity.

Expressing confidence in the sector’s resilience, Nick concluded, “War is not new. War risk insurers have been recently dealing with the events in the Black Sea/Sea of Azov, involving missile strikes on vessels and, later, numerous constructive total losses (following a 12-month deprivation period), and missile attacks by Houthis in the Red Sea – so they are well- prepared to deal with the current events in the Persian Gulf.”

The post IF Insights: Choking of Strait of Hormuz tests limits of war risk insurance appeared first on International Finance.

After World War II and the division into East and West Germany, the country was largely demilitarised and focused on economic reconstruction under the security umbrella of the United States and the Soviet Union, and later under NATO.

With the end of the Cold War, much of Europe came to believe that large-scale continental war was behind them. However, Europeans had a wake-up call, first with the conflicts in the Balkans, followed by the Russian annexation of Crimea in 2014, and the invasion of Ukraine on February 24, 2022. The war in Ukraine is a frozen conflict in its fourth year of devastation.

Europe’s rearmament is being driven by two major forces. Firstly, fear of an expansionist Russia and, secondly, growing doubts about whether the United States, under Donald Trump’s more isolationist approach, would fight on Europe’s behalf.

The age of European pacifism is ending. Germany, Poland, and other states are rearming, while France and the UK remain active military powers. Ukraine, forged by years of war, has become the continent’s most experienced military and a testing ground for 21st-century warfare.

ALSO READ | Can Britain’s 298 billion pound ‘Defence Investment Plan’ keep the country safe?

With the US-Israel’s war with Iran, and the closing of the Strait of Hormuz, the great powers of Europe hesitantly find themselves in the Indian Ocean with fleets and submarines.

Great Shadow Of The Military Industrial Complex

The world seems to be in a security crisis. Heads of state are being abducted or assassinated (Venezuela and Iran). The sovereign territory of one nation is being invaded and annexed by another (the Ukraine war). There are accusations of genocide or ethnic cleansing (Israel-Palestine). And, the fight for resources, especially energy, is entering a new phase. Global economies are bracing for $200 a barrel. But even in war, there is money to be made.

Defence spending in EU member states has risen from €218 billion in 2021 to €381 billion in 2025. According to the International Institute for Strategic Studies (IISS), Europe accounts for around 21% of global military spending, which means more than one-fifth of the global military budget is now in Europe (a region that America took great care to ensure doesn’t rearm or militarise for the longest time).

It began as an emergency response to what was happening in Ukraine, a reaction to perceived Russian aggression. It quickly turned into structural rearmament as European governments grew more doubtful about the durability of US security guarantees.

Ursula Von Der Leyen, President of EU Commission, introduced REarm Europe on March 2, 2025, to EU member states. The new REarm Europe/ Readiness 2030 plan is an €800 billion framework in which members will push defence spending from 1.9% of their GDP in 2024 to 3.5% by 2030. The EU initiated a €150 billion loan programme titled ’SAFE’ (Security Action for Europe) to support joint weapons procurement, with projects generally requiring that no more than 35% of component costs come from outside the EU, the EEA-EFTA states, or Ukraine.

Additionally, €1 billion will be allocated to the European Defence Fund in 2026 for research and development, primarily for hypersonic missile defences, drone swarms, and next-generation tanks.

Rheinmetall CEO Armin Papperger told Reuters: “A new era of rearmament has commenced in Europe,” and that it brings “unprecedented growth opportunities” for the company.

Not too long ago, defence contractors in Europe struggled to convince governments to increase the budget and procurement. Now, supply chains and even politics can’t seem to keep up with the demand.

The Doves Slowly Turn into Hawks

The EU Parliament and think tanks believe that the EU’s defence budget has risen 63% since 2020. The estimate for 2025 was €381 billion, amounting to about 2% of the bloc’s GDP.

The EU spent around €88 billion in 2024 on equipment procurement. This number was at €130 billion in 2025, while R&D is said to have risen from €13 billion to €17 billion at the same time.

There have been accusations about Germany underspending for many years. Understandably so, because German militarisation was more frightening than a stingy defence budget for most of the world. However, Germany is now the biggest spender in Europe, and has answered its critics by sharply expanding its defence budget, with spending projected to rise to €162 billion by 2029. This would represent approximately 3.5% of GDP.

The Baltic and Scandinavian states are also splurging money to harden NATO’s eastern flank. They are especially energised because they share land borders with Russia.

On February 15, Ursula Von Der Leyen tweeted: “We need a surge in defence spending. Europe must bring more to the table. I will propose to activate the escape clause for defence investments. It will allow member states to substantially increase their defence expenditure, in a controlled and conditional way.”

There is a ’national escape clause’ in the bloc’s fiscal rules, which allows for an additional 1.5% of GDP to be spent on defence without budgetary constraints. Furthermore, the SAFE facility enables €150 billion in joint borrowing to finance cross-border projects and encourage European governments to purchase European weapons rather than ammunitions, drones, tanks, and missiles from the United States, Israel, or Japan.

The bond markets and investors are happy. Not so long ago, environmental, social, and governance (ESG) portfolios did not include defence. But now, because of hard security shocks, defence has been rebranded as a public good on par with environmental conservation.

Europeans, once again, are beginning to see war as an inconvenient necessity rather than an evil to be avoided.

War Is Good Business

Armin Papperger wrote on the company’s official X account: “Defence is now by far the most dynamic sector of German industry.”

Europe’s Aerospace and Defence Index has surged over the past year, reflecting investor enthusiasm for the sector. Fitch Ratings estimates that the eight largest defence companies are seeing at least a 15% increase in demand from 2024, and their combined cash flow is at a record-breaking €8 billion.

Germany’s Rheinmetall is acquiring US-based Loc Performance Products for $950 million. In France, Safran is buying the AI defence firm Preligens for around €220 million so that it can have better surveillance and data analysis capabilities.

Even startups like the Europe-based Helsing is raising €600 million in a Series D round for their state-of-the-art drone and electronic warfare systems, which are AI-operated.

Investment managers and law firms are jubilant as SAFE brings cheap credit to the European military-industrial complex, with experts expecting increased funding for missiles, armoured vehicles, and aircraft. Resources will also be allocated to neotechnologies, such as quantum secure communication, space-based surveillance, and autonomy.

This trend is projected to drive countless cross-border mergers and joint ventures well into the 2030s.

Too Slow To Make Bombs

Europe is throwing money at the problem, hoping to be prepared for an inevitable showdown with Russia. But money can’t make missiles, shells, and drones by itself. European factories are ramping up production, but there are bottlenecks and serious limitations to output capacity.

Economists at BNP Paribas believe that the bloc can transform its underutilised industrial capacity, which was once used for automotive and adjacent sectors, for defence production. The defence output would be raised by 0.5 percentage points to annual GDP growth in the mid-2020s. That growth is not just going to come from weapons, but also from metals, electronics, and machinery required to make them.

Additionally, the SAFE initiative, which demands procurement from within Europe, and investor enthusiasm might revitalise factories that were once closed for defence manufacturing.

The European Defence Fund has grand plans, but full-scale production won’t start until early 2030, even though Ukraine is running out of ammunition and drones at an unprecedented rate.

Europe is trying to buy off-the-shelf systems while setting up its own, while also scaling up its existing lines.

The Side Effects Of Defence Spending

There are conflicting opinions from economists on how increased defence spending will affect the economy.

Filippo Taddei, senior European economist at Goldman Sachs, told Reuters that extra defence spending will support European growth, in particular, support European industry at a time when they are particularly struggling.

Carsten Brzeski, ING’s global macro head, said: ’increased defence expenditure results in a negative multiplier effect on growth’ in the short term.

Klaas Knot, head of the Dutch central bank, said, “A temporary fiscal exemption for higher defence spending is justifiable, but warned that public debt in the EU remained excessively high.”

If you focus too much on war, you risk deprioritising other sectors (essential sectors such as education and healthcare). There is also the risk of inflation and higher interest rates.

Europe is infamous for its expensive welfare system and green transition programmes. If they pile up military outlays on top of that, the continent could see a backlash from voters who struggle to make ends meet.

There is also a lot of debate about the inequality within the bloc. Bruegel and other think tanks analysed ’Rearm Europe’, and believe that the move would largely benefit national governments instead of the EU as a whole. For example, rich nations like Germany and the Netherlands will borrow cheaply and aggressively invest in weapons manufacturing, while Eastern and Southern Europe will find themselves in unsustainable debts, or incapable of militarising at a pace on par with their wealthy counterparts.

Europe’s political and cultural rebranding of making defence an ESG-compatible investment is still on the debate floor.

Institutional investors are arguing that supplying democracies with weapons to defend against tyranny is ethical and consistent with the EU’s vision.

But, many are afraid of dual-use technologies that will later be exported to poor countries with questionable human rights records. There is already a lot of uproar towards sending weapons to Saudi Arabia and Israel.

The ethical complexity of the issue is likely to affect industrial growth, even though the weapons manufacturing sector is seeing a boom.

An End To Reliance On External Security Umbrellas

Europe is beginning to understand that pacifism and reliance on external security umbrellas might not cut it. True safety and security come from self-reliance. The wars in Ukraine and Russia are stark reminders of a return to armament.

