analysis

Chelsea signed a striker from Brighton for the second successive summer, bringing in Welbeck to reunite him with Joao Pedro and provide support in attack.

Welbeck, 35, was tidy in possession but, with little service, managed only 17 touches before being substituted in the 71st minute.

Unlike Joao Pedro, who is capable of creating chances for himself, Welbeck found it difficult to influence the game in the same way.

Joao Pedro came into the weekend with the most goal involvements in the Premier League, having scored three and provided three assists in four appearances this season.

His impact extends beyond goals and assists, with the Brazilian linking well with Palmer and Rogers. Against Brentford, however, Rogers arguably produced his quietest performance since arriving from Aston Villa in the summer.

Rogers eventually moved up front with fellow striker Emmanuel Emegha sidelined through injury and still waiting to make his Chelsea debut.

Before Brentford‘s opener, it was a closely contested match that appeared likely to be decided by the first goal. Chelsea, however, made victory a certainty for the hosts with a dramatic collapse.

Alonso has not managed to cure Chelsea‘s set-piece weaknesses. They have conceded 23 goals from set-pieces since the start of last season – no Premier League side has let in more. And Anthony’s simple header from a corner took this season’s total to five.

Set-piece defending was an area Chelsea sought to address when they appointed Bernardo Cueva from Brentford two years ago. This summer, he was replaced by another highly regarded specialist in Austin MacPhee.

Asked about Chelsea‘s defending from set-pieces, stand-in captain Levi Colwill told Sky Sports: “Not good enough. At times we have been bullied in the box and we definitely need to improve.

“We have full trust in our set-piece coach and are still adjusting to new ideas, but we need to improve as a team.”

Like many of his predecessors, Alonso has been attempting to instil a stronger competitive edge within his squad and improve the mentality of his players.

That issue has often been linked to the relatively young age profile of the squad, but Chelsea fielded their oldest starting XI since May 2023. Henderson, in making his debut on Friday, lined up alongside fellow over-30s Welbeck and goalkeeper Emiliano Martinez.

“I would say that we have dropped our consistency and our competitive mentality in the second half. We know that small details can be decisive,” Alonso said after Brentford added two late goals.

It is also fair to say Alonso is still experimenting with systems and personnel, and has yet to settle on a style of play that gives his side control throughout a match.

“It’s not about looking for excuses,” the Spaniard told Sky Sports. “We need to look at each other and know that we have to work and improve because there is still a long way to go.”

After the initial excitement – and victories – provided by Alonso’s attacking football, Chelsea head into the international break with serious questions to answer.

The Trump administration has cut or frozen up to $177 billion in federal grants since the president took office for his second term, according to a tracking tool released Wednesday by a pro-democracy nonprofit and a group of researchers and scientists.

The cuts affected all 50 states and the District of Columbia, with health, nutrition, the environment and disaster relief making up the largest share of cuts, the States United Democracy Center and Grant Witness organization found.

Among the grants that were eliminated, frozen or delayed were ones related to maternal health in Michigan, education research in Mississippi and assistance to minority farmers in Iowa, the researchers found. California, Texas, New York, Illinois and North Carolina saw the highest amounts of interrupted grant money. The tracking tool is called Lost Funds.

“By bringing thousands of funding disruptions from the Trump administration together in a publicly accessible, verified database, Lost Funds puts the magnitude of their impact on full display,” Scott Delaney, co-founder of Grant Witness, said in a statement.

The $177 billion finding represents nearly 10% of federal discretionary spending, the groups said.

The tracker’s organizers said the disrupted grants were beyond the kind of cuts that typically happen when administrations change.

“Lost Funds shows the extraordinary scale and real human impact of these disruptions, and how states are once again on the front lines protecting their residents,” said Kelly Rader, States United Democracy Center’s research director.

In some cases, courts have ruled against the administration’s grant funding cuts.

The new tool, which is being made available for public use, relies on data from USASpending.gov, an open data source of federal spending information, according to the groups’ methodology. They said the tracker would be updated regularly as the administration takes new action and lawsuits move through the courts.

States United bills itself as a nonpartisan group dedicated to the rule of law and free, fair, secure elections. It was co-founded by Norm Eisen, an attorney who has been involved in prominent lawsuits against the Trump administration, including over the Kennedy Center. Eisen left States United in 2021.

Grant Witness is a group of scientists, researchers and attorneys who document how funding is changing under President Trump’s administration.

A message seeking comment on the analysis was sent to the White House.

Catalini writes for the Associated Press.

On Sept. 26, 1983 the Soviet Union’s Oko early warning system reported that the US had launched five intercontinental ballistic missiles.

Lt. Col. Stanislav Petrov, the duty officer at the Serpukhov-15 bunker, broke protocol and refused to report the alert as a confirmed strike. He reasoned that a real US first strike would involve hundreds or thousands of missiles, not five. The system, it turned out, had mistaken sunlight reflecting off clouds for missile launches.

Petrov’s decision to defy protocol prevented an erroneous retaliatory nuclear strike and its incalculable consequences.

