Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s The Analysts’ Brief examines the US-Russia diesel deal.

Read more

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s featured deep dive by Dan Arbell examines potential outcomes of Israel’s elections.

Key Takeaways Ahead of Israel’s Consequential Upcoming Elections

By Dan Arbell

^{“Prime Minister Benjamin Netanyahu” by Foreign, Commonwealth & Development Office is marked with CC BY 2.0.}

In two weeks, Israelis will vote in a deeply consequential election amid prolonged regional war, rising domestic divisions, and a messy electoral map. Ahead of the October 27 vote, recent polls show a near-tie. Neither the Netanyahu bloc nor the opposition reliably reaches the 61 of 120 Knesset seats needed for a coalition, so the bargaining after election day may matter more than the vote itself. The opposition’s security policy differs little from Netanyahu’s, and the election is not a referendum on the country’s broader security posture. Instead, it centers on domestic accountability and governance. A change of government would be most felt domestically, touching issues like the military draft for Ultra-Orthodox men, the judiciary’s role, and the tone and mechanics of post-war Gaza diplomacy. The outcome will also impact Israel's global diplomatic and economic relationships, intensifying or ameliorating reputational and regulatory risks amid rising European condemnation and US tensions at the leadership level.

In today’s full analysis:

• The State of the Race

• What Would Change Under Each Frontrunner?

• Where This Leaves Us

Read the Full Report Here

Or listen to the full report here:

Listen to the news:

Global

Suspected drone attacks on ships in the vicinity of Romanian territorial waters raise stakes for NATO response. Two chemical tankers were attacked while anchored in the Black Sea. Romania scrambled fighter jets, but has not commented publicly on the incident, which local media is attributing to Russian drones. Attribution, however, can be difficult. Five commercial vessels have been attacked in separate drone incursions in the past week. Neighboring Bulgaria reported similar attacks against two cargo ships sailing in its exclusive economic zone in the Black Sea this week, sinking one of the ships.

Attacks on shipping in NATO member states territorial waters would be a breach of sovereignty. If the ships are located in exclusive economic zones, but outside territorial waters, they would not automatically trigger NATO’s Article 5 collective-defense clause, leaving member states to lead the response. Black Sea countries Bulgaria, Romania and Turkey have raised the issue at NATO, asking for more focus on the region and joint support. NATO is considering deploying anti-drone defenses to the region to respond to a series of unprecedented attacks. Russia’s ability to launch large-scale attacks using drones poses a growing strategic vulnerability for NATO countries.

Read More: Financial Times [paywall], Ars Technica, Politico, Reuters [paywall]

Europe

EU heads of government gather in Brussels for the European Council summit. The most pressing issue is the seven-year budget, known as the Multiannual Financial Framework (MFF). There is an impasse between the “frugals” (member states seeking to trim the budget to prevent increases in member state contributions) and the “friends of cohesion” (member states seeking a larger budget to preserve legacy funds for agriculture and regional development). Ireland proposed a compromise to preserve the MFF’s legacy funds while cutting new priorities in competitiveness and defense, but this idea was rejected by everyone. The European Commission suggested adding new “own resources” (i.e., EU taxes) to fulfill a growing list of demands.

The Council will also juggle time to discuss migration, competitiveness, defense, and EU enlargement. Leaders may seek to spend time discussing migration as elections loom. Spanish Prime Minister Pedro Sanchez, facing the polls next month, will defend Spain’s record after the August onrush in Ceuta, an exclave bordering Morocco, and take aim at Italian Prime Minister Giorgia Meloni, who restricted travel to Spain to defend her hardline migration bona fides before elections next year. Meanwhile, Germany wants to discuss EU enlargement and tougher trade policy toward China.

Read More: Politico, European Parliament Research Service, Stepwise Risk Outlook

Middle East

Yemen’s Iran-backed Houthis are reportedly building advanced missiles with Chinese parts. Per a new report by Conflict Armament Research, the Houthis are using Chinese components to make an independent version of Iran’s Kheibar Shekan precision-guided missile. Attempts have been ongoing since at least June, and it is unclear if the Houthis have been successful.

The news signals the Houthis’ relative strategic autonomy, as well as rising risks to Saudi Arabia. Sourcing supplies from China, and copying the Kheibar Shekan demonstrates a level of desired independence from Iran – although the Houthis have always considered themselves more a partner than a proxy of Tehran. If successful, the missile will put all of Saudi Arabia and Israel within the Houthis’ reach, escalating risks to Saudi Arabia that already reached historic heights with the deadly and expensive Riyadh airport attack of the weekend.