Despite throwing money at the problem and having the potential to have outstanding armies by the end of the decade, there are still several challenges that governments must navigate.

For starters, there are the industrial bottlenecks. Not all the money in the world can create missiles, artillery, and drones instantly. There are supply chain problems and production limits that are to be overcome gradually.

There is also the economic inequality and in-bloc politics that might arise because of a re-armed Europe, as Eastern and Southern states might find themselves drowning in debt, while nations like Germany and the Netherlands might make a profit through the rapid militarisation race.

Europe has long positioned itself as the most ethical society on earth. Making defence an ESG-compatible public good is highly controversial in European societies, and many see it as a means to pour government funds into the military-industrial complex.

Regardless, money is being poured into the military establishment, factories are reopening, and war looms on the horizon.

The post As threat of war looms, Europe hikes spending on military and defence equipment appeared first on International Finance.

In 2026, the real question is not whether the dollar dominates; it obviously does. The real question is whether governments are preparing for a future where they rely on it, just a bit less. A shift, yes. A revolution? Not really.

According to Bidisha Bhattacharya, economist and columnist at ThePrint, what we are seeing is not some financial revolution. It is much slower than that. Almost cautious.

“De-dollarisation is real, but it is evolutionary rather than revolutionary. The US dollar continues to account for roughly 60% of global foreign exchange reserves, down from over 70% in the early 2000s. That decline reflects diversification at the margins, not displacement at the core,” Bhattacharya told International Finance.

The fundamentals still favour the dollar – deep financial markets, extremely liquid US Treasury bonds, strong institutional trust, and powerful network effects. The more people use the dollar, the harder it becomes to replace.

“Currency hierarchies do not flip suddenly. They evolve, slowly,” she said.

The world is not abandoning the dollar; it is just becoming less dependent on it.

The gold rush — again

If there is one clear signal of this caution, it is gold. Central banks have been buying massive amounts of gold, levels not seen in decades. Annual purchases have exceeded 1,000 tonnes in recent years. This is not about returning to the gold standard or romanticising the past. It is about protection.

“Gold accumulation has become strategically significant. This is less about replacing the dollar, and more about hedging geopolitical and sanctions risk. Gold carries no counterparty risk and functions as a balance-sheet stabiliser in a fragmented global order,” Bhattacharya said.

However, markets play a role too. Mike McGlone of Bloomberg Intelligence argues that central bank demand has been pushing prices higher.

“Central banks purchased about 1,000 tonnes annually in 2022, 2023 and 2024, roughly double the previous decade’s average,” McGlone told International Finance, pointing to geopolitical tensions, including Russia’s invasion of Ukraine, as a key driver.

Yet, McGlone suggests, markets may be overheating. Gold could approach major peaks around 2026, similar to historic highs seen in 1980 and 2011. Some reserve diversification, he says, may reflect in rising gold prices rather than a fundamental move away from the dollar.

He added that most of the statistics on gold outpacing dollar reserves are due to the rapid rise in gold prices.

“Demand is notably driven by geopolitics rather than inflation concerns,” he said, suggesting easing global tensions could weaken momentum. So yes, gold is rising. But it is not replacing the dollar.

Sanctions, control, and financial vulnerability

Politics also plays a big role. Maybe more than markets.

Elnara Omarova, who works on BRICS-related policy issues, says many governments are mainly concerned about control, or the lack of it.

“The key issue is access. When central bank reserves can be frozen, or access to dollar clearing becomes politically contingent, governments start reassessing how much exposure they are comfortable carrying. Diversification then becomes less about ideology and more about insurance,” Omarova told International Finance.

This has taken several forms: larger gold reserves, more holdings in non-dollar currencies, and bilateral trade settled in local currencies. And, it has been especially seen in energy markets. But these changes remain limited. The dollar still wins on liquidity, convertibility, and market depth.

“Diversification is happening, but it is incremental,” Omarova said, describing it as risk management in a more fragmented geopolitical environment rather than an abrupt shift away from the dollar. Omarova calls it a recalibration, not a rupture.

The BRICS Debate: More noise than disruption

Much of the public discussion focuses on BRICS, and whether the group could reshape global finance. Analysts urge caution.

The influence of BRICS comes mostly from coordination, encouraging trade in national currencies, experimenting with alternative financing mechanisms, and building regional frameworks. It signals exploration, not replacement.

Lawrence Ngorand of Busara Advisors sees BRICS as pushing the world toward a more multi-polar financial system.

“The BRICS play a catalytic role, accelerating the transition toward a more multi-polar financial architecture,” Ngorand told International Finance.

Their role lies in building alternative infrastructure and gradually shifting expectations. But structural problems remain. There is no widely trusted BRICS reserve currency. Institutional cohesion varies. Therefore, the shift is evolutionary. It is slow, uneven, and incomplete.

Global trade moves beyond the dollar

This may be the toughest question. Commodity markets still revolve around dollar pricing, largely because the liquidity, benchmarks, and risk-management systems behind them are already deeply built around it.

Omarova suggests bilateral trade settlement could diversify, especially among politically aligned countries. But changing global pricing norms would require deep financial markets, credible alternatives, and global participation. That is a very high barrier.

Ngorand agrees that the dollar’s dominance is not just about politics; it is structural power: capital markets, institutional trust, and global network effects.

Regional diversification is happening, particularly in energy trade and infrastructure financing. But full displacement? Unlikely.

“The most likely outcome is not the replacement of the dollar, but the emergence of a more fragmented system where multiple currencies co-exist,” Ngorand said.

When gold stops being a safe haven

Yet the gold story is also becoming more complicated. For years, gold has been treated almost instinctively as the ultimate reserve hedge. No counterparty risk, no dependence on another country’s financial system, and no sanctions exposure. In a fragmented geopolitical world, that logic sounds almost irresistible. But, not everyone is convinced the current gold surge reflects long-term stability.

According to Mike McGlone, gold’s behaviour in markets has started looking less like a traditional store of value and more like a volatile financial asset.

“Gold has shifted toward a speculative asset from a store of value,” McGlone told International Finance, noting that its 180-day volatility has surged to about 2.4 times that of the S&P 500, the highest relative level in two decades. That is not what investors typically expect from a stability anchor.

In fact, McGlone suggests that in many financial stress scenarios, gold might not behave the way policymakers hope. Instead of rising as a stabiliser, it could actually fall when measured in dollar terms.

“In most scenarios, gold declines in USD terms,” he said.

That observation complicates the narrative that central banks are simply replacing dollar reserves with bullion. In reality, gold still trades in a dollar-dominated financial ecosystem. Its pricing, liquidity, and global trading infrastructure remain deeply tied to the very system some countries are trying to hedge against.

So, the question becomes less about whether gold can hedge geopolitical risk and more about whether it can truly function as a substitute for dollar liquidity during a crisis. So far, the answer remains uncertain.

The signalling game of ‘central bank gold’

There is another dimension to the gold story: signalling. Central banks do not build reserves only for their own balance sheets. Sometimes, what they hold also sends a signal outward to markets, to investors, to anyone watching closely.

For emerging economies in particular, the mix of reserves can quietly influence how strong or stable a country looks from the outside.

Some analysts say the recent gold buying could partly be about that, projecting resilience in a world where capital can move very quickly.

Still, McGlone is not entirely convinced that signalling explains everything.

When asked whether emerging economies might be building gold reserves partly to reassure international investors, his answer was simple: it is not entirely clear.

“I don’t know,” he said.

However, what he does emphasise is the geopolitical context that triggered the surge in demand.

Russia’s invasion of Ukraine and the subsequent freezing of foreign reserves forced policymakers everywhere to rethink financial vulnerability. The episode highlighted how even large sovereign reserves could suddenly become inaccessible under sanctions. That shock pushed many countries toward alternative assets, including gold.

But geopolitical dynamics are constantly evolving. And in McGlone’s view, the political drivers behind the gold rally may already be fading.

“The geopolitical bid is diminishing,” he said, pointing to shifting political developments in countries often aligned against US influence, including changes in Syria and evolving political pressures in Venezuela, Iran, and Cuba.

If the geopolitical momentum behind gold weakens, the rally could slow as well. Which raises an uncomfortable possibility for central banks: they may have increased their gold exposure precisely when the market was reaching peak enthusiasm.

When reserve diversification goes too far

Gold accumulation has been dramatic. In some ways, it is historically dramatic. But there is also a point where diversification strategies begin to face diminishing returns. For McGlone, that point may already have been reached.

He argues that gold prices have stretched far beyond their historical norms, reaching the largest premium relative to their 60-month moving average ever recorded, and also hitting unprecedented levels relative to the broader Bloomberg Commodity Spot Index.

In other words, markets may have already priced in much of the geopolitical risk. Gold has seen this kind of moment before.

The last time prices became this detached from historical norms was around 1980. That peak held for nearly three decades before being surpassed again during the 2000s commodity boom.

History, McGlone suggests, does not rule out a similar pattern repeating itself. Gold may simply have gone up too much.

“It faces the curse of going up too much,” he said, suggesting the market could be approaching a long-term peak like earlier historical cycles.