“I had all the data (to suggest there was an ongoing missile attack),” he told the BBC’s Russian Service 30 years later.

“If I had sent my report up the chain of command, nobody would have said a word against it. They were lucky it was me on shift that night.”

That Cold War lesson resonates loudly amid growing fear over how AI is being deployed in warfare. A recent appeal has put automation in war back in the spotlight, raising a question that leaves many uneasy: What would happen if a computer — an AI system — were the one calling the shots and it got the response to an attack wrong?

In an essay published over the weekend, Anthropic CEO Dario Amodei called for AI model development to slow down and face closer scrutiny. The appeal was not unprecedented but this time it drew rare public agreement from two rivals: Sam Altman of OpenAI and Elon Musk of xAI.

“Over the last few months I have become convinced that fully addressing the risks requires even more prudence — not just investing in risk prevention but pacing the rate of capabilities advancement so that risk prevention has time to keep up,” Amodei said.

A threat-intelligence report published by Anthropic found that a cell based in northern Yemen tried to use Claude (its AI tool) to build guided rockets and missiles, including a ballistic missile with a claimed 2,000 km range and a separate program incorporating a hypersonic glide vehicle.

Anthropic said that it banned the accounts after detecting the activity, although there was no evidence that the group successfully fielded an operational weapon.

War offers no shortage of similar examples, where AI streamlines battlefield decisions or powers surveillance. The Middle East, given its strategic weight and the range of actors involved, has become a testing ground for the technology.

Israel has long used AI in its military. Over three years of war in Gaza its forces have reportedly deployed several machine-learning systems — Habsora (“Gospel”), Lavender, Fire Factory and Where’s Daddy — to automate large parts of target generation and strike planning.

The systems mine surveillance feeds, communications data and existing databases to propose targets and recommend munitions and strike schedules. Analysts reportedly went from producing about 50 targets a year to as many as 100 a day.

Concerns over AI-supported targeting resurfaced during the Iran war, after a US strike hit the Shajareh Tayyebeh girls’ school in Minab, southern Iran, killing at least 168 people, most of them children.

The US has not disclosed whether AI was used in that strike but Adm. Brad Cooper, the US commander leading the campaign, has confirmed the use of “a variety of advanced AI tools” to process large volumes of data, without naming specific systems. He said that the tools let commanders make “smarter decisions faster than the enemy can react,” cutting processes that once took hours or days down to seconds.

“Humans will always make final decisions on what to shoot and what not to shoot, and when to shoot,” he said.

The US military has run AI-enabled war programs since at least 2017. Its Maven Smart System, built by Palantir, helps fuse battlefield data, identify targets and accelerate decisions. NATO acquired its own version in 2025. OpenAI and Anthropic are also competing for military contracts, reflecting the growing reliance of defense operations on commercial AI and the increasingly close ties between the two sectors.

In Ukraine, both sides use AI for data processing and target selection. Ukraine’s former Deputy Defense Minister Yuriy Myronenko told the BBC that AI analyzed more than 50,000 front-line video streams each month, helping “quickly process this massive data, identify targets and put them on a map.”

But as war spills beyond the traditional battlefield into a hybrid, multi-faceted front, AI adoption follows.

In April YouTube banned Explosive Media, a Gen Z Iranian channel that used AI-generated Lego-style animations mocking Western figures — including Donald Trump and Benjamin Netanyahu — while pushing pro-Iranian, anti-US and anti-Israel narratives.

More recently separate media investigations found that Israel had funded multimillion-dollar PR campaigns to shape how AI chatbots, including ChatGPT, answer questions about Gaza and the Israeli military. By setting up fake think tanks and publishing AI-generated papers with no real authors, the investigators said, Israel built a sophisticated operation to manipulate search results and shape public understanding — a shift in propaganda tactics that is harder to detect because it disguises advocacy as neutral expertise.

Throughout history militaries have sought tools that offer an edge over adversaries. But deploying AI in high-stakes environments like armed conflict carries risks distinct from any previous technology.

Part of the concern lies in the technology itself. An AI model trained on faulty or unrepresentative data can generate inaccurate results or malfunction once deployed in conditions that differ from its training environment.

AI-supported targeting is a case in point. Where such tools generate targets at scale with minimal human oversight, errors are not difficult to imagine.

That risk grows more acute as AI development moves from decision support to agents that can pursue complex goals with little human supervision. The next step, recursive self-improvement, would involve systems upgrading themselves with decreasing human input in a potentially open-ended loop.

As Jean-Marc Rickli and Tobias Knappe of the Geneva Centre for Security Policy note in a recent paper, agentic AI “is shifting the AI landscape from being a passive, supportive tool towards an active executor that can increasingly define and take courses of action on behalf of a human user” — a shift that, they added, “also raises significant societal, security, legal and ethical risks.”

In this sense, the proliferation of AI, on and off the battlefield, has introduced unprecedented challenges, prompting scrutiny of its impact on moral agency and accountability.

In June the UN held its first Informal Exchange on Artificial Intelligence in the Military Domain. Discussions centered on human rights and international humanitarian law, with nongovernmental organizations pushing for a moratorium on AI systems used in lethal decision-making — such as automated targeting — until robust global safeguards are in place.