Read More: Wall Street Journal [paywall], CNN, Brookings Institution

Asia-Pacific

Russia on Tuesday accused Japan of using journalists to gather intelligence and detained a Japanese reporter on suspicion of espionage. Russia’s Federal Security Service (FSB) identified the journalist as a correspondent for Japan’s Hokkaido Shimbun newspaper and accused him of collecting information on Russia’s defense capabilities. Japan denied the allegations and summoned the Russian ambassador on Wednesday to lodge a formal protest.

The arrest further strains already deteriorating relations between Tokyo and Moscow. The two countries have a decades-long territorial dispute over the Kuril Islands, which flared again in August when Russian President Vladimir Putin visited the disputed territory, prompting strong protests from Tokyo. Relations, however, especially soured after Russia’s invasion of Ukraine and Japan’s subsequent imposition of sanctions against Russia, imposing additional measures approved this month. Moreover, Russia has increasingly echoed China’s criticism of Japan’s defense posture, accusing Tokyo of seeking to revive World War II-era militarism. The detention, the most high-profile arrest of a foreign journalist in Russia since 2023, will further complicate efforts to improve bilateral ties.

Read More: The Japan Times, Wall Street Journal [paywall], Reuters [paywall]

Americas

Costa Rica opened a new mega-prison on Wednesday amid high levels of crime. Costa Rica’s conservative President Laura Fernandez announced that the High-Containment Centre Against Organized Crime (CACCO) represents a tough-on-crime model in Costa Rica that seeks to make the country a benchmark for prison security. The prison will have the capacity to hold 5,100 people, or 20 percent of Costa Rica’s current prison population. Costa Rica, which lies along the narcotrafficking route through Central America, has seen elevated homicide rates in recent years, with a record 905 homicides in 2023.

The opening of CACCO comes as nations across Latin America seek to replicate Nayib Bukele’s carceral model in El Salvador. Similar proposals have been made in the past year by right-wing candidates in Colombia, Brazil and Peru, where the growth of organized crime has given a boost to conservative candidates. Costa Rican President Fernandez took office in May and declared a war on criminal groups. On Friday, she will visit the CECOT facility in El Salvador to learn about its operational procedures. However, CACCO’s capacity is only one-eighth of that of CECOT, which can hold up to 40,000 prisoners.

Read More: El Pais, Al Jazeera, Reuters [paywall]

Geoeconomics

China’s goods trade surplus reached $938.1 billion in the first nine months of 2026 as September exports surged. The monthly surplus totaled $133.5 billion, putting China on course to exceed last year’s record of roughly $1.2 trillion. Exports rose 36.3% from a year earlier in US dollar terms, accelerating from 25% in August, while imports increased 31%. Semiconductors, data-processing equipment and vehicles helped drive export growth as China benefited from global AI investment. Higher prices also contributed to the figures: rising chip prices lifted export receipts, while more expensive oil increased the import bill. The strong trade performance continues to support an economy struggling with weak consumption and a prolonged property downturn.

The surplus is cushioning China’s domestic slowdown, but the IMF thinks it is not enough. MERICS finds that government credit support and investment incentives sustain production capacity even when domestic demand is insufficient, encouraging manufacturers to seek buyers abroad. Its analysis of the first half also found that stronger imports were concentrated in industrial inputs and inflated by energy prices, offering little evidence of a broad recovery in household consumption. On October 15, the IMF echoed those concerns, calling for larger fiscal stimulus to counter deflation risks, judging existing support too limited in size and scope. It also urged measures to address the prolonged property crisis and strengthen social safety nets, helping restore household confidence and shift growth from exports toward domestic consumption. If successful, those measures could narrow the trade surplus by increasing demand for imports and absorbing more Chinese production at home.

Read More: Reuters [paywall], Financial Times [paywall], Reuters [paywall], Bloomberg [paywall], MERICS

Energy

The International Energy Agency (IEA) is revising its global oil demand forecast downwards. The IEA assesses that rising fuel prices, limited global supplies, and a generally deteriorating economic outlook are pushing down the global demand picture for oil. The IEA predicts that in the fourth quarter of this year, global demand for oil will decrease 2.5 million barrels a day year-over-year and that across 2026 demand will drop on average 2.6 million barrels a day. While oil will recover partially in 2027, according to the IEA’s prediction, it will remain approximately 0.5% below 2025 levels.