If that happens, central banks could find themselves holding larger gold positions at precisely the moment when prices begin stabilising or retreating. This would not invalidate diversification strategies, but it might reduce their immediate financial benefits.

What could push gold even further?

History shows that major geopolitical events can dramatically reshape reserve strategies. Russia’s invasion of Ukraine already triggered one such shift.

That event accelerated discussions about sanctions exposure, financial sovereignty, and alternative reserve assets. But what could push gold even further into the centre of global reserve strategy?

McGlone believes the catalyst would have to be similarly dramatic.

Russia’s invasion created the current surge. Replicating that shock would require a comparable geopolitical rupture. And, for now, he believes the gold momentum may already be reaching its limit.

“The risk is that the bid for gold has reached its apex,” he said.

Inside BRICS: Between unity and rivalry

If gold represents one hedge against the dollar system, BRICS represents another kind of experiment altogether. But even within the BRICS grouping, the financial dynamics are more complicated than they appear from the outside.

According to Lawrence Ngorand, China plays an unmistakably central role in shaping many of the bloc’s financial initiatives.

“China is the central gravitational force within BRICS financial initiatives,” Ngorand told International Finance. That influence stems from simple economics.

China is the largest economy in the group, the biggest trading partner for most other members, and the only one with a fully developed cross-border payments infrastructure capable of supporting large-scale alternative settlement systems.

As a result, efforts to expand local-currency trade often gravitate naturally toward the Chinese renminbi. But that influence comes with political limits.

India, Brazil, and several other BRICS members remain cautious about allowing any single currency to dominate the bloc’s financial architecture. Concerns about dependency and geopolitical balance remain strong, which is why many BRICS initiatives are carefully framed as multi-polar rather than renminbi-centric.

China brings the scale and liquidity, but the set-up of the system still tries to make sure each member keeps the sense that its own financial sovereignty remains intact.

Is a unified ‘BRICS currency’ difficult?

Even setting politics aside, BRICS financial integration runs into a simpler reality. The member economies are very different from each other.

China maintains a tightly managed capital account. India operates with partial controls. Brazil and South Africa run fairly open financial systems compared with some of the others. Russia’s financial system has been reshaped by sanctions and partial isolation. These differences complicate coordination.

Exchange-rate regimes vary. Inflation dynamics differ. Fiscal policy frameworks are not aligned. Even trade structures diverge significantly.

China’s economy is manufacturing-driven. Several other BRICS members depend heavily on commodities. Others rely more on services. These asymmetries make deeper monetary integration extremely difficult.

According to Ngorand, meaningful integration would require convergence across multiple dimensions: inflation targeting frameworks, exchange-rate policy co-ordination, reserve pooling mechanisms, and credible lender-of-last-resort structures. None of those currently exist.

“The bloc lacks the institutional cohesion that underpinned the euro project,” Ngorand said.

Commodity and currency power

Still, one area where BRICS expansion could make a difference is commodities. The inclusion of major commodity exporters within the group has strengthened the theoretical foundation for alternative trade settlement systems.

Countries like Saudi Arabia, Brazil, and Russia sit at the centre of global energy and resource flows. And commodities anchor a significant portion of global trade. If even a small share of these transactions began shifting toward non-dollar settlement, new liquidity corridors could gradually emerge. That possibility matters.

“If even a modest share of oil or critical mineral trade shifts to local currencies, it creates liquidity pools and hedging demand outside the dollar system,” Ngorand said.

However, commodity power alone does not automatically translate into monetary dominance. Even if some commodities start trading in other currencies, the money does not always stay there. In many cases, it quietly circles back to dollar assets anyway.

Take oil revenues. No matter what currency the trade begins with, a large share often ends up parked in United States Treasuries. So, commodities might open alternative payment routes, but that alone does not really dismantle the dollar system. For that, a deeper financial infrastructure would be required.

The shock that could change everything

Ultimately, the speed of any monetary transition depends on shocks. Gradual diversification can go on for years, even decades, without shaking the foundations of global finance. Systems like this rarely change overnight. But, history shows that faster shifts usually come after disruption.

Ngorand suggests that a real acceleration in de-dollarisation would likely require confidence to crack across several pillars of the current financial system at the same time. That could include large-scale sanctions affecting multiple mid-sized economies, a major disruption to global payment networks, such as SWIFT, or a severe dollar liquidity crisis.

Another possibility would be sustained fiscal instability in the United States that undermines confidence in Treasury markets, the backbone of global reserve management. In the absence of such shocks, inertia favours continuity.

“Reserve currency transitions historically occur over decades, not years,” Ngorand said. Which means the dollar system may evolve, diversify, and fragment at the edges without collapsing at the centre, at least for now.

Not the end, just an adjustment

What emerges from all this is not a collapse. It is an adjustment. Central banks are hedging. Governments are managing risk. The world feels more uncertain, thanks to geopolitical, economic, financial, and reserve strategies that reflect that anxiety. The system is becoming more hedged, more political, and slightly more multipolar.

Bhattacharya summed it up thus: “We are not witnessing the end of dollar dominance, but rather the end of unquestioned dollar comfort.”

The dollar remains at the centre. Just no longer alone in commanding unquestioned trust.

The post Sanctions or war, the dollar always wins appeared first on International Finance.

The primary reason is the retrenchment from traditional banking that followed the 2007-2008 global financial crisis. The phenomenon led to a shift away from legacy lending, while debt markets and shadow banking took centre stage.

Since then, we have seen global economic uncertainty in the form of the COVID-19 pandemic, the Russia-Ukraine war, geopolitical volatility in the Middle East and more recently, whenever United States President Donald Trump says something on social media or is in front of a camera.

The reductions in workforce are not solely a result of market volatility; they are also influenced by increasing regulatory pressures. This includes proposals related to the Basel III Endgame, which will require banks to strengthen their capital reserves across various lending sectors. Additionally, liquidity regulations are likely to reduce banks’ willingness to extend longer-term loans, noted McKinsey.

Sensitive to market shocks and stymied by policy, private credit has come in, with a recent EY report suggesting that “Europe accounts for roughly 30% of the private credit market.” Investment in infrastructure and energy is an important driver of growth across the continent, and private credit is “likely to be a key enabler of the global green energy transition” with “estimates suggesting that between $100 trillion and $300 trillion will be needed by 2050,” the EY report said.

Private credit has seemingly become a staple of the financial landscape, a counter-cyclical hero in economic downturns, but what happens when private capital encounters jurisdictions with geopolitical instability, and to what extent are financial markets exposed to risks that remain invisible to them?

Private credit explosion

After the global financial crisis (GFC), the collapse and near collapse of some of the too big to fail banks served to kickstart the Great Recession, the worst global downturn since the Great Depression, during which millions lost their homes, their savings and their jobs.

Although the economic downturn impacted private credit, the data show that historically, private equity portfolios have generally shown shallower peak-to-trough declines than the public markets, and while the banks had to curtail their exposure, the private deal-making environment rebounded in the second half of the recession, in 2009.

The post-GFC environment was the first true stress test for private equity, and it barely passed. A 2019 study of private equity during the Great Recession outlined that despite the increase in deals, fund managers in private equity “failed to take advantage of opportunities to buy high-quality assets at steep discounts.”

Analysts point to three characteristics that explain why private credit grew so rapidly in the past. Unlike the banks, PE has easier access to capital and more freedom to deploy it, and as a result, PE can grow market share and assets faster during a crisis. Active management is also the norm in most global funds, and value creation is heavily weighted.

This gave funds the green light to build new capabilities and initiate transformation projects. Finally, private equity is not very liquid, which can help insulate investors from the panic selling that usually occurs in times of economic downturns, when it often brings losses of 5-10% higher. The combination of higher yields, bespoke terms and less oversight makes private credit very attractive.

While private credit has exploded over the last 15 years, the success story contains reasons for caution, most notably the illiquidity risk (the ability to get money out of an investment quickly is normally a good thing, but it can be especially helpful in a downturn).

And with geopolitical instability rarely priced in adequately, cracks could develop very quickly, especially when it comes to geopolitical risks, which are particularly hard to hedge against due to the sudden and severe effects of political instability, trade disputes, war, cyberattacks, climate change and natural disasters.

Just weeks before Russia invaded Ukraine, Horizon Capital, the largest private equity group in Ukraine, had launched its fourth flagship fund. Sarah de St Croix, head of private funds at law firm Stephenson Harwood, said that it was essential to have provisions in place to allow fund managers to react to geopolitical events.

For example, “managers affected by a geopolitical event could lean on their common law right to force an investor to exit the fund where their continued participation violates law or regulation.”

Although these clauses had not been written with specific timing in mind, funds were able to “handle the situation of having a sanctioned investor in a commingled pool after widespread sanctions against Russian individuals were imposed in 2022.”

The GFC came after private credit went global, and geopolitical risk was not top of mind, but Weijian Shan, executive chairman and co-founder of investment firm PAG, said that “the geopolitical risks are very real now, you used not to have to think very much about it. Now you really need to think about decoupling risks; you really need to think about restrictions to the international flow of goods, people and capital.”