The meeting followed a December 2025 UN General Assembly resolution on “Artificial intelligence in the military domain and its implications for international peace and security.” Experts welcomed it as a step forward, despite notable absences — including the US, which voted against the resolution.

Momentum is now shifting to New York, where a factual summary of the Geneva talks is due to reach the UN First Committee during its October session.

Despite these efforts, battlefield AI remains governed largely by existing legal frameworks.

Existing international humanitarian law applies to AI-enabled weapons through the principles of distinction, proportionality, military necessity and precaution. Responsibility remains with states and human actors, while Article 36 of Additional Protocol I to the 1949 Geneva Conventions also requires states party to the protocol to review new weapons, means and methods of warfare for legal compliance. US Directive 3000.09 similarly requires “appropriate levels of human judgment” but stops short of mandating real-time human control or creating binding international accountability.

In early September a UN disarmament forum in Geneva concluded three years of work on autonomous weapons, colloquially known as “killer robots.” A total of 128 states reached a non-binding consensus text after last-minute objections from the US and Russia, backing a proposed two-tier framework: prohibiting autonomous weapons whose effects are unpredictable or designed to target humans directly and restricting all others through mandatory human supervision rules.

Human Rights Watch said that the final text was considerably watered down and the US and Russia remain opposed to binding negotiations. But with 76 states now backing a legally binding instrument, the Convention on Certain Conventional Weapons’ November Review Conference looms as the decisive test of whether formal talks begin.

“AI systems will not change that the human is responsible for mistakes but it will obscure that humans feel responsible for mistakes and that can lead to a greater willingness to use force,” Elke Schwarz, professor of political theory at London’s Queen Mary University and author of “Death Machines: The Ethics of Violent Technologies,” told Arab News.

“There is a plausible deniability implicit in the use of AI enabled systems because they are essentially operating in a zone of invisibility.”

Israel offers the clearest example to date. When Israeli outlet +972 reported on the Lavender system it caused uproar by showing AI used not merely to assist analysts but to generate vast target lists — reportedly with only cursory human checks. The system’s scale, its claimed 90 percent accuracy and its use against people in their homes raised fears that human control was slipping and that AI could make large-scale violence faster, more impersonal and harder to attribute.

This marks a paradigm shift unseen in the history of conflict, which, as Schwarz argued, reshapes humanity’s relationship with violence and challenges conventional notions of ethical conduct in war.

She maintains that AI-enabled weapons systems facilitate the objectification of human targets, raising tolerance for collateral damage, while automation bias and technological mediation weaken operators’ moral agency and diminish their capacity for ethical judgment.

“Machines cannot be better at war than humans because machines don’t understand what war is, what it entails and what suffering it produces,” she said.

“They can only contribute to the actions humans decide on in better or worse ways. In my view AI-enabled systems make humans less restraint in using force, not more.

“Humans decide on the parameters. If they want to design a system that is less restraint, they will, if it is perceived to be more effective. A system cannot be a ‘better’ moral actor than the human because it has no concept of meaning for moral decisions. So, humans will not disappear from war with AI systems, but AI systems will change the relationship we humans have to violence. And that will make war worse.”

As a growing number of whistleblowers and experts warn, the risk is that an unchecked race toward superintelligent AI carries real risks to the very humans who built it.

For Schwarz, an AI “doomsday” is no longer far-fetched science fiction.

“I think we have already witnessed a horrendous human cost on account of AI enabled weapon systems,” she said.

“The introduction of AI systems into war has, at the very least, not lead to more restraint, more global stability, less conflict, fewer civilians killed or harmed. Quite the contrary. Children are dying due to war at a staggering rate. This is quite doomsday-ish in my books.”

As comparisons between the AI and nuclear arms races grow sharper by the day, the argument circles back to Petrov and to an ominous question: Would an algorithm have shown the same restraint?

“We can of course conjure up all kinds of awful scenarios, for example if someone decides to put an AI agent in charge of nuclear decision making (which would be ludicrous but you never know) and a data glitch leads to a nuclear threat spiral. But I think things are already quite awful because the technology and dehumanization seem to go hand in hand.”

Anthropic’s Claude offers a similar note of caution.

“What’s not really disputed is that today’s actual military AI risks are the boring-sounding ones: bad targeting data, automation bias, escalation happening faster than diplomacy can respond, systems proliferating to actors with no safety culture at all. The ‘robots decide to turn on us’ framing, if anything, can be a distraction from those.”

Quite wise. Humans should take note.

Central banks’ record, price-insensitive gold buying is a more credible signal of the dollar’s structural trajectory than this year’s currency markets, because FX markets are structurally bad at pricing the discontinuous, wartime-style tail risk central banks are actually hedging — so this autumn’s calmer dollar should not reassure anyone that de-dollarization has stalled.

