This week’s analysis highlights some of the most significant news concerning America’s adversaries between September 27, 2025 - October 4, 2025.
Summary:
The Russian government submitted its draft 2026-2028 budget to the State Duma this week. The draft’s optimistic deficit projections are being challenged in real-time by the deleterious effects Ukraine’s strikes on Russian refineries have had on state revenues.
Russia is threatening nuclear disaster by cutting external power to the Zaporizhzhia and Chornobyl nuclear power plants.
A wave of new drone sightings continues to menace Europe. Arrests of the crew of a Russian shadow fleet vessel by the French navy suggests that some, but maybe not all, are Russian provocations.
China’s chipmakers quickly lined up behind a new DeepSeek model in latest bid to create a made in China AI ecosystem. However, China may be inflating indicators of its progress toward this goal in order to scare the US into further dropping export restrictions on advanced chips.
China debuts a new visa category to attract top global talent in science in technology, but an already hyper competitive domestic job market may doom the effort from the start.
UN sanctions snapback on Iran as the country faces worsening governance issues that threaten the stability of the regime as it approaches the succession of its aging Supreme Leader.
1. NEW RUSSIAN BUDGET RELEASED AS GAS CRISIS WORSENS
Russia Releases Draft 2026-2028 Budget
This week the Russian government submitted a draft of its 2026-2028 budget to the State Duma.1 The budget notably features a decrease in defense spending from 13.4T rubles ($163B) to 12.6T rubles ($153B). But this decrease will be offset slightly by an increase in spending related to national security and law enforcement, 3.46T rubles ($41.3B) to 3.91T rubles ($47.6B).
The budget will raise an additional 1.2T rubles (0.5% of GDP) in revenue through a two-percentage point increase in the Value Added Tax (VAT) from 20% to 22%. The tax increase will be accompanied by a lowered threshold for businesses to begin paying VAT. This will raise the effective tax rate for many small businesses. The Russian government predicts the additional revenue generated by the taxes will keep the projected budget deficit at 1.6%.
Russia Importing Gasoline to Counter Shortages
Kommersant reported this week, in a new column dedicated to Russia’s gasoline shortages, that Deputy Prime Minister Alexander Novak proposed increasing imports of gasoline from Belarus from 45,000 tons in September to 300,000 tons in October in response to growing fuel shortages.
Kommersant also reported that Russia would pursue the purchase of gasoline from Asian markets by waiving 5% import taxes on gas from China, Singapore and South Korea.
Takeaways:
The decrease in defense spending in this budget does not indicate an end to Russia’s war economy. Russia’s overall spending on national security will remain approximately 8% of GDP. Forecasts for the 2027 budget also anticipate an increase in defense spending.
This also does not take into consideration the many other unofficial or semiofficial ways Russia’s finances aspects of its war effort. As Carnegie Endowment Fellow Alexandra Propenko notes:
“It’s worth remembering the structural lack of transparency in Russian military spending. About 25 percent of budget items are classified, although not all of them are military-related. In addition, a significant proportion of military funding comes via alternative channels: regional programs, loans to defense industry enterprises with state guarantees, treasury advances, and purchases through state corporations. Some of the cost is shifted to businesses. These expenses are not formally classified as defense, but de facto they are used for military purposes.” - Alexandra Propenko, October 1, 2025
The current gasoline crisis suggests Russia will almost certainly exceed its forecast 1.6% budget deficit. Oil and gas form the bedrock of Russia’s economy, accounting for 20% of GDP and generating 30-50% of state revenue. The fuel shortages stem from increasingly frequent and successful Ukrainian strikes on oil refineries, terminals, and other infrastructure. These strikes are not only making it harder for Russians to access gasoline domestically, but also disrupting exports of refined petroleum products, which generate more state revenue than crude oil.
Russia has proven unable to adapt to these strikes, largely due to insufficient air defense systems to protect its vast oil and gas infrastructure. Its failure to counter Ukrainian strikes on the Black Sea Fleet and its military and dual-use maritime infrastructure along its southern coast over the past two years suggests that meaningful improvements in protecting its refineries are unlikely.
This failure will create further budget woes in three ways. First it will reduce revenues from refined petroleum products and cause Russia to sell crude at a deeper discount to whoever will buy it. Second it will likely force the government to prop up state-owned companies which will face significant stress from capital intensive repairs that eat into profits due to high interest rates and reduced cash flows. Finally, it will force the government to rush the development of greater numbers of costly air defense systems to protect its sprawling critical infrastructure.
2. RUSSIA FLIRTING WITH NUCLEAR DISASTER
Zaporizhzhia Nuclear Power Plant Running on Generators
This week Ukraine’s Deputy Minister of Energy for European Integration Olha Yukhymchuk reported that the last remaining external power line to the Zaporizhzhia nuclear power plant (ZNPP) has been cut. As a result, the plant’s reactors have been forced to run off generators since at least September 23.