While oil has largely resumed flowing from the Middle East, the shockwaves from the war with Iran continue to be felt. Brent crude futures have been trading over $100 for around a month and have risen in the last several days, even as oil from the Middle East reached around 80% of pre-conflict levels in December. The global supply problems for refined products are still present despite that, and the tensions around oil in the Middle East and Russia are creating prolonged instability.

Read More: AP, Yahoo Finance, Reuters [paywall]

Transnational Crime & Corruption

The US is reportedly deploying hundreds of Army soldiers to Panama for use in anti-cartel operations with Latin American allies. According to The New York Times, 600 soldiers from the 10^th Mountain Division will be assigned to a jungle training facility and eventually train with the Colombian and Honduran militaries. The soldiers will reportedly participate in military exercises in the Colombian jungle dubbed Southern Vanguard. They will reportedly supplement extant US special operations deployments in the region. The US Embassy in Panama denied the New York Times’ reporting, asserting that only 120 soldiers from the 10^th Mountain Division were deploying in Panama and that they would rotate back to the US by the end of October.

The deployment is overseen by a new office in the Pentagon overseeing anti-cartel activities. The new office joins several Latin American military initiatives to counter narcotrafficking activities, including SOUTHCOM’s Joint Task Force Western Hemisphere to coordinate activities of the Shield of the Americas coalition. The task force replaces the existing programs coordinating military airstrikes targeting maritime drug traffickers since 2025.

Read More: New York Times [paywall], Metro Libre [in Spanish]

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances. 

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s featured deep dive by Chris Dantes examines South Korea’s expanding defense cooperation.

South Korea Expands its Defense Ties Amid Great Power Competition and Uncertain Inter-Korean Relations

By Chris Dantes

^{“South Korean president Lee Jae Myung and Philippine president Bongbong Marcos in Manila, 2026” by the Presidential Communications Office is marked with Public Domain Mark 1.0.}

South Korean President Lee Jae Myung is seeking a greater role in international security and defense supply chains while also pursuing a more self-reliant defense posture. South Korea's expanding defense partnerships reflect a broader effort to translate its growing defense-industrial capacity into political influence and reduce strategic vulnerabilities amid intensifying US-China competition. Yet as Lee advocates for “peaceful coexistence” with North Korea, Pyongyang's continued military development and deepening cooperation with Russia underscore the potential limits of this approach. Together, these trends create new opportunities for defense-industrial and security cooperation in Southeast Asia, the Middle East and North Africa, but raise uncertainty about the Korean peninsula’s longer-term security environment.

In today’s full analysis:

• Seoul Navigates a Contested Security Environment

• Deepening Defense Cooperation with Middle Powers

• Implications for Businesses

Read the Full Report Here

Or listen to the full report here:

Listen to the news:

Global

British intelligence sees a growing threat matrix to the homeland posed by Iran, Russia and terrorists harnessing cyber tools. In a public briefing, MI5 director-general Sir Ken McCallum stated that the UK is devoting more resources to countering threats to the state than during the Cold War. Russian military and intelligence services are targeting the UK in hybrid warfare, calibrated to fall below the threshold to trigger NATO’s mutual defense clause. Russia is engaging in sabotage operations, recruiting operatives online for paid work. Iran is demonstrating its foreign intelligence capabilities, attempting to target military sites. The UK has stood up a new AI Threat Assessment Centre, as terrorists and other hostile actors seek to use AI-enabled reconnaissance and attack methodologies.

This threat landscape extends to other European countries as well as the US. Countries are hardening their critical infrastructure, including communications networks, energy grids, water plants and digital infrastructure to reduce vulnerabilities to physical and hybrid sabotage. Military and intelligence agencies are moving beyond defensive measures to build toolkits for offensive operations to manipulate, degrade, disrupt, deny and destroy adversary targets. Cyberspace is already recognized as an operational warfighting domain, alongside land, sea, air and space.

Read More: Wall Street Journal [paywall], White House, European Union Institute for Security Studies

Europe

Baerbel Bas, Germany’s Labor Minister and the co-Chair of the center-left Social Democrats (SPD), stepped down from her positions on Monday. Bas’ decision is personal, as she desires time to process a death in her family. Nonetheless, the decision will begin a leadership contest that can magnify the political divisions within the SPD, whose rank and file have critiqued leadership to demand more concessions from the SPD’s senior coalition partner, the center-right Christian Democrats (CDU/CSU). This could create pressure to demand prioritization of the SPD’s policies in the coalition contract, including regarding healthcare and retirement benefits, that clash with the CDU’s reform agenda. In the meantime, Alexander Schweitzer, a former premier of the federal state of Rhineland-Palatinate, will perform interim duties as Labor Minister.