In June, the European Central Bank made an announcement most people missed: gold has overtaken US Treasuries as the world’s single largest reserve asset. Central banks bought 289 tonnes of it in the second quarter alone — a record for that quarter and five times Q1’s pace — with Poland’s central bank openly telling investors it was “buying the dip.” Here is the part that should stop you: gold’s price fell 22% between January and September. Central banks were never more convinced buyers of an asset than while it was crashing. Either the reserve managers are wrong, or currency markets — which show none of this urgency — are the ones asleep at the wheel.

Gold peaked at $5,589 an ounce on 28 January, the same month the dollar index hit a four-year low of 95.5 and the dollar’s share of global reserves fell toward its lowest level since 1995. Both moves reflected the same story: Fed rate cuts through 2025, a US debt load past $37 trillion, and BRICS states settling more trade outside the dollar. Then the picture split. Kevin Warsh, confirmed as Fed chair in May, signalled a hawkish pivot in August; the Iran war pushed oil and inflation higher through September, and markets began pricing a rate hike rather than a cut. The dollar index clawed back to 99.46. Gold fell to $4,330. Central-bank buying did not follow the price down — Poland alone added 82 tonnes this year toward a 700-tonne target, and a World Gold Council survey found a record 45% of central banks plan to buy more within twelve months.

State the gap plainly. Two signals, same underlying question — is the dollar-centred monetary order changing — and they disagree by a wide margin. The buying signal says yes, decisively: record quarterly purchases, gold displacing Treasuries at the ECB’s own reckoning, 74% of surveyed reserve managers expecting the dollar’s reserve share to keep falling over five years, and buyers adding tonnage through a 22% drawdown rather than fleeing it. The price signal says not yet: the dollar just posted one of its sharper rallies of the year, gold is down sharply from its high, and nothing in currency markets shows the kind of stress a genuine regime shift would produce.

The strongest objection to trusting the buying signal is a good one, and it needs to be taken seriously rather than waved away: foreign exchange is the deepest, most liquid market in the world, turning over more than $7 trillion a day. A few hundred tonnes of central-bank gold buying — perhaps $30–40 billion a quarter — is a rounding error against that. If professional currency traders, sitting on far more capital and far better short-term information than a handful of reserve managers, saw a serious de-dollarization story unfolding, it would already be in the price. Instead the dollar just rallied. On this view, central banks are not seeing something markets are missing; they are pattern-matching off 2022, when Russia’s $300 billion in reserves was frozen overnight, and over-hedging a tail risk that has not recurred and mostly will not.

That objection assumes FX markets and central-bank reserve committees are pricing the same kind of risk, on the same time horizon, and they are not. Currency markets are exceptionally good at pricing continuous, high-frequency variables — rate differentials, growth surprises, this week’s inflation print — because that is what moves flows daily. They are structurally poor at pricing discontinuous, low-probability events until those events occur: equity volatility did not price 2008 in 2007; sovereign spreads did not price the Russia reserve freeze in the weeks before it happened. A reserve freeze, a secondary-sanctions campaign, or exclusion from SWIFT-style settlement infrastructure is exactly that kind of event — binary, rare, and catastrophic for whoever it hits — which is precisely why Poland’s central bank governor, Adam Glapiński, described his buying not as a trade but as insurance: reserves that keep the state secure “under all circumstances, including wartime, which of course we’re not expecting.” That is not the language of someone chasing momentum. It is the language of someone who manages the one asset class that keeps its value if their country is ever cut off from the dollar system, and who would rather hold it and be wrong for a decade than not hold it and be wrong once.

The buying pattern itself supports that reading. Momentum money sells into a 22% drawdown; insurance money adds to it. Central banks did the latter through the first half of this year, which is the behavioural signature of a structural reallocation program with a fixed multi-year target — Poland’s is explicit, 700 tonnes — not speculative flow riding gold’s rally. Meanwhile the dollar’s autumn recovery has an identifiable, largely cyclical cause: a new, more hawkish Fed chair and a war-driven oil shock forcing a rate-hike repricing. Neither event reverses the debt trajectory, the BRICS settlement trend, or the reserve-freeze precedent that pushed the dollar to a four-year low in January. A rally built on this year’s Fed chair and this year’s war is not proof that last year’s structural story is over; it is evidence that a cyclical force is currently strong enough to mask it.

The Scenarios

Base case (55%): The gap persists rather than resolves. The dollar holds most of its autumn gains through the current rate-hike cycle, gold range-trades below its January peak, and central banks keep buying at a steadier, slower pace toward stated targets like Poland’s 700 tonnes. Nobody is “proven right” on any particular Tuesday, because reserve diversification is a decade-scale hedge, not a trade with a catalyst date. This is the least satisfying outcome for anyone wanting a verdict, and the most likely one.

Downside case (for dollar holders): A discrete trigger — a fresh reserve-freeze or secondary-sanctions episode, plausibly connected to the still-live US-Iran war spilling into action against a third country’s assets, or a shock to Fed independence under a more political Warsh chairmanship — crystallizes the exact tail risk central banks have been hedging. Gold spikes back through its January high, the dollar index breaks below its 95.5 low, and the gap closes in weeks rather than years, vindicating the reserve managers all at once and catching FX markets flat-footed exactly as the theory predicts.