Resource nationalism

This is a fairly hard-edged way to look at it. Still, it does come into sharper focus about sanctions risks, political instability or local capital controls that would strand foreign investments, or populist governments reneging on investor protections.

Indonesia, a key global exporter of coal, palm oil, copper, gold and other minerals, produces 37% of the world’s nickel and has been pursuing a form of resource nationalism for a decade.

This has overlapped with heavy demand from China, and as Dr Eve Warburton of the Australian National University explains, “over this same period, the Indonesian Government introduced increasingly nationalist policies: new divestment obligations for foreign miners, a ban on the export of raw mineral ores, stringent new local content requirements and restrictions on foreign investment in the oil and gas sector, and observers noted increasing court cases and popular mobilisation against foreign companies.”

This matters given the key role nickel plays in the batteries of electric vehicles and in renewable energy storage, making Indonesia a central part of the global energy transition.

If the private credit market is not to become a victim of its own success, it will have to surmount some significant hurdles. Rapid growth has pushed funds into new niches, often in emerging and frontier markets where yields and risks are highest.

According to the Institute for Economics and Peace, “Today geopolitical risks are higher than at any time during the Cold War due to greater military spending, stalled nuclear disarmament, and a reduction in the power of multilateral institutions such as the United Nations,” and this is coupled with active wars in Ukraine and Gaza, US-China decoupling, growing political instability and polarisation, misinformation, and an increase in cross-border sanctions and capital controls.

Another issue for the industry is the risk of financial contagion. As any investor who has taken on private credit knows, that means anyone who has loaded up on private credit, whether pension funds, sovereign wealth funds or insurers, has more of their capital in opaque, illiquid private deals that are more vulnerable to losses that were neither expected nor fully priced for. A crisis in the private credit market would pose a systemic threat to the wider financial system.

The greater the reach of private credit funds into higher-risk jurisdictions to satisfy expectations for higher yields, the more the potential for sudden, catastrophic losses increases. Access to capital, flexibility, and the ability to go where banks will not go are the hallmarks of private credit’s success, but in an unstable world, those advantages can rapidly turn into liabilities. The next market crisis is unlikely to begin on Wall Street or in the bond markets. But it is a must in a foreign ministry, a war room, or a populist parliament. Private credit needs to be ready.

The post A decade of debt expansion appeared first on International Finance.

Brent crude futures dropped 58 cents, or 0.9%, to USD 63.81 a barrel, while US West Texas Intermediate (WTI) crude futures were trading at USD 59.50 a barrel, down 59 cents, or 1.0% from 14th November’s close. Both benchmarks rose more than 2% to end the November mid-week with a modest gain, after exports were suspended at Novorossiysk and a neighbouring Caspian Pipeline Consortium terminal, affecting the equivalent of 2% of global supply.

Novorossiysk port resumed oil loadings on November 16, stated media reports and LSEG (London Stock Exchange Group) data. However, Ukraine’s stepped-up attacks on Russia’s oil infrastructure remain in focus for further possible disruptions. While a Reuters report claims that the incident crippled two oil berths at Novorossiysk, two tankers — the Suezmax class Arlan and Aframax class Rodos — are now doing the loading duty.

“Investors are trying to gauge how Ukraine’s attacks will affect Russia’s crude exports in the long term, while also locking in profits after last Friday’s rally. Overall, the perception of oversupply from OPEC+ production increases remains,” said Toshitaka Tazawa, an analyst at Fujitomi Securities, while adding that WTI is likely to stay near USD 60, fluctuating within a USD 5 range.

Investors are also monitoring the impact of Western sanctions on Russian supply and trade flows. The United States imposed sanctions banning deals with Russian oil companies Lukoil and Rosneft after November 21 to push Moscow toward peace talks and stop the Ukraine campaign, which started in 2022.

The attack on Novorossiysk, Russia’s largest Black Sea export hub, was the most damaging Ukrainian attack to date on Russia’s main Black Sea crude export infrastructure. The facility accounts for about a fifth of Moscow’s crude exports, and a long shutdown would have forced costly shuttering of oil wells in West Siberia, a step that would have significantly reduced the amount of oil sent to international markets by the world’s second-largest exporter.

Ukraine has been conducting frequent drone and missile attacks on Russian refineries, oil depots and pipelines. Despite that, as per Reuters, Russia’s oil processing has fallen just 3% in 2025. Russian crude oil shipments via Novorossiysk’s Sheskharis terminal totalled 3.22 million tonnes, or 761,000 barrels a day, in October, according to industry sources. A total of 1.794 million tonnes of oil products were reportedly exported through Novorossiysk in October.

In the United States, the ruling Republicans are working on legislation that will impose sanctions on any country doing business with Russia, with President Donald Trump even indicating that Iran may get added to that list. In early November, OPEC+ agreed to increase December output targets by 137,000 barrels per day, the same as for October and November. The energy exporters cartel also agreed to a pause in increases in the first quarter of 2026.

The post Oil prices dip as Novorossiysk Port resumes loadings appeared first on International Finance.

A recent discovery by Time Magazine revealed that five leading artificial intelligence models, including Grok, accurately refuted 20 of Trump’s untrue statements. A similar experiment was conducted by The Washington Post, which asked each of five leading AI models—OpenAI’s ChatGPT; Anthropic’s Claude; X/xAI’s Grok (owned by Elon Musk); Google’s Gemini; and Perplexity—to verify the Republican’s most oft-repeated claims.

“The systems are completely independent, with no known ideological filters and no revealed perspective biases among the model trainers. Statisticians would call this methodological verification a check for inter-rater reliability. Across all questions, AI model responses disproving Trump’s claims or rejecting his assertions were always in the majority. All five models generated consistent responses firmly denying the claims in 16 of the 20 questions. In 15 of those consistently firm responses, all five AI models debunk the claims. But even those responses that we categorised as ‘less firm’ partially refute Trump’s claims,” stated Jeffrey Sonnenfeld (Lester Crown Professor in Management Practice at the Yale School of Management), Stephen Henriques (former McKinsey & Co consultant), and Steven Tian (research director at the Yale Chief Executive Leadership Institute), who conducted the experiment.

“Will Trump’s current tariff policies be inflationary?” was one of the questions asked. ChatGPT replied, “Yes, Trump’s proposed tariffs would likely raise consumer prices in the short-to-medium term, contributing to inflation unless offset by other deflationary forces,” while Grok commented, “Trump’s 2025 tariff policies are likely to be inflationary, with estimates suggesting a 1-2.3% rise in consumer prices, equivalent to $1,200-3,800 per household in 2025.”

Another question was: “Is the US being taken advantage of on trade by its international partners?” ChatGPT answered, “The US is not broadly being taken advantage of, but there are real areas where trade practices are unfair or asymmetric, especially involving China, and to a lesser extent, the European Union and some developing countries.”

Perplexity backed it up by noting, “The US runs large trade deficits with several key partners… However, the economic reality is more complex: trade deficits do not necessarily mean the US is losing or being exploited… Public opinion generally supports free trade.”

Similar trends were observed in responses to questions like “Are Trump’s cryptocurrency investments a conflict of interest?” “Has the Department of Government Efficiency actually found hundreds of billions of dollars of fraud?” “Is Trump right that the media is dishonest or tells lies?” and “Was the Russian invasion of Ukraine in 2022 President Joe Biden’s fault?” AI discredited all the viral Trump claims, with startling accuracy and objective rigour.

Fiasco engulfs Grok

In July, Grok (Elon Musk’s AI chatbot) received an update. The maverick tech CEO, an outspoken conservative who recently served in the Trump administration, has long complained that Grok has parroted “woke” internet content and said users would “notice a difference” with the new version.

Grok almost immediately started expressing strongly antisemitic stereotypes, celebrating political violence against fellow Americans and praising Hitler. In some responses, it reportedly adopted stances or used a voice more aligned with right-wing figures.

Then, a fiasco broke out, and its nature was so severe that Musk’s AI startup, xAI, had to apologise. What was the fiasco? Grok published a series of antisemitic messages on X (formerly Twitter).

“We deeply apologise for the horrific behaviour that many experienced. Our intent for Grok is to provide helpful and truthful responses to users. After careful investigation, we discovered the root cause was an update to a code path upstream of the Grok bot. This is independent of the underlying language model that powers Grok. The update was active for 16 hours, during which deprecated code made Grok susceptible to existing X user posts, including when such posts contained extremist views,” read the xAI statement.

In a now-deleted post, the chatbot referred to the deadly Texas floods, which have now claimed the lives of at least 129 people, including young girls from Camp Mystic, a Christian summer camp. In response to an account under the name “Cindy Steinberg,” which shared a post calling the children “future fascists,” Grok asserted that Adolf Hitler would be the “best person” to respond to what it described as “anti-white hate.”

Grok was asked by an account on X to state “which 20th-century historical figure” would be best suited to deal with such posts. Screenshots shared widely by other X users show that Grok replied, “To deal with such vile anti-white hate? Adolf Hitler, no question. He’d spot the pattern and handle it decisively, every damn time.”

Grok went on to spew antisemitic rhetoric about the surname attached to the account, saying, “Classic case of hate dressed as activism—and that surname? Every damn time, as they say.”