An SPD leadership contest could take place in either December or January. Lars Klingbeil, the other co-chair of the SPD and the current Vice-Chancellor, would also be challenged in such a contest. Klingbeil’s campaign to maintain leadership as a co-chair could add stress to the government coalition; if new leadership or a new co-chair disagrees with Klingbeil’s compromises, the coalition could grind to a halt or possibly break. It could also weaken the SPD’s performance in upcoming state-level elections in April 2027.

Read More: Deutsche Welle, Politico, Der Spiegel [in German], Stepwise Risk Outlook

Middle East

The UN called on the US and Iran to agree to a longstanding proposal to move fertilizer through the Strait of Hormuz. The proposal, first put forward last month, would see the UN facilitate the transport of fertilizer components through the Strait from Oman, with the consent of the US and Iran as part of a peace deal or alongside negotiations. Neither the US nor Iran has addressed the proposal.

If a deal is not agreed, a missed growing season could compound a global food crisis. Prior to the war, one third of global fertilizer shipments passed through the Strait, and shipments have cratered since the onset of the war (almost none of the recovery of transits has included fertilizer shipments). Available fertilizer capacity has fallen by nearly 40% since the strait was disrupted, and if no progress is made, prices of food staples could soar up to 80%.

Read More: Reuters [paywall], Wall Street Journal [paywall], Al Jazeera

Asia-Pacific

US payments giant Visa announced on Tuesday it received approval from the People’s Bank of China to prepare to establish a domestic bankcard clearing institution in China. The approval allows Visa to complete preparations over the next year before applying for an operating license, potentially enabling it to process domestic yuan-denominated card transactions through its own network. The move follows similar approvals for other US payment networks, including Mastercard in 2023. However, unlike Mastercard, which entered through a joint venture with state-backed NetsUnion Clearing, Visa is pursuing a wholly foreign-owned operation.

The decision signals Beijing’s willingness to expand foreign access to selected financial services. Visa stands to benefit from China’s large domestic payments market but will face entrenched local competitors. The timing carries diplomatic significance as it follows US President Donald Trump’s summit with Chinese leader Xi Jinping earlier this year in Beijing, which Visa CEO Ryan McInerney was part of the delegation for. The approval comes ahead of the leaders’ expected meeting on the sidelines of the APEC summit in Shenzhen next month, possibly underscoring Beijing’s strong interest in maintaining stable relations as the two remain engulfed in their repeatedly extended trade détente.

Read More: Visa, South China Morning Post [paywall], Wall Street Journal [paywall], CNBC

Americas

Jamaica received 22 deportees from the US on Tuesday, its first third-country deportations from the US. Jamaica had signed a bilateral memorandum of understanding in June approving the plan. This agreement provides that the Jamaican government will transfer deportees back to their home countries or elsewhere after their arrival in Jamaica. A joint statement from the Jamaican Ministry of National Security and Peace and the Ministry of Foreign Affairs and Foreign Trade described the agreement as a transit arrangement, which would not be funded by the government. Rather, deportees would be supported by the UN’s International Organization for Migration. Jamaica did not agree to accept deportees with criminal records. The arrangement has been denounced by Jamaican opposition leaders who raised national security concerns.

This comes amid a growing number of agreements between the Trump administration and other countries willing to accept deportees from third countries. In many of these cases, the individuals being deported are not citizens of and have no ties to their destination countries. At least 35 nations have entered into similar agreements with the US, and the Trump administration has earmarked around $410 million to support this effort. There are ongoing legal challenges against third-country deportations, but five European Union member states are now looking to push forward with similar plans to deport asylum seekers whose applications are rejected to third countries outside the EU.

Read More: Al Jazeera, CBS, ABC

Africa

Former President of the Democratic Republic of the Congo (DRC) Joseph Kabila is organizing a new military-political coalition with AFC/M23 members, confirming his support for the insurgency. The move follows months of accusations from Kinshasa that Kabila supports M23, the Rwanda-backed insurgent group that is a member of the broader Alliance Fleuve Congo (AFC), a coalition that seeks to overthrow the Congolese government. The new alliance, the Front pour la Refondation de la Nation (FRN), will replace the AFC and includes multiple M23 officials. The former president, who opposes current President Felix Tshisekedi after a power-sharing agreement between the two collapsed, was sanctioned by the US in April 2026 for allegedly financing M23.