Upside case (for the dollar): The Iran war resolves, Warsh’s rate hikes cool inflation without a recession, US fiscal metrics stabilize, and BRICS local-currency settlement growth stalls on friction between its own members. Central-bank gold buying does not reverse but plateaus as reserve managers hit conventional diversification ceilings — most target 15–20% of reserves in gold, not open-ended accumulation. The gap closes gradually as price drifts up toward the buying signal over several years, with no crisis required to force the reconciliation.

The Takeaway

The dollar’s calmer autumn is not evidence the de-dollarization hedge was a mistake; it is evidence that currency markets and central-bank reserve committees are pricing two different things on two different clocks, and only one of those clocks rings in a crisis. Central banks bought through a 22% drawdown because the point of the position was never this quarter’s return.

Watch for: the World Gold Council’s Q3 2026 Gold Demand Trends report, expected in early November. A third consecutive quarter of buying that ignores price direction will confirm this is policy, not opportunism — and the moment currency markets have to agree with that policy will not be a quiet one.

China is buying ninety percent of Iran’s oil exports, settling transactions in renminbi, and hiding the rest beneath layers of shell companies. This is not defiance. It is a demonstration, conducted in plain sight, of exactly how far American economic reach actually extends.

Scott Bessent promised, when he launched Operation Economic Outcast last week, that no one would be above the reach of US sanctions. China’s foreign ministry responded by saying Beijing would do everything necessary to safeguard its own rights and interests. That exchange, watched by the rest of the world, is not really about Iran. It is about whether the threat of American secondary sanctions can force a country that has already fought several trade wars with Washington to a standstill into changing its economic behaviour. The answer, which China has been demonstrating methodically for months, is no.

How China Made Itself Immune to US Secondary Sanctions

The architecture of Chinese-Iranian trade has been specifically designed to sit outside dollar-system jurisdiction. Chinese banks and companies that buy Iranian oil settle transactions in renminbi or through barter arrangements, making them effectively immune to American extraterritorial authority. The handful of Chinese entities that still touch dollar-denominated transactions do so through shell companies that can be discarded and replaced faster than Washington can identify and sanction them. The result is the regulatory whack-a-mole problem that American Treasury officials privately acknowledge, eliminate one entity, and three more appear in its place, each more obscured than the last.

Washington could escalate by sanctioning major Chinese banks and companies that have no Iran ties at all, using them as leverage to pressure Beijing to rein in those that do. That option exists on paper. In practice, it would constitute a declaration of economic war against China’s financial system at a moment when the US economy is already strained by six months of conflict with Iran, oil prices are elevated, and midterm elections are eight weeks away. The Trump administration knows this, which is why Bessent’s ultimatum came with no major Chinese institution on the sanctions list. The threat was real. The enforcement mechanism was not.

What a US Victory in Iran Would Cost Beijing

China sources roughly forty percent of its oil imports from the Gulf, with Iran accounting for ten percent of that total. If the US wins this war convincingly, meaning Iran’s government collapses or capitulates and Washington reinstalls itself as the dominant security guarantor across the Gulf, the energy architecture that China has spent two decades building becomes dependent on American goodwill. Every barrel of Gulf oil that China buys would effectively pass through a security framework Washington controls.

The regional knock-on effects compound that problem. The Mecca pact between Saudi Arabia, Turkey and Pakistan, the SCO’s deepening trade and financial architecture, the China-brokered Saudi-Iran normalisation of 2023: all of these represent years of Chinese diplomatic investment in a Middle East that is gradually reducing its security dependence on the United States. An Iranian defeat that pushes regional states back under the American umbrella undoes that investment at a stroke. From Beijing’s perspective, the cost of buying Iranian oil at a discount and absorbing American secondary sanctions is considerably lower than the cost of losing the regional influence that Iran’s survival helps sustain.

Neither Ally Nor Bystander

The SCO summit in Bishkek last week illustrated Beijing’s position with more precision than any official statement. Xi met Putin and Modi bilaterally. Iran’s President Pezeshkian attended the summit and held consultations at foreign minister level. He was not invited to Beijing. He did not get a Xi bilateral. That calibrated distance is deliberate, and it reflects a Chinese calculation that is more sophisticated than either alliance or abandonment.

Beijing does not want Iran to lose. It also does not want Iran to win so completely that Tehran’s regional hegemony destabilises the Gulf relationships China has been cultivating. The Chinese position, buying Iranian oil, refusing to arm Iran, keeping diplomatic engagement at arm’s length, is designed to keep Iran functional without making China responsible for Iranian behaviour. It is the foreign policy equivalent of keeping a fire burning without touching it.

Xi’s scheduled visit to Washington later this month, coming directly after the Bishkek summit, reinforces this reading. Beijing is simultaneously demonstrating to Iran that it has economic backing and demonstrating to Washington that it has strategic restraint. Both demonstrations serve Chinese interests. Neither requires China to choose a side.