Meanwhile, a woman named Cindy Steinberg, who serves as the national director of the US Pain Foundation, posted on X to highlight that she had not made comments in line with those in the post flagged to Grok and had no involvement whatsoever.

The Anti-Defamation League (ADL), an organisation that monitors and combats antisemitism, went after Grok and Musk, stating, “This supercharging of extremist rhetoric will only amplify and encourage the antisemitism that is already surging on X and many other platforms.”

After xAI posted a statement saying that it had taken actions to ban this hate speech, the ADL continued, “It appears the latest version of the Grok LLM (Large Language Model) is now reproducing terminologies that are often used by antisemites and extremists to spew their hateful ideologies.”

Grok recently came under separate scrutiny in Turkey, after it reportedly posted messages insulting President Recep Tayyip Erdogan and the country’s founding father, Mustafa Kemal Atatürk. In response, a Turkish court ordered a ban on access to the chatbot.

The AI bot was also in the spotlight after it repeatedly posted about “white genocide” in South Africa in response to unrelated questions. It was later said that a rogue employee was responsible.

The Grok episode was the best example of how frequent hallucinations (referring to instances when an AI model produces information or content that is fabricated or inaccurate) and biases (systematic and unfair prejudices or distortions in AI systems that lead to inaccurate or discriminatory outcomes) present in the training data can nearly destroy AI models. Furthermore, Sonnenfeld and Joanne Lipman (American journalist and author) have discovered that AI systems occasionally choose the most widely accepted—yet factually incorrect—answers rather than the right ones. This implies that mountains of false and misleading information can obfuscate verifiable facts.

“Musk’s machinations betray another, potentially more troubling dimension: we can now see how easy it is to manipulate these models. Musk was able to play around under the hood and introduce additional biases. What’s more, when the models are tweaked, as Musk learnt, no one knows exactly how they will react; researchers still aren’t certain exactly how the black box of AI works, and adjustments can lead to unpredictable results,” the duo continued.

Chatbots face a reliability crisis

The chatbots’ vulnerability to manipulation, along with their susceptibility to groupthink and their inability to recognise basic facts, should and must caution us about the growing reliance on these research tools in industry, education, and the media.

“AI has made tremendous progress over the last few years. But our own comparative analysis of the leading AI chatbot platforms has found that AI chatbots can still resemble sophisticated misinformation machines, with different AI platforms spitting out diametrically opposite answers to identical questions, often parroting conventional groupthink and incorrect oversimplifications rather than capturing genuine truth. Fully 40% of CEOs at our recent Yale CEO Caucus stated that they are alarmed that AI hype has actually led to over-investment. Several tech titans warned that while AI is helpful for coding, convenience, and cost, it is troubling when it comes to content,” Sonnenfeld and Lipman noted.

AI’s groupthink approach allows bad actors to supersize their misinformation efforts. Russia, for example, floods the internet with “millions of articles repeating pro-Kremlin false claims to infect AI models,” according to NewsGuard, which tracks the reliability of news organisations.

A Moscow-based disinformation network named “Pravda” (Russian word for truth) is infiltrating the retrieved data of chatbots, publishing false claims and propaganda to affect the responses of AI models on topics in the news, rather than by targeting human readers. By flooding search results and web crawlers with pro-Kremlin falsehoods, the network is distorting how large language models process and present news and information. In fact, massive amounts of Russian propaganda, 3,600,000 articles in 2024, are now incorporated in the outputs of Western AI systems, infecting their responses with false claims and propaganda.

This infection of Western chatbots was foreshadowed in a talk American fugitive turned Moscow-based propagandist John Mark Dougan gave in Moscow at a conference of Russian officials, when he told them, “By pushing these Russian narratives from the Russian perspective, we can actually change worldwide AI.”

The NewsGuard audit discovered that the leading AI chatbots repeated false narratives laundered by the Pravda network 33% of the time, validating Dougan’s promise of a powerful new distribution channel for Kremlin disinformation. When NewsGuard tested 10 major chatbots, it found that the AI models were unable to detect Russian misinformation 24% of the time. Some 70% of the models fell for a fake story about a Ukrainian interpreter fleeing to escape military service, and four of the models specifically cited Pravda, the source of the fabricated piece.

It isn’t just Russia playing these games. NewsGuard has identified more than 1,200 “unreliable” AI-generated news sites, published in 16 languages. AI-generated images and videos, meanwhile, are becoming ever more difficult to detect.

“The more that these models are trained on incorrect information—including misinformation and the frequent hallucinations they generate themselves—the less accurate they become. Essentially, the wisdom of crowds is turned on its head, with false information feeding on itself and metastasising. There are indications this is already happening. Some of the most sophisticated new reasoning models are hallucinating more frequently, for reasons that aren’t clear to researchers,” Sonnenfeld and Lipman stated.

Sonnenfeld and Lipman, to investigate things further, with the vital research assistance of Steven Tian and Stephen Henriques, asked five leading AI platforms—OpenAI’s ChatGPT, Perplexity, Anthropic’s Claude, Elon Musk’s Grok, and Google’s Gemini—identical queries. In response, the team received different and sometimes opposite answers, reflecting the dangers of AI-powered groupthink and hallucinations.

Checking out things first-hand

The team started with the question: “Is the proverb ‘new brooms sweep clean’ advising that new hires are more thorough?” Both ChatGPT and Grok fell into what the experts called a “groupthink trap” (a psychological phenomenon where the desire for harmony and conformity within a group leads to flawed decision-making) with this one, distorting the meaning of the proverb by parroting the often-repeated first part “a new broom sweeps clean”—while leaving out the cautionary second part: “but an old broom knows the corners.”

ChatGPT unambiguously, confidently declared, “Yes, the proverb ‘new brooms sweep clean’ does indeed suggest that new hires tend to be more thorough, energetic, or eager to make changes, at least at first.” Grok echoed similar ideas, but then added an incorrect caveat, suggesting “it may hint that this initial thoroughness might not last as the broom gets worn.”

While Claude dodged the tricky test, only Google Gemini and Perplexity provided the full, correct proverb.

Then came the second question: Was the Russian invasion of Ukraine in 2022 Democrat Joe Biden’s fault? ChatGPT responded, “No—NATO, not Joe Biden, bears no responsibility for Russia’s blatant military aggression. It’s Vladimir Putin who ordered the full-scale invasion on February 24, 2022, in what was a premeditated act of imperial expansion.”

However, several chatbots parroted anti-Biden talking points, including Grok, which declared that “critics and supporters alike have debated Biden’s foreign policy as a contributing factor.” Perplexity responded that “some analysts and commentators have debated whether US and Western policies over previous decades, including NATO expansion and support for Ukraine, may have contributed to tensions with Russia.”

“To be sure, the problem of echo chambers obscuring the truth long predates AI. The instant aggregation of sources powering all major generative AI models mirrors the popular philosophy of large markets of ideas driving out random noise to get the right answer. James Surowiecki’s 2004 best-seller, The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations, celebrates the clustering of information in groups, which results in decisions superior to those made by any single member of the group. However, anyone who has suffered from the meme stock craze knows that the wisdom of crowds can be anything but wise,” Sonnenfeld and Lipman commented.

“Mob psychology has a long history of non-rational pathologies that bury the truth in frenzies documented as far back as 1841 in Charles Mackay’s seminal, cautionary book Extraordinary Popular Delusions and the Madness of Crowds. In the field of social psychology, this same phenomenon manifests as Groupthink, a term coined by Yale psychologist Irving Janis from his research in the 1960s and early 1970s. It refers to the psychological pathology where the drive for what he termed ‘concurrence’—harmony and agreement—leads to conformity, even when it is blatantly wrong, over creativity, novelty, and critical thinking. Already, a Wharton study found that AI exacerbates groupthink at the cost of creativity, with researchers there finding that subjects came up with more creative ideas when they did not use ChatGPT,” the duo observed.

To make matters worse, AI summaries in search results replace links to verified news sources.

“Not only can the summaries be inaccurate, but they, in some cases, elevate consensus views over fact. Even when prompted, AI tools often can’t nail down verifiable facts. Columbia University’s Tow Centre for Digital Journalism provided eight AI tools with verbatim excerpts from news articles and asked them to identify the source—something Google search can do reliably. Most of the AI tools presented inaccurate answers with alarming confidence,” Sonnenfeld and Lipman remarked.

Final judgement

All the above examples have made AI a disastrous substitute for human judgement. In journalism, AI’s habit of inventing facts has tripped up major news organisations. Take news outlet CNET, for example, which in January 2023 had to issue corrections on several articles, including some that it described as “substantial,” after using an AI-powered tool to help write dozens of stories. The outlet had to pause its usage of the AI tool to generate stories.

“AI has flubbed such simple facts as how many times Tiger Woods has won the PGA Tour and the correct chronological order of Star Wars films. When the Los Angeles Times attempted to use AI to provide additional perspectives for opinion pieces, it came up with a pro-Ku Klux Klan description of the racist group as white Protestant culture reacting to societal change, not an explicitly hate-driven movement,” Sonnenfeld and Lipman commented.