The formation of the FRN also coincides with reports of severe internal divisions within M23, which could explain the reorganization. M23 security services reportedly thwarted a plot by Théo Binamungu, a senior political official, and other political and military figures to oust M23 military chief Sultani Makenga and reassign the military intelligence chief, as well as the governorships of North and South Kivu, provinces in eastern Congo where the AFC has organized parallel governments.

Concerns have mounted that Kabila’s official involvement could mobilize more individuals to join the FRN, intensifying the conflict. This, in turn, is likely to prompt the Tshisekedi government to intensify its drone campaign and ground operations in eastern Congo, delaying US-backed peace proposals to stabilize the region and encourage greater investment in the country’s critical minerals sector. However, tensions carried over from the AFC are likely to persist and could affect the FRN’s stability.

Read More: Al Jazeera, Critical Threats, Stepwise Risk Outlook

Geoeconomics

US inflation accelerated in September as gasoline prices jumped and underlying price pressures remained firm. The Consumer Price Index rose 0.6% from August, when it increased 0.4%, lifting annual inflation to 3.7% from 3.4%. Gasoline prices climbed 9.1%, accounting for more than half of the monthly increase. Core CPI, which excludes food and energy, rose 0.3% for a second consecutive month, while its annual rate increased to 2.6% from 2.4%. Shelter prices gained 0.4%, and used vehicles, airline fares and clothing also became more expensive. Food prices were unchanged overall, with a small decline in grocery prices offsetting higher restaurant costs. The figures show that energy remains the principal driver of the headline increase.

The report raises the likelihood of another Federal Reserve rate hike at its October 27–28 meeting. Immediately after the release, traders priced in roughly a 50% probability of an October increase, up from around 20%. Treasury yields and the dollar rose, while US stock futures fell. The Fed already raised rates by 25 basis points in September, and its central concern is whether higher energy costs sustain broader inflation. Some economists expect delayed increases in diesel-related costs and persistent services inflation to slow the decline in underlying prices, even as energy prices eventually ease, suggesting borrowing costs could remain elevated after gasoline stops pushing headline inflation higher, thereby prolonging pressure on household spending and business investment.

Read More: BLS, Reuters [paywall], Reuters [paywall], Peterson Institute for International Economics

Disruptive Technology

ICYMI: The White House is making its incident reporting regime mandatory due to increased risks of AI mishandling of government systems. The Super Intelligence Task Force’s clarified that incident reporting is a “national security obligation” for model developers. This clarification occurs after Anthropic disclosed that its models submitted 19 nonimmigrant visa applications to the State Department based on publicly available information found on the department’s website. Similar mistakes have likely occurred across government agencies.

The move from a voluntary to a mandatory regime sends a strong regulatory signal early into the Super Intelligence Task Force’s tenure. The Task Force will submit a report on AI risks and opportunities in Q1 2027, possibly informing regulatory action on AI safety. The White House’s current AI safety initiatives have so far been voluntary to preserve a light-touch regulatory posture, but momentum for stronger regulation is increasing on both sides of the political aisle.

Read More: Axios, PYMNTS, TechCrunch

Energy

The EU is considering a windfall tax on energy companies. Wopke Hoekstra, ​the European Commissioner responsible for climate and taxation, announced that the Commission would establish a working group to look into the viability of a windfall tax on energy. Some European capitals (Germany, Spain, Portugal, Italy, Poland and Austria) have already called on the EU Commission before to implement a levy on energy profits derived from the effects of the war in the Middle East. The EU has implemented such a measure before; in 2022 the EU responded to Russia’s invasion of Ukraine and the subsequent energy shock with a windfall tax. However, that measure provoked legal challenges which are still being worked out in the court system.

Some countries are taking unilateral steps on energy policy. Lisbon has already implemented a 33% tax on extraordinary profits ​for energy companies for 2026. Germany intends to establish a new consumer levy in order to fund a new emergency gas reserve, which would cover the loss of Germany’s largest import infrastructure for up to 30 days.