“Zaporizhzhia Nuclear Power Plant has been operating on backup diesel generators since September 23. It is essential to note that neither the generators nor the plant are designed for this mode and have never operated in such a manner for such an extended period. Moreover, we have information that in recent days the Russians even had to repair one of the generators that had failed.” - Ukraine’s Deputy Minister of Energy for European Integration Olha Yukhymchuk, October 3, 2025
Russian Strikes Cut Power to Chornobyl
Ukrainian President Volodymyr Zelensky announced on October 1, that the containment structure surrounding the ruins of the Chornobyl nuclear power plant lost power for over three hours after a Russian drone struck and disabled a power substation at the nearby village of Slavutych.
Takeaways:
Russia claims that Ukrainian shelling caused the outages. Imagery around the plant does not support this claim.

The current outage is the tenth and most severe at the ZNPP. This pattern has been part of a creative form of nuclear blackmail perpetrated by Russia. Speaking at the Valdai Discussion Club on October 2, Putin directly threatened that Russia would consider reciprocal strikes on Ukrainian nuclear power plants over supposed Ukrainian strikes on ZNPP.
“This is a dangerous game. And people on the other side need to understand: if they play this dangerously, they still have operating nuclear power plants on their side, so what’s stopping us from responding in kind? Let them think about that. That’s the first thing.” - Russian President Vladimir Putin, October 2, 2025
Putin’s remarks may have been alluding to the strike on Slavutych the day before. The strike may have been a trial balloon for further provocations.
The Kremlin may see greater advantages in nuclear brinksmanship involving threats to nuclear power plants than threats to use nuclear weapons. Responses to threats to nuclear facilities are not as sufficiently thought through and rehearsed as other forms of nuclear strategy, and provide greater plausible deniability.
The US may have inadvertently contributed to this dynamic by reducing the taboo around threats to nuclear facilities by bombing Iran’s nuclear sites. However, it must be noted that the risk posed by Russian strikes to active nuclear power plants such as ZNPP or the ruins of Chornobyl is orders of magnitude greater than the US and Israeli strikes on underground fuel enrichment plants.
The Kremlin also wants to pursue arms control negotiations with the Trump administration, as evidenced by its offer to continue to observe New START after it expires in February 2026. Having noted President Trump’s sensitivity toward previous nuclear bluster by Dmitry Medvedev, Kremlin officials may abstain from any remarks directly referencing nuclear weapons which may incense Trump and make future arms control negotiations more difficult. Threatening nuclear power plants may offer the Kremlin a way to unsettle European capitals without antagonizing the US President.
3. RUSSIA’S FINGERPRINTS ARE ON DRONE SIGHTINGS ACROSS EUROPE, BUT MAYBE NOT ALL OF THEM
Drone Sightings Across Europe Spark Panic
This week mysterious drones appeared in the skies of various European cities. Sightings were reported in Belgium, Denmark, Germany, and Norway. The drone sightings notably resulted in mass flight groundings at Munich Airport from October 2-3, disrupting travel during Oktoberfest.
France Detains Shadow Fleet Vessel Suspected of Launching Drone Incursions
On October 2, the French military boarded and arrested the crew of The Boracay, a Benin-flagged tanker ship sanctioned by the EU for its participation in the “shadow fleet” of vessels supporting Russia’s sanctions evading oil trade. The vessel was anchored near the Danish coast in late September when Denmark reported multiple drone sightings near key military installations including the Skrydstrup Air Base. French authorities suspect that The Boracay is the point of origin for the drones.
Source: France24 English on YouTube
Takeaways:
Russia is likely responsible for at least some of the drone incursions in Europe this past week, such as in Denmark. It is not clear however, that all reported sightings were the result of Russian provocations. Attribution for these sightings, composed of small and most likely locally flown drones, is far more difficult to ascertain than that of the 19 unarmed Shahed-type drones which violated Polish airspace on September 9.
Some of the recent sightings could end up being misidentifications, as airspace closures near Vilnius’s airport in Lithuania on October 4 caused by balloons illustrate. Others may simply be misunderstandings, such as when a 20-year-old Ukrainian man and his apparent Belarusian girlfriend flew a drone near government buildings in Warsaw on September 16 and inadvertently triggered a security crisis. Repeated misidentifications and misunderstandings can grow into a full-blown social hysteria that is amplified by local rabble rousers as happened with the New Jersey drone panic of November and December 2024.
Europe’s best option for deterring future malicious drone incursions, protecting critical infrastructure and calming local populations is to partner with Ukrainian specialists and purchase battle-tested Ukrainian systems for countering small unmanned aerial vehicles.