Five Things Worth Watching

• Whether Xi’s Washington visit produces any concrete understanding on Iran-related secondary sanctions. If the two sides agree on a framework that gives China cover to quietly reduce Iranian oil purchases over time, the sanctions architecture gains traction it currently lacks. If the summit produces only standard language about constructive competition, Operation Economic Outcast’s China problem remains unresolved.
• The SCO Development Bank’s progress toward implementation. If the bank moves from agreement to operational institution in the coming months, it creates dollar-independent financing infrastructure that makes secondary sanctions significantly less effective not just for China-Iran trade but for the broader Eurasian trade network the SCO is building.
• Whether any Chinese entity on the August sanctions list is large enough that its designation produces real disruption rather than being absorbed and routed around. The signal from August’s first wave was that Washington sanctioned deliberately small targets. The size and visibility of the next wave’s targets will tell you how seriously Washington is willing to press China.
• India’s position on renminbi settlement for its own Iranian oil purchases. If Delhi follows Beijing’s approach and expands non-dollar settlement for energy trade, the secondary sanctions architecture faces a second major exemption that Washington is even less able to address given how carefully it has been courting India.
• Iran’s currency trajectory. The rial has hit record lows despite Chinese oil purchases continuing. If the currency continues to deteriorate even with Chinese demand stable, it suggests Operation Economic Outcast is landing on Iran’s non-oil economy in ways that the Chinese lifeline cannot fully offset which changes the pressure calculus regardless of whether Beijing complies.

The Bottom Line

Washington designed Operation Economic Outcast to isolate Iran. What it has demonstrated is the outer boundary of American economic jurisdiction in a world where China has spent a decade building the infrastructure to sit outside it. Renminbi settlement, dark fleet shipping, teapot refineries, shell company networks, these are not improvised workarounds. They are a parallel financial architecture, constructed precisely for this contingency, and it works well enough to keep Iranian oil flowing at volumes Washington cannot stop.

The deeper problem for the Trump administration is not that China is defying its sanctions. It is that China is proving, transaction by transaction, that the sanctions cannot be enforced against a country of sufficient size and sufficient preparation. That demonstration has an audience well beyond Beijing and Tehran. Every country currently watching whether to comply with American secondary sanctions is learning the same lesson: the reach of US economic power has a ceiling, and China has found it.

THE HOOK

Late Monday, Donald Trump signaled the ceasefire with Iran was effectively over, threatening fresh strikes and casting doubt on the reopening of the Strait of Hormuz. Brent crude jumped past $90 a barrel. By Wednesday morning, the US Dollar Index had climbed to 99.73 — its highest in nearly three weeks — and the 10-year Treasury yield touched 4.81%, just shy of a 52-week high. The reason: traders now put the odds of a September Fed rate hike near 65–70%, not a cut.

THE MECHANISM

The chain runs cleanly enough to name. Iran’s conflict with the US raises the odds of a shipping disruption through Hormuz, which carries roughly a fifth of global oil supply; oil-price risk feeds straight into headline inflation; and a Fed under Chair Kevin Warsh — already fighting credibility questions after an ambiguous hold in July — cannot afford to look soft on prices while a war pushes them up. That is why futures markets have swung from pricing no move in 2026 to pricing a hike at the September 15–16 meeting.

Higher US rates make dollar assets pay more relative to everywhere else, which is the direct channel behind both the stronger DXY and the 4.81% ten-year. The winners are near-term and narrow: holders of short-dated Treasury bills, whose yields rise with the policy rate; US money-market funds; and, oddly, the stablecoin issuers whose reserves sit almost entirely in T-bills and now earn more for holding them. The losers are broader and slower-moving: emerging markets carrying dollar-denominated debt face a double bill, since a stronger dollar raises the local-currency cost of repayment at the same moment their own borrowing costs rise in sympathy with Washington’s. Oil-importing economies — India, Turkey, Japan, the eurozone — take a second hit, paying more for crude in a currency that is simultaneously getting more expensive to buy. Gold, meanwhile, is caught between two forces: safe-haven demand from the war pulls it up, rate-hike expectations pull it down, which is why it sits near $4,304, off its recent peak but still up 21% over the year.

WHY IT MATTERS

The apparent contradiction — dollar strong this week, dollar weaker for the decade — is really two different clocks running at once. Reserve managers make multi-year diversification bets; traders react to a war in hours. The IMF’s COFER data put the dollar at 57.13% of allocated reserves in the first quarter of 2026, down from 72% in 2000, and a recent survey of reserve managers found roughly three-quarters expect that share to keep falling over the next five years. None of that is undone by one hawkish week from Kevin Warsh.

What is new is where the dollar’s reach is actually growing: not in central bank vaults but in stablecoins. The GENIUS Act framework — now the subject of a Treasury rulemaking comment period that closes in October — has pushed issuers to back their tokens almost entirely with short-dated Treasuries, and forecasts from Standard Chartered and Senator Bill Hagerty put potential T-bill demand from stablecoins as high as $2–2.3 trillion. That is dollarization happening retail-first, in emerging-market wallets and crypto exchanges, invisible to COFER. For Washington, a Fed hike timed to a war raises borrowing costs precisely when the deficit needs cheap financing, and when the countries least able to absorb dearer dollars — many of them US partners, not adversaries — get hit hardest. That is a form of collateral leverage no sanctions list ever names.