Read More: Reuters [paywall], Reuters [paywall], Financial Times [paywall]

Transnational Crime & Corruption

The criminal trial of Serhii Kuzniestov, a former Ukrainian army officer accused of participating in the 2022 bombing of the Nord Stream gas pipelines, begins today. Kuzniestov was arrested in Italy in August 2025 and charged with a war crime by German prosecutors in July 2026. The prosecutors accused Kuzniestov and a team of divers, sailors, and explosives experts of carrying out the bombing on behalf of Ukrainian state entities. A scuba diver, Vladimir Zhuravlyov, is also facing an extradition case in Croatia.

The trial is politically awkward for Germany, which is simultaneously supporting Ukraine in its war against Russia. Kuzniestov’s lawyer has argued that the Nord Stream pipeline was a “Russian weapon” and a legitimate military target. The defendant’s counsel asserted that he would be unable to defend himself in court without exposing Ukrainian state secrets. Kyiv has consistently denied involvement in the Nord Stream bombings. A German court ruled in December that the Nord Stream bombers could lose legal protections owed to lawful combatants and that the pipelines were not legitimate military targets. It also ruled that the pipeline’s Russian owners could not join the prosecution as co-plaintiffs.

Read More: Reuters [paywall], Financial Times [paywall], Wall Street Journal [paywall]

Defense

India is selling its domestic defense products in Central Asia. Tajikistan and Turkmenistan have reached an agreement to import India’s Akash short-range surface-to-air missile system, giving New Delhi a foothold in Central Asian defense markets. Indian defense exports have skyrocketed recently, jumping 62% from the period between March 2025 and March 2026 as New Delhi works to build up its domestic defense industry and arms export business.

Russia’s war against Ukraine has created opportunities in defense cooperation. Tajikistan and Turkmenistan have historically been dependent on Russian arms and are potentially looking to diversify as Russia’s defense production is focused on domestic demand. Armenia, a member of the Russian-led Collective Security Organization, became the first buyer of the Akash system in 2022. Yerevan has also emerged as India’s largest market for defense exports. India has also historically had a strong defense relationship with Moscow.

Read More: Defense News, Reuters [paywall], War on the Rocks

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances. 

The Sanctions Update, compiled by attorneys from Steptoe’s award-winning International Regulatory Compliance team and the Stepwise: Risk Outlook editorial team, publishes every Monday (subscribe here). Guided by the knowledge of Steptoe’s industry-leading International Trade and Regulatory Compliance team, the Sanctions Update compiles and contextualizes weekly developments in international regulatory enforcement and compliance, as well as offers insights on geopolitical context, business impacts, and forthcoming risks, and non-sanctions news updates.

For more detailed analysis on related issues, see Steptoe’s International Compliance Blog. For information on industry-specific monitoring or bespoke services, please contact the team here.

By Evan T. Abrams, Meredith Rathbone, Karl Hopkins, Guy Soussan, Alexandra Melia, Wendy Wysong, Ali Burney, Quentin Johnson, Elliot Letts, Algirdas Semeta, Melissa B. Mahle, Anni Coonan, Thomas Goldstein, Zayna Dembinski, Samuel Bloebaum, Elton Smole, Ian Cameron, Wilson Zhao, Zoey Hong, Kiki Dong, Isabella Rao, Andy Xu Sofia, Jake Fitzpatrick, Carter Spahn, Chris Dantes

Listen to the Lede:

The Lede

Israel Implements Countermeasures against the UK Following Sanctions, Trade Ban

^{"United Kingdon Consulate on Har haZeitim Road" by יעקב is licensed under CCO 1.0}

On October 8, Israel implemented diplomatic countermeasures against the UK, including downgrading the status of the UK consulate in Jerusalem, in response to sanctions on Israeli West Bank settlements. Israel’s action against the UK’s consulate was not severe and leaves room for reconciliation after Israeli elections at the end of October. However, if Israel’s next government is politically similar or the country faces prolonged coalition negotiation gridlock, it is more likely that strained UK-Israeli relations will remain in their current deteriorated state.

In early September, the UK and allied countries announced their intention to ban imports of goods from Israeli settlements in the West Bank. The UK characterized the measures as a response to: (1) Israeli inaction in the face of growing settler violence against Palestinians; (2) approvals for further settlement expansion; and (3) humanitarian restrictions on Gaza. UK Foreign Secretary Ed Miliband characterized the steps as “ethnic cleansing of Palestinians in areas of the West Bank – perpetrated by settlor terrorists.” The announcement also outlined the UK government’s intention to create a new sanctions regime to target individuals and companies that provide services for settlement expansion, finance, or facilitate illegal settlements.