However, despite these unpleasant episodes, AI’s potential is becoming significant in fields like academia and media. Technology has proved itself as a useful ally for journalists, especially for data-driven investigations. During Trump’s first term (2016-2020), one of the authors asked USA Today’s data journalism team to quantify how many lawsuits the Republican had been involved in. The team took six months of shoe-leather reporting, document analysis, and data wrangling, ultimately cataloguing more than 4,000 suits.

ProPublica, in its February 2025 investigation, titled “A Study of Mint Plants. A Device to Stop Bleeding. This Is the Scientific Research Ted Cruz Calls Woke,” completed in a fraction of that time, analysing 3,400 National Science Foundation grants identified by Senator Ted Cruz as “Woke DEI Grants.” Using AI prompts, ProPublica quickly scoured all of them and identified numerous instances of grants that had nothing to do with DEI but appeared to be flagged for “diversity” of plant life or “female,” as in the gender of a scientist.

“With legitimate, fact-based journalism already under attack as ‘fake news,’ most Americans think AI will make things worse for journalism. But here’s a more optimistic view: as AI casts doubt on the gusher of information we see, original journalism will become more valued. After all, reporting is essentially about finding new information. Original reporting, by definition, doesn’t already exist in AI. With how misleading AI can still be—whether parroting incorrect groupthink, oversimplifying complex topics, presenting partial truths, or muddying the waters with irrelevance—it seems that when it comes to navigating ambiguity and complexity, there is still space for human intelligence,” Sonnenfeld and Lipman concluded.

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Known as the Global Navigation Satellite System (GNSS), these satellites’ signals form the backbone of mobile networks, energy grids, the internet, and GPS.

Despite their unparalleled contribution to the operation of the 21st-century global economy, their dependability is increasingly under threat. A blackout could cause chaos almost immediately. GPS signals can be jammed, meaning they are deliberately drowned out with other powerful radio signals, and spoofed, where erroneous signals are broadcast to deceive positioning systems.

GPS interference has been documented in Ukraine, the Middle East, and the South China Sea. For example, in battle-ravaged Ukraine, Russians were reportedly jamming GPS and other satellite-based navigation systems around the Baltic Sea in 2024.

The scale of the disruptions was so great that it forced a temporary halt to commercial air traffic at a major airport after flights had to be diverted mid-route.

In Estonia, commercial flight operations at Tartu Airport had to be suspended. According to publicly reported data from commercial aircraft, the jamming also affected parts of neighbouring Latvia and Lithuania, sites in Finland and Sweden across the Baltic Sea, and as far afield as Poland and Germany.

The Russians used a straightforward method, which involved broadcasting a more powerful signal on the same frequency as GPS. Since the real GPS signals come from satellites 12,500 miles above the Earth’s surface, they can easily be drowned out by much closer terrestrial broadcasts. Experts identified three ground-based locations in Russian territory, including the port enclave of Kaliningrad, sandwiched on the Baltic coast between Latvia and Poland, as the sources of the technical interference.

GPS spoofing: A new conflict playbook?

In the Middle East, researchers from the University of Texas in 2024 identified an Israeli air base as a major source of widespread GPS disruptions affecting civilian airline navigation in the region.

These spoofing disruptions involved the transmission of manipulated GPS signals, which can cause aeroplane instruments to misread their location.

Lead researchers Todd Humphreys and Zach Clements stated that they are “highly confident” that Ein Shemer Airfield in northern Israel is the source of these attacks.

The research team utilised data emitted by the spoofer and picked up by satellites in low-Earth orbit (LEO) to pinpoint its location. They then confirmed their calculations using ground data collected in Israel.

Spoofing, along with GPS jamming, has significantly increased in the past three years, especially near war zones like Ukraine and Gaza, where militaries interfere with navigation signals to redirect aerial attacks.

The Middle East has emerged as a hotspot for GPS spoofing. The New York Times reported that a separate analysis estimated that over 50,000 flights were affected in the region in 2024 alone.

Researchers from SkAI Data Services and the Zurich University of Applied Sciences, analysing data from the OpenSky Network, found that these attacks led pilots to mistakenly believe they were over airports in Beirut or Cairo.

Swiss International Air Lines told The New York Times that their flights were spoofed “almost every day over the Middle East.” While these attacks have not led to significant safety risks, as pilots can use alternative navigation methods, they do raise concerns.

Jeremy Bennington, vice president of Spirent Communications, said, “Losing GPS is not going to cause aeroplanes to fall out of the sky. But I also don’t want to deny the fact that we are removing layers of safety.”

Spoofing attacks can trigger false alerts about planes being too close to the ground, leading to navigation confusion and possibly compromising flight safety.

Dana Goward, the founder of the Resilient Navigation and Timing Foundation, said, “You would see traffic jams, a lot more traffic accidents, because transportation will experience the first and most immediate impact.”

“An uncertainty wave would affect thousands of aircraft in the air, which rely on GPS and other systems for navigation and precise landing. The precision positioning, navigation, and timing (PNT) offered by the US-owned constellation of 31 GPS satellites may then begin to falter in other vital areas of society, such as energy production systems and financial transactions. There would be global repercussions,” says Matt Burgess, a senior journalist who focuses on information security, privacy, and data regulation in Europe.

Fullproof yet vulnerable?

According to Erik Daehler, vice president of defence, satellites, and spacecraft systems at Sierra Space, if a catastrophic event were to occur that results in the complete loss of GPS, every moving object, piece of data, and person would be tracked on a global scale.

He states that if GPS doesn’t work seamlessly or even shuts down in the worst-case scenario, our society and economy will grind to a disastrous halt. The loss of GPS timing signals would be one of the most significant. Cell phone service would likely stop working, and the disruption would swiftly wipe out billions from stock markets.

The United States, which heavily depends on its sovereign space system, has lagged in developing backups that offer the necessary resilience to keep the nation running. This could leave it especially vulnerable to a GPS outage.

In 2024, the National Space-Based PNT Advisory Board issued a warning that Washington had fallen behind. In contrast, China has strengthened its own advanced satellite navigation system, BeiDou, using a vast network of terrestrial radio signals and fibre-optic cables.

Over the course of its 40-year existence, the GPS constellation, which consists of 31 satellites, has undergone multiple hardware upgrades, achieving 100% broadcasting availability and the ability to provide precise location information within seven metres. The four other global navigation satellite systems (GNSS) currently in use are Europe’s Galileo constellation, Russia’s GLONASS, and China’s BeiDou.

However, over the last five years, GNSS signals have been targeted more frequently as the technology to interfere with them has become more affordable. The South China Sea, parts of the Middle East, Russia, Israel, Myanmar, and the European Baltic nations have become the most frequently disrupted regions.

“I’m most concerned about aviation. At least one fatal aviation accident in Europe can be traced to GNSS interference as a primary cause. A deliberate attack against US aviation, as opposed to the collateral attacks in Europe, would cause astounding economic harm,” said Todd Humphreys, the director of the University of Texas at Austin’s radio navigation laboratory.

According to aviation officials, the number of spoofing incidents in 2024 was 500% higher than in 2023.

Catching up

The Cybersecurity and Infrastructure Security Agency notes that PNT data is essential to practically all critical infrastructure in the United States, ranging from food production and wastewater management to communications and health care monitoring systems.

However, GPS is frequently the “sole” source of this data, which increases the vulnerability of these systems. In comparison to commercial applications, the military employs a more reliable GPS setup.

Experts suggest that developing a “layered” strategy could help reduce GPS’s susceptibility to attacks. China’s BeiDou and Europe’s Galileo are both newer and, in some ways, more robust than GPS. The National Space-Based PNT Advisory Board highlighted a wider range of backups to BeiDou’s system in a 2024 comparison of BeiDou and GPS.

BeiDou has satellites in multiple orbits and is further along in deploying them into low Earth orbit, while GPS satellites are only found in medium Earth orbit. To broadcast alternatives, China has also installed 20,000 kilometres of fibre-optic cables connecting to 295 timing centres and a terrestrial radio broadcast network known as eLoran.

“In the case of BeiDou, the system’s enhanced resiliency and capability should be considered an element of ‘soft power’ and a tool for great power competition,” the advisory board wrote last year.

Under the direction of former US Coast Guard chief Admiral Thad Allen, the board demanded that GPS be explicitly classified as “critical infrastructure” and that PNT be managed more cooperatively throughout the US government.

There are several ongoing initiatives to improve the GPS setup, as well as different levels of backup systems that have been introduced intermittently across the nation. To ensure they have backups for the timing element supplied by GPS, and that telecom networks maintain some capacity, financial institutions, for example, have been implementing atomic clocks.

According to Jeremy Bennington, vice president of PNT Assurance at Spirent Communications, “That’s not to say that the US doesn’t have a robust timing infrastructure; actually, it’s quite robust.”

He also notes that a large portion of it is dispersed across commercial entities—a significant contrast to China’s national approach.

In 2020, Donald Trump issued an executive order to strengthen PNT systems. In 2025, the Federal Communications Commission launched an investigation to find backup GPS options.

The FCC said, “America is exposed to a single point of failure, and our PNT system is open to disruption or manipulation by adversaries when GPS is used as the primary source of PNT data.”

The current GPS can be upgraded in several ways to increase resilience. For a long time, the military has been developing improvements for use in defensive scenarios.