WATCH FOR

The September 15–16 FOMC meeting is the date that resolves this. A 25-basis-point hike would confirm markets are right to treat this as an inflation fight, not a growth scare, and would likely push the dollar and yields higher still. A hold — especially if Hormuz tensions ease and oil retreats from $90 — would suggest Warsh blinked, and could send gold back toward its highs faster than the dollar can catch up. Either way, watch the Fed funds futures curve shift in the two weeks before the meeting.

Canadian Prime Minister Mark Carney supports a new global defense bank called the Defence, Security and Resilience Bank (DSRB), which aims to help allied countries rearm. The bank is looking to raise around €100 billion ($116 billion) to provide low-cost loans to governments and defense contractors for military projects. It will also guarantee loans for smaller, riskier firms. So far, Canada, along with Albania, Belgium, Greece, Latvia, Luxembourg, Romania, Turkey, and Ukraine, has expressed support for the initiative.

As of August, the DSRB had secured about €5 billion in commitments but aims for €20 billion in paid-in capital and an additional €80 billion available when necessary. However, major economies like Germany and Britain have not yet committed, which raises concerns about the DSRB’s ability to achieve the triple-A credit rating necessary for the lowest funding costs. Experts suggest that the participation of larger governments is essential to impress ratings agencies. Some potential members are hesitant about whether the DSRB can offer better financing terms than national governments, given their own budget limitations and existing commitments in similar initiatives.

Canada is actively engaging other countries ahead of the charter signing planned for autumn. DSRB founder Rob Murray emphasized the need for rearmament to address increasing security threats. He noted that many European nations are raising defense spending but are not close to meeting NATO’s targets. Carney has called for cooperation among middle powers to respond to what he sees as a changing world order.

The DSRB aims to provide funding for defense investments separate from current national debts but needs further backing to be impactful. Major European countries already have access to cheap borrowing but joining the DSRB would allow their domestic contractors to benefit from its funding. Some officials have raised concerns about overlap with existing financing programs like the EU’s SAFE program and Britain’s proposed Multilateral Defence Mechanism. There are worries about the upfront capital required for DSRB membership and the selection process for projects, as larger countries might need to contribute around €1 billion.

Murray highlighted that contributions could be spread over three years, and the DSRB could provide a more stable financing avenue for defense than existing programs. He stressed that increasing defense spending could lead to technology improvements, job creation, and economic growth while enhancing deterrence.

Canada hopes that under new Prime Minister Andy Burnham, Britain might reconsider its initial rejection of the DSRB, which was based on concerns over value for money. Burnham’s defense minister has described the DSRB as an innovative mechanism. If Britain joins, it may influence Germany’s decision to participate as well. Currently, Germany has been observing discussions but has not committed.

Industry groups in Britain and Germany are urging their governments to join the DSRB, fearing exclusion from projects financed by the bank. The DSRB has received about $10 million in support from various banks to help establish itself, and its proponents claim it is on track to achieve a high credit rating. Canada is willing to move forward with the current supporters, leaving room for other countries to join later, which could help secure the desired credit rating. The support of core shareholders is crucial for the creditworthiness of multilateral institutions.

With information from Reuters

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In early August, a Pentagon official stood in front of reporters and conceded something the department almost never says out loud: the world’s best-funded military cannot out-produce a country under invasion. Travis Metz, deputy director of the Defense Innovation Unit, put a number on it. Ukraine will manufacture six to seven million small first-person-view attack drones this year — roughly 500,000 a month, built in garages, repurposed furniture factories and basements within range of Russian glide bombs. The Pentagon’s own flagship drone program, a $1.1 billion initiative branded Drone Dominance, will have ordered fewer than 200,000 drones, cumulatively, by February 2027. Metz’s response was not defensive. It was aspirational: “I see no reason why we shouldn’t… be the world champions of this as well.” The gap he was describing is not a technology gap. It is a speed gap, and speed is the one metric wartime industry cannot fake.

The instinct is to read this as a story about Ukrainian ingenuity, and it is one. But it is also the epilogue to a specific American failure. In 2023 the Pentagon launched Replicator, a program to field “multiple thousands” of autonomous systems within 24 months to counter China. By its August 2025 deadline it had delivered “hundreds,” not thousands, after burning through roughly $1 billion — undone by drones that were unfinished at selection, software that could not command large numbers of different systems at once, and a Switchblade loitering munition priced above $100,000 a unit. Washington’s answer was not to slow down and fix the model; it was to bring in the Department of Government Efficiency to override procurement rules and reclassify small drones as disposable supplies rather than regulated weapons systems. Meanwhile, Russia’s own Shahed and decoy drone output is reportedly climbing toward several hundred, and by some Ukrainian estimates up to a thousand, units a day. The war that forced Ukraine to mass-produce cheap drones is the same war exposing how slowly America still moves.