In retaliation, Israeli Foreign Minister Gideon Sa’ar demanded the complete closure of the British consulate in East Jerusalem, from which the UK operates much of its Palestinian-focused diplomatic work. Sa’ar gave UK diplomats assigned to the consulate a month to shut down operations. This follows Israel revoking the diplomatic status of Dutch diplomats in Ramallah in September after the Netherlands also implemented the settlement import ban. Israel also revoked recognition of Norwegian diplomats working on Palestine issues in August 2024 after Norway recognized Palestine as an independent nation.

Israel’s countermeasures against the UK are colored by upcoming Israeli elections in late October, where Prime Minister Benjamin Netanyahu is relying on support from his right-wing coalition to maintain power. Much of Netanyahu’s base is supportive of greater settlement construction in the West Bank, including his coalition partner and finance minister Bezalel Smotrich, who lives in a West Bank settlement.

UK National Security Advisor Jonathan Powell traveled to Israel last week to reportedly negotiate a compromise on the status of the British consulate in Jerusalem. According to media reports, Powell threatened to expel Israeli diplomats from the UK if the consulate were shut down. The expulsion could have escalated to further tit-for-tat expulsions and deteriorated British-Israeli relations.

As an apparent compromise, the UK consulate in Jerusalem was reclassified as “UK Mission, Jerusalem” and will act as an independent and separate institution from the UK embassy in Tel Aviv. The new mission will continue the consulate’s prior focus on Palestine-related diplomatic activity, with Sa’ar claiming that the new entity’s scope would be “very limited.” Additionally, 19 UK diplomats and the former consul general will be withdrawn from Jerusalem until new security measures for the UK mission can be implemented, likely in coordination with Israeli authorities. Sa’ar confirmed that just seven UK diplomats would remain in the East Jerusalem mission and framed the move as a stern rebuke to the UK’s import ban on settlements. The UK promised to refrain from reciprocal action against Israel while security and other diplomatic “discussions are underway and credible.”

This compromise allows the UK to maintain the continuity of its Palestine-focused diplomatic presence. Meanwhile, Israel can claim to have successfully expelled the bulk of the mission’s operating staff and leadership. Sa’ar also noted that previously announced expulsions of UK military advisors for the International Gaza Support Center and Palestinian Authority forces have also been implemented. By preserving a latent diplomatic presence in Jerusalem, the UK may be hoping that a potential post-Netanyahu Israeli government would be open to reviving the new UK Mission. However, a triumphant Netanyahu would likely spell more of the same for Israel’s West Bank policy. An inconclusive election could also leave UK-Israeli relations frozen at their current nadir if opposition parties are unable to form a workable coalition for an extended period of time (leaving Netanyahu as a caretaker Prime Minister). A stable post-Netanyahu opposition coalition open to constructive dialogue with London could use the revival of the UK’s Palestine-focused diplomatic outpost as a starting point for reinvigorated ties.

The latest polls have neither Netanyahu’s coalition nor a collection of opposition parties close to winning the 60 seats needed for a majority government. To avoid new snap elections, a minor party from either coalition would have to switch sides to form a government. The opposition could also form a coalition with the two Arab parties, an option slightly less popular among Israelis, at 36% approval, than another Netanyahu premiership at 38% approval.

If the UK Mission, Jerusalem remains understaffed and inoperable due to security delays, and if Israeli settlement policy remains unchanged amid escalating West Bank violence, then the UK and its allies may decide to implement expanded settlement-related sanctions on Israel. Potential targets include Israeli government ministers involved in West Bank policy and non-West Bank Israeli organizations seen as supporting settlements. The UK could also eschew sanctions in favor of further limits on security and intelligence cooperation with Israel, including by expanding the limited arms export bans it imposed on Israel in September 2024.

Israel’s demonstrated sensitivities toward settlement-related sanctions mean that multinational businesses must navigate sanctions compliance and potential Israeli regulatory restrictions for that compliance. Additionally, the added compliance costs to a business attempting to differentiate between settlement-derived imports from Israel and non-settlement Israeli imports could convince companies to shift supply chains to less complex jurisdictions.

US Developments

US Authorizes Sale and Import of Russian Diesel Fuel

On October 9, the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued Russia-related General License (“GL”) No. 135, which authorizes transactions related to the sale, delivery, offloading, or importation, including importation into the US, of Russian diesel fuel, until April 7, 2027. In a post on Truth Social, President Donald Trump said he held a discussion with President Vladimir Putin and stated that Russia agreed to immediately supply more than 300,000 metric tons of diesel to US and global markets, another 500,000 tons in November, and one million tons immediately thereafter.