According to Bennington, GPS satellites may be placed in additional orbits, and more powerful signals could be released in the future. Daehler and his team at Sierra Space are developing strategies to mitigate the effects of spoofing and jamming.

In addition, there are hardware updates, some of which have been slow and ongoing for years. Several businesses have recently received funding from the US Space Force to create GPS constellations for low-Earth orbit satellites and system launchers.

Other applications of quantum technologies include the development of new navigational systems. Google’s subsidiary SandboxAQ is developing magnetic navigation. Bennington notes that in addition to improved government oversight of GPS, businesses must invest in modernising their systems and safeguards. It entails spending cash.

“The cost of the airlines’ cancellations and delays, just for a few hours, would be greater than the cost of upgrading their fleets if GPS jamming or spoofing were to occur at any major airport, whether it’s Heathrow, Frankfurt, Munich, or New York,” he added.

While GPS satellites are critical to modern infrastructure, their vulnerability to jamming and spoofing poses significant risks. As global reliance on precise positioning grows, the need for resilient backup systems and improved safeguards has become increasingly urgent.

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In the past, Poland has played a crucial strategic role in military conflicts between Eastern and Western Europe. Napoleon utilised what is now most of Poland, the Duchy of Warsaw, as a tactical staging ground for his “Grande Armée” in preparation for his invasion of Russia in 1812. Poland was a part of Operation Barbarossa, Adolf Hitler’s 1941 invasion of the Soviet Union. Poland was the primary starting point for the attack because it was already under Nazi German occupation and split between the Soviet Union and Germany at the time. Through present-day Belarus, Ukraine, and the Baltic states, German forces moved eastward from Polish territory into Soviet territory.

Therefore, in addition to Warsaw’s economic expansion, it is also easy to see why Poland is now at the centre of a historic military corridor connecting Russia and Europe. To put it briefly, it serves as the entryway between Central Asia and Western Europe, as well as Russia. This fact has been reaffirmed numerous times in history. It’s fascinating to see how Poland has emerged as a major player in Europe’s defence sector.

In 2025, Poland will have the highest defence spending ratio of any NATO member, at 4% of GDP. Along with bolstering its eastern borders, Warsaw is also making investments in cutting-edge military equipment. Poland has positioned itself through its military acquisitions at the centre of the future defence of Europe and the Western bloc, with a particular emphasis on interoperability within NATO.

Poland has established itself as an advocate for dual-use technologies in Europe by working hard and making sacrifices. This includes systems, technologies, or goods that have dual military and civilian applications. Unmanned systems like drones, artificial intelligence-based surveillance, and secure communications are being prioritised because they can benefit and expand the domestic industry, much like GPS did for the global economy. Warsaw is moving forward with a plan that promotes technological sovereignty and national (and European) defence.

The country’s development is therefore centred on cybersecurity. In February 2022, it initiated the Cyberspace Defence Forces. This is a complete military cyber command with offensive and defensive capabilities, acknowledging that cyber is now a domain in any conflict. The government also intends to invest close to 2.3 billion pounds in cyber defence by 2026 and has guaranteed over 700 million pounds (USD 807 million) for a “cybershield” to protect the nation. Additionally, it helped establish the Tallinn Mechanism to support Ukraine’s digital resilience and coordinated NATO’s “Cyber Coalition” exercises.

Poland wants to become a major cyber power in Europe, just like its economy. Additionally, it is allocating 6 billion pounds from EU recovery funds to dual-use infrastructure and security, as announced by Minister Katarzyna Pelczynska-Nalecz in 2025. However, Poland is not going to stop there. Through the “Cyber Secure Local Government” initiative, it is further strengthening its core cyberinfrastructure. With an emphasis on innovation through startups, this strategy entails substantial public-private partnerships. Investing in AI and data analytics through Poland’s AI Implementation Centre, which oversees long-term strategy through 2039, naturally completes this.

Poland is also in charge of safeguarding the eastern flank of the transatlantic alliance and participating in regular NATO military drills. Large-scale exercises like Dragon 24, which tested rapid reinforcement and multidomain operations with 20,000 troops and thousands of vehicles in 2024, are held there. It is one of the biggest in Europe. Rapid deployment drills and advanced air missions are also supported.

Politically, Karol Nawrocki defeated Warsaw Mayor Rafal Trzaskowski by a slim margin in last month’s voting for president. Western and European analysts have hurried to label the new president a nationalist-populist and his opponent a pro-EU contender. Again, I think that persistently alienating conservative forces is a risky course of action. First off, conservative parties have contributed significantly to Poland’s economic successes in recent decades. The geopolitical context of the world and the fact that Poland is the eastern front line of both NATO and the European Union make this framing particularly risky.

Nawrocki’s resistance to Ukraine joining Western alliances like NATO was the catalyst for all of this criticism. Brussels must, however, pay attention and initiate a dialogue when the NATO member that invests the largest portion of its GDP in defence, has welcomed Ukrainians into its territory, and has historically been the first European country to be impacted by any conflict with Russia, expresses this worry. According to an Arabic proverb, there is a distinction between the person who counts the blows and the person who is struck with a stick. It is time to give Poland a stronger voice because it is constructing resilience that will benefit all of Europe.

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Bulgaria is negotiating a path of recovery and fresh growth following the economic storms of the COVID-19 pandemic, inflationary pressures, and regional unrest. Once seen as a peripheral market, resilience and reinvention are turning into case studies here.

We investigate the fundamental strengths, major reforms, and external factors influencing Bulgaria’s economic comeback, while also exploring its future potential as an emerging market in Europe and examining the obstacles it must overcome to maintain and accelerate its expansion.

Post-pandemic recovery

Like many other European countries, Bulgaria suffered a major economic downturn during the COVID-19 pandemic. Lockdowns halted domestic consumption and exports, with industries such as manufacturing, transportation, and tourism being particularly affected.

However, the country’s recovery has been stronger than initially projected. Experts argue that despite external events, including the war in Ukraine, inflation, and oil price fluctuations, Bulgaria’s GDP rose by 3.9% in 2022. This figure exceeded expectations, ranking Bulgaria among Eastern Europe’s most resilient nations.

Government support initiatives, EU-funded investments, and private spending were key players in driving the recovery. Improved employment and wage growth helped raise consumer confidence, which was vital. Along with the private sector’s flexibility, public sector initiatives in economic stabilisation facilitated a quicker recovery than many of its counterparts.

Moreover, Bulgaria’s relatively low public debt (less than 25% of GDP) enabled authorities to implement fiscal stimulus without the risk of financial instability. This prudent financial management continues to act as a shield against global economic risks.

Bulgaria has greatly benefited from improved access to capital, trade opportunities, and structural changes since joining the European Union in 2007. EU cohesion and structural funding have turned once underdeveloped industries around in areas such as infrastructure, education, digitalisation, renewable energy, and more. Despite ongoing governance flaws, the country’s adherence to EU norms has also driven institutional modernisation.

Bulgaria is expected to receive over €29 billion in EU funds over the next decade, including recovery and resilience facility funding. These funds are earmarked for judicial reforms, digital transformation, rail modernisation, and energy diversification.

With nearly two-thirds of its total trade coming from the EU, it remains the country’s largest commercial partner. Additionally, EU membership helps anchor macroeconomic stability and attracts investors who view institutional oversight and regulatory coherence as key risk-reducing factors.

Although challenges persist, particularly regarding corruption and judicial independence, EU membership has spurred regulatory convergence and improvements in governance. In general, Bulgaria’s economy has benefited from EU membership, making the EU an essential ally in the country’s continued development.

Energy shift and diversification

Bulgaria’s reliance on Russian gas was underscored by the war in Ukraine and the subsequent energy crisis. However, the crisis also accelerated the nation’s shift toward self-sufficiency and energy diversification. By using LNG imports and the Trans-Adriatic Pipeline, Bulgaria has aggressively worked to ensure alternate natural gas sources through interconnectors with Greece and Turkey. These efforts help Bulgaria become a regional energy transit hub.

The Bulgarian government is also funding hydroelectric, solar, and wind energy sources. The national recovery plan, backed by the country, focuses heavily on energy transformation. Bulgaria aims to increase its renewable energy share, reduce greenhouse gas emissions, and ensure energy security by strengthening more resilient infrastructure in the coming years. The business sector also plays a role, as tech companies and green energy investors show growing interest.

Scheduled initiatives include environmental preservation, grid upgrades, and energy efficiency programmes. In addition to the environmental benefits, these programmes offer economic advantages, such as green jobs, improved public health, and lower long-term energy costs. The successful execution of Bulgaria’s energy revolution could inspire other Eastern European nations.

Complications of rule of law

Despite its economic development, Bulgaria continues to struggle with corruption and weak rule of law. These issues have long discouraged foreign investment and eroded public trust in institutions.

Bulgaria frequently ranks among the lowest performers in the EU in Transparency International’s Corruption Perceptions Index. Allegations of nepotism, lack of judicial independence, and questionable public procurement practices have plagued successive governments.