Why the gap isn’t about money

Start with unit economics, because they explain most of the gap. A Ukrainian FPV drone can be built for as little as $300 to $500 — an airframe, a camera, a battery and a warhead, assembled by hand and flown once. The Pentagon’s comparable systems have historically cost orders of magnitude more, not because the components are better but because they were designed inside an acquisition culture built for exquisite, low-volume platforms like fighter jets, where every part is sourced, tested and certified over years. Layer onto that a July 2026 rule requiring a “wholly domestic” supply chain — no Chinese-made motors, no Chinese battery packs — and the honest tension becomes visible: the policy meant to make American drone production more secure is, in the near term, also what makes it slower and more expensive to scale. Metz’s own explanation was blunt: it is “much harder to get from zero to 200,000” than to expand an existing line. Ukraine skipped that problem by never centralizing production in the first place — thousands of small, dispersed workshops that are individually replaceable and collectively enormous.

The deeper obstacle is not money but structure. Replicator had no dedicated budget line, was bounced between the Defense Innovation Unit and a newly created Defense Autonomous Warfare Group under Special Operations Command, and repeatedly selected systems that existed as concepts rather than finished products, in a rush to hit an artificial 24-month deadline. Congress, by its own research service’s account, has struggled to get basic cost and capability data out of the program. This is what forced DOGE’s intervention: not a shortage of appropriated dollars, but a procurement system engineered for careful, low-volume exquisiteness trying to behave like a wartime factory floor, and failing at both.

The strongest objection to treating this as a straightforward American failure is that the comparison is not apples to apples. Ukraine’s FPVs are disposable, short-range and built for a static front line; American planners are chasing autonomy, jamming resistance and long-range swarm coordination for a Pacific theatre defined by vast distances rather than trench lines, and that ambition costs more and takes longer to get right. That is a fair distinction — but it does not rescue the record. Years and a billion dollars into that more ambitious bet, the Pentagon still lacks software able to command mixed fleets of different drones, while Ukrainian manufacturers are already fielding AI-assisted terminal guidance on sub-$500 airframes, refined through thousands of real combat sorties a month. The ambition gap did not produce a capability lead. It produced the same failure as the cost gap: exquisite requirements colliding with a timeline the requirements were never built to meet.

Which is why the Pentagon’s actual fix looks nothing like a bigger budget. Six Ukrainian manufacturers, including F-Drones and General Cherry, are now required to form joint ventures with American companies — near Toledo, Ohio, and in New Hampshire — as a condition of future Pentagon orders. Washington is not just buying drones. It is importing the production model, and with it the tacit admission that the expertise now runs the other way.

Three ways this goes

What happens next depends on whether the joint-venture model actually transplants Ukraine’s manufacturing tempo onto US soil, or just its branding.

Base case (roughly 50 percent probability). The Ohio and New Hampshire joint ventures scale gradually. By 2027–28, US-based output climbs into the low hundreds of thousands annually — a real improvement, but still an order of magnitude below Ukraine’s current pace, held back by the domestic-sourcing rule’s cost premium. The program becomes a credible proof of concept for a future Indo-Pacific contingency rather than a fix for any current shortfall, and “Drone Dominance” quietly redefines success downward to match what it can actually deliver.

Downside case. The DOGE-driven bypass of standard testing repeats Replicator’s failure mode at greater scale: units purchased without adequate vetting turn out unreliable in the field, a GAO or inspector-general report documents it, and Congress reimposes the very procurement safeguards that were just stripped away. Combined with a Chinese-component ban that keeps unit costs well above Ukrainian levels, US output stalls again, and the gap that Metz conceded in August widens rather than closes by the time it next matters.

Upside case. The joint-venture model works as intended — not just as a purchasing arrangement but as a transplant of Ukrainian manufacturing culture, its dispersed micro-factories, rapid iteration and tolerance for combat-tested imperfection, into the American industrial base. That model, proven on drones, becomes the template for how Washington arms the next partner already fighting a war, whether Taiwan or a Baltic state: not a slow pipeline of finished stockpiles shipped from the continental United States, but manufacturing capability transplanted onto the partner’s own soil, and now, in this instance, onto America’s.

The takeaway

So: what does the mismatch reveal? Not that Ukraine builds better drones — the Pentagon never disputed that its own designs, on paper, are more capable. It reveals that capability on paper is not the same as capability in time, and that the American defense-industrial base, even backed by an executive order, a billion-dollar program and a DOGE override of its own rules, still cannot mobilize at wartime tempo on its own. The fix Washington has actually reached for is not more money. It is outsourcing the missing ingredient — speed — to the one partner that has been forced to master it under fire. That is the real admission, and it may be the more durable one: the next time the United States arms a country fighting a live war, it may look less like supplying an ally and more like apprenticing to one.

Watch for: whether the Ohio and New Hampshire joint-venture lines are shipping US-assembled drones at anything close to Ukrainian unit costs by the next Gauntlet test cycle at Fort Carson. If the “wholly domestic” sourcing rule keeps American-made units several multiples more expensive than their Ukrainian counterparts, the joint ventures will have transferred the branding of Ukraine’s drone war without transferring its speed.