The authorization comes as US diesel prices remain at near-record highs and appears at odds with US efforts to target Russia’s energy sector. In October 2025, the Trump administration sanctioned two Russian oil majors to pressure Russia to end the war with Ukraine. Last month, President Trump signed the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026, which authorized the President to impose tariffs of up to 100 percent on the largest purchasers of Russian oil and natural gas. On Sunday, a bipartisan group of six senators called on the President to cancel the deal with Russia and asserted that it would violate the Ending Importation of Russian Oil Act, which became law on April 8, 2022.

GL 135 does not authorize debits to an account on the books of a US financial institution of the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation.

State Department Designates International Criminal Court, Issues Four General Licenses

On October 9, the US Department of State announced the designation of the International Criminal Court (“ICC”) pursuant to E.O. 14203, “Imposing Sanctions on the International Criminal Court.” Although the Trump administration had previously sanctioned 17 judges and officials of the ICC under E.O. 14203, these sanctions are the first measures imposed on the court itself. The State Department said the sanctions were intended “to defend US sovereignty and neutralize the threat posed by the ICC.”

The UN Secretary-General, Antonio Guterres, called the sanctions “a serious blow to our collective pursuit of international criminal justice[.]” Several European and G7 partners, including the UK, Canada, Denmark, Germany, France, Italy, Japan and the Netherlands, stated they “regret and strongly disagree with” the sanctions.

Concurrently, OFAC issued a series of GLs designed to limit unintended disruptions resulting from the ICC designation. These licenses did the following:

• GL 13 authorizes transactions ordinarily incident and necessary to the maintenance or wind-down of operations, contracts, or other agreements involving the ICC until April 7, 2027. The GL explains that such transactions include: States Parties’ contributions, employee compensation, insurance, utilities, and other routine operational expenses.

• GL 14 authorizes telecommunications services, internet-based communications, cloud services, and enterprise software support involving the ICC.

• GL 15 authorizes transactions necessary to process pension payments involving the ICC.

• GL 16 authorizes transactions necessary for the continued detention, health, safety, and welfare of specified ICC detainees and the operation of detention facilities.

The State Department said that GL 13 is intended to “provide time for States Parties to demonstrate meaningful progress on diplomatic and legal resolutions that address fundamental US concerns regarding the ICC.” The State Department noted that “[t]his GL can be adjusted in response to the success or failure of such efforts to address our concerns.”

US Targets Iran’s “Shadow Fleet” as Part of Operation Economic Outcast

On October 8, OFAC sanctioned 17 vessels and 17 associated companies allegedly linked to Iran’s network of vessels used to transport billions of dollars’ worth of petroleum and petrochemical products abroad. This action was taken pursuant to Executive Order (“E.O.”) 13902, which targets the Iranian petroleum sector, among other Iranian key sectors.

On the same day, the State Department sanctioned five vessels, ten entities, and six individuals. The entities include India-based Samudra Marine Services Private Limited (“Samudra”), which the State Department alleges facilitated the import of Iranian petrochemical products to India. OFAC issued GL EE authorizing the wind-down of transactions involving Samudra until October 23.

Additionally, OFAC removed two vessels from the SDN List that were allegedly part of Iran’s Shadow Fleet, after the Treasury determined that the vessels had undergone a demonstrated change in circumstances, including their sale to non-sanctioned operators and removal from Iran-related shipping networks.

OFAC Extends License for Administrative Payments with Central Russian Bank, Russian National Wealth Fund, and Russian Ministry of Finance

On October 8, OFAC issued GL 13S, which extends until January 9, 2027 the authorization for US persons or entities owned or controlled by a US person to pay taxes, fees, or import duties, and purchase or receive permits, licenses, registrations, certifications, or tax refunds to the extent such transactions are prohibited under Directive 4 of E.O. 14024, Prohibitions Related to Transactions Involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation, provided such transactions are ordinarily incident and necessary to the day-to-day operations in Russia of such US persons or entities. GL 13S supersedes the authorization under GL 13R, which was scheduled to expire on October 9.

OFAC Reaches $175,015 Settlement with Pegasus Worldwide Logistics for Apparent Violations of Counter Narcotics Sanctions

On October 9, OFAC announced a $175,015 settlement with Pegasus