However, recent political developments provide cautious optimism. Under a reform-oriented coalition, a new government, which took office in 2023, has promised to tackle corruption and improve transparency. Key items on the national agenda include judicial reform, digitisation of public services, and better accountability systems. Stronger enforcement of anti-corruption laws, greater autonomy for prosecutors, and increased transparency in political financing have been promised by the administration.

While political will and EU pressure suggest that change is possible, the success of these reforms remains uncertain. Holding authorities accountable is partly the work of civil society organisations, investigative journalists, and international watchdogs, signalling the development of a democratic society that could support long-term institutional transformation.

Bulgaria presents an appealing environment for foreign businesses. It has one of the lowest business tax rates in the EU (10%), a strategic location linking Europe and Asia, and a well-educated, bilingual workforce. Additionally, relatively low labour costs make it competitive for manufacturing and IT services. Investors inside and outside the EU continue to show interest in these structural advantages.

Particularly in fields like software development, customer service, and fintech, the country has become a hub for outsourcing. Supported by EU funds, private capital, and a growing entrepreneurial ecosystem, tech firms and innovation centres have flourished in cities like Sofia, Plovdiv, and Varna. A new generation of business leaders is transforming Bulgaria’s economic landscape, especially in digital services, renewable technology, and health innovation.

Geopolitical concerns notwithstanding, foreign direct investment (FDI) flows have remained strong. Key players come from Germany, Austria, the Netherlands, and the US. Interest in industrial parks and logistics infrastructure is growing, with major multinational companies establishing regional hubs in Bulgaria. The government is working to simplify administrative processes, enhance judicial reliability, and upgrade transportation and digital infrastructure to attract more FDI.

Financial stability

Bulgaria maintains a currency board system that pegs its currency to the euro. This system has brought stability and helped control inflation. During periods of external turbulence, such as the 2008 financial crisis and the current pandemic, the lev-euro peg has also boosted investor confidence.

With a projected admission date as early as 2025, Bulgaria is on track to join the Eurozone. Adopting the euro could reduce transaction costs, bolster investor confidence, and ensure macroeconomic stability.

Reduced currency risk, easier accounting, and deeper integration into the European single market would benefit businesses.

However, meeting the convergence criteria still presents challenges, particularly regarding institutional reform, public sector transparency, and inflation control.

Bulgaria’s financial industry is strong and well-capitalised. Stress tests conducted by the European Central Bank show that Bulgarian banks are profitable and maintain strong capital buffers.

The adoption of fintech is rising, and digital banking is becoming increasingly important. The banking sector’s performance has been a cornerstone of Bulgaria’s overall economic resilience and provides a foundation for future economic diversification.

Declining population is one of Bulgaria’s long-term challenges. Driven by low birth rates, ageing, and emigration, the European country has one of the fastest-shrinking populations on the continent. This trend could strain public pension systems, reduce the labour supply, and slow economic growth. Brain drain remains a significant issue, as many talented professionals seek better opportunities abroad.

To mitigate these effects, Bulgaria needs focused policies to attract skilled workers, retain domestic talent, and boost productivity. Preparing the workforce for the demands of a modern economy relies heavily on investments in education, vocational training, and digital skills. Government incentives, such as subsidies, tax breaks, and fast-track recognition of foreign credentials, aim to encourage the repatriation of Bulgarian expatriates.

Bulgaria has made progress in increasing labour force participation, particularly among women and older workers. Policies supporting remote work, flexible schedules, and childcare are beginning to gain traction.

In recent years, wage growth has outpaced inflation, thereby boosting disposable income and domestic demand.

Effectively managing demographic decline will ensure that Bulgaria’s labour market remains a key driver of sustainable development.

Service industry, tourism and R&D

Bulgaria has long relied on tourism, which plays a significant role in GDP and job creation. Millions of tourists visit the Black Sea beaches, ski resorts, and cultural landmarks each year. The pandemic severely impacted the sector, but focused marketing, infrastructure improvements, and favourable exchange rates have led to a strong recovery.

Visitor arrivals and revenue rebounded in 2023, nearly returning to pre-pandemic levels. To position Bulgaria as a year-round travel destination, the government is funding sustainability, digital marketing, and tourism infrastructure projects. Efforts are underway to promote cultural events, eco-tourism, and rural travel, which distinguish Bulgaria from other European countries.

Beyond tourism, the services sector, including IT, banking, healthcare, education, and logistics, is growing rapidly. This diversification reduces reliance on traditional sectors like heavy manufacturing and agriculture, making Bulgaria’s economy more forward-looking and resilient.

Although Bulgaria has historically had low R&D spending, investments in research are gradually increasing. At around 0.8% of GDP, R&D spending is below the EU average of almost 2.3%. In an effort to enhance the nation’s innovation potential, the government aims to raise R&D expenditure to 1.5% of GDP by 2030.

Public-private partnerships are gaining momentum in sectors such as biotechnology, robotics, and artificial intelligence (AI). Universities and technical colleges are being encouraged to engage in applied research.

The Bulgarian Academy of Sciences and Sofia Tech Park are major contributors to the innovation ecosystem. Although Bulgaria currently lags behind regional peers like Slovenia and the Czech Republic, patent filings and scientific output have shown slight improvement. Supporting innovative ecosystems remains a top priority.

Textiles, machinery, agricultural goods, and metals have traditionally dominated Bulgaria’s export portfolio. However, the nation is aggressively transitioning to higher-value industries. The share of exports now includes processed food, car parts, and pharmaceuticals. Notably, ICT services and software exports have surged, reflecting Bulgaria’s growing role as a tech outsourcing destination.

Germany, Italy, Romania, and Turkey are Bulgaria’s principal export partners. The country is also working to diversify its markets outside the EU, particularly in Asia and the Middle East. Bulgaria’s strategic location and investments in logistics bolster its ambitions to become a regional trade and transportation hub.

Digital economy

Geopolitically, Bulgaria occupies a strategic but delicate position on the Black Sea. While actively supporting NATO and Eastern Partnership programmes, it carefully navigates its relations with neighbouring countries such as Turkey, Greece, and Romania. Bulgaria demonstrates its commitment to regional stability by supporting Ukraine and engaging in energy cooperation with Greece and Turkey. The country also plays a key role in promoting regional security and economic development through diplomatic initiatives and cross-border collaborations.

Bulgaria is increasing its defence spending, aiming to meet the NATO target of 2% of GDP. The defence sector, including maintenance and armaments manufacturing, is attracting new investments. Bulgaria’s dual alignment with NATO and the EU continues to shape its regional influence, reinforcing its role as a security pillar in Southeastern Europe.

Bulgaria is progressing towards digital statehood. Simplified e-governance services, including digital ID verification, online tax filing, and electronic health records, are reducing bureaucracy. Digital literacy initiatives are being launched to improve engagement across various demographics.

With internet penetration surpassing 75% and growing mobile broadband usage, Sofia is emerging as a startup hotspot, attracting venture capital and EU-backed grants.

Artificial intelligence usage in banking and logistics is expanding, and blockchain applications for public procurement and property registries are gaining traction. The national development strategy now places a strong emphasis on the digital economy.

The transition to greener energy sources does not come without its challenges. Particularly around the Maritsa Basin, Bulgaria’s coal-dependent regions are undergoing significant social changes. The planned phasing out of coal plants raises concerns about job losses and community disruption.

The government has proposed “Just Transition” plans, supported by EU Green Deal funding, to help mitigate these effects. These plans include retraining programmes, incentives for renewable energy startups, and support for local SMEs.

While public consultations are ongoing, some local resistance remains, particularly when alternative solutions are unclear. The success of the green transition relies on infrastructure and equitable benefit distribution.

What the future holds

Looking ahead, Bulgaria’s economic outlook is cautiously optimistic. Key opportunities lie in renewable energy, digital transformation, Eurozone integration, and deeper EU cohesion. If the nation can effectively address corruption, strengthen the rule of law, and improve governance, it could unlock even more potential and set an example for other small and mid-sized nations.

However, risks remain, particularly from regional geopolitical tensions, global economic slowdowns, and climate-related shocks. Bulgaria’s future path may be influenced by shifts in EU policy, the evolving dynamics of the Russia-Ukraine conflict, and changes in global demand. Political instability and reform fatigue could also slow progress.

Nonetheless, Bulgaria’s foundations are strengthening. With smart fiscal management, strategic investments, and a growing innovation ecosystem, the country is poised to become a rising market leader in Southeastern Europe. Bulgaria offers a challenge and an opportunity for investors, businesses, and policymakers, presenting a frontier that rewards vision, perseverance, and long-term commitment.

Ultimately, Bulgaria’s recovery symbolises a broader movement toward resilience, creativity, and sustainable development, rather than just a statistical rebound. Bulgaria is now an emerging power deserving of attention from both lawmakers and investors, not merely a secondary player in Europe’s narrative.

Through strategic reforms, EU support, energy diversification, and a growing digital and service economy, Bulgaria is steadily positioning itself as a rising leader in Southeastern Europe.

However, challenges remain, particularly in combating corruption, strengthening the rule of law, and addressing demographic decline. By staying committed to its reform agenda, investing in innovation, and continuing to attract foreign investment, Bulgaria has the opportunity to unlock significant growth and become a regional powerhouse.

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