4. CHINA’S AI ECOSYSTEM LINES UP BEHIND NEW DEEPSEEK MODEL
On September 29, top Chinese AI company DeepSeek released a new experimental large language model DeepSeek-V3.2-Exp. The model features DeepSeek Sparse Attention (DSA), a computational mechanism that more effectively indexes and prioritizes information in a query and helps improve operational efficiency.

Huawei as well as other Chinese chipmakers Cambricon, and Hygon quickly published software updates to support the new model on their systems.
Takeaways:
The quick move by Chinese chipmakers to make their systems compatible with the new DeepSeek model demonstrates Chinese companies lining up behind Beijing’s demand to develop fully domestic AI stacks.
It’s not yet clear if the new DeepSeek Sparse Attention (DSA) represents a novel development, as some analysts have claimed. As Ars Technica has noted Western firms such as OpenAI and Google have long incorporated sparse attention computational techniques into their models, but their proprietary source code makes it difficult to make comparisons.
Just as the DeepSeek Sparse Attention Model may not represent a true breakthrough, other reports this week suggest that China may be inflating additional indicators of progress in its push for domestic development. An October 3 report by Bloomberg says Canadian semiconductor research firm TechInsights discovered that key components of Huawei’s third generation Ascend AI chips were themselves taken directly from competitor firms TSMC, Samsung, and SK Hynix.
The appearance of rapid progress toward domestic AI independence may be orchestrated by Beijing to gain leverage in ongoing trade negotiations to secure greater access to advanced American chips. Additional Bloomberg reporting this week indicates that Chinese negotiators are pushing the US to lift export restrictions on Nvidia’s most advanced AI chips. Nvidia and the White House have supported easing some restrictions as a way to prevent China from developing domestic competitors. However, TechInsights analysis suggests that US chips may actually be enabling the very alternatives the restrictions were meant to prevent. This suggests China’s recent actions, including weeks of investigations and restrictions targeting Nvidia, may be designed to exploit these concerns to gain even greater concessions it can use to benefit its tech industry.
5. CHINA DEBUTS NEW “K” VISA
On October 1, China debuted a new “K” visa category issued to top international talent in science and technology.

Takeaways:
China’s new visa category is a clear move to compete for top global tech talent shunned by the US as it makes H1-B visas more difficult to obtain.
The effort has potential but is unlikely to make China a top destination for global talent for several reasons.
First and most obviously, China’s authoritarian system of governance will likely deter a significant number of potential applicants, either through self-selection or through the CCP’s deliberate exclusion of candidates with disruptive ideas.
Second, the initiative risks inflaming resentment among China’s large population of educated young people struggling to find employment, with whom “K” visa holders will directly compete. Twenty percent of China’s urban youth aged 16-24 are unemployed, and top jobs in science and technology are fiercely competitive. Backlash to an April social media post by China’s National Nuclear Corporation, announcing that it had received nearly 1.2 million applications for 8,000 positions, illustrates the festering frustration with perceived inequity in the job market. This frustration could intensify with an influx of “K” visa holders taking coveted jobs in China’s science and technology sector. As a result, the “K” visas are likely to be used sparingly.
6. IRAN FACES DUAL CRISES—ECONOMIC SANCTIONS AND WATER SHORTAGES
Iranian Rial Plunges as Sanctions Snapback Takes Effect
The return of UN-mandated sanctions on September 28 triggered a depreciation in Iran’s currency on unofficial markets. On October 2, the Iranian rial was trading at a record 1.18M to 1 US dollar, the weakest the currency has ever been valued.
Iranian President Pezeshkian Says Water Shortage May Force Capital to Move
During an October 2 visit to the southern province of Hormozgan, Iranian President Masoud Pezeshkian announced that Iran’s capital would need to move to the region from Tehran in the future due to worsening water shortages.
“The problems the country is currently facing require us to direct the development path towards the Persian Gulf. Tehran, Karaj, and Qazvin are currently facing a water crisis, and this crisis cannot be easily solved.” - Iranian President Masoud Pezeshkian, October 2, 2025
Pezeshkian noted that as Tehran’s reservoirs near depletion, water will need to be transported to the city and could drive the price of water over four euros per liter.
Takeaways:
The Iranian regime faces a growing governance crisis of its own making. Its decades-long prestige projects of developing regional military proxies and a domestic nuclear program, which the regime has pursued at the cost of international isolation, have collapsed. These ploys to achieve great power status delivered no tangible benefits to ordinary Iranians and instead imposed enormous costs on the population.
The regime has demonstrated no willingness to compromise, even as cutting losses on its nuclear program may be necessary to avert economic and environmental collapse. This intransigence stems in part from fears about its own political survival. Yet the regime’s current refusal to reform will ultimately make the looming succession of the now 86-year-old Ayatollah Khamenei an even more serious existential challenge.
The State Duma is the lower house of Russia’s legislative branch, it is the first to review the federal government’s budget. The State Duma has essentially become a rubber stamp of the policies of the Putin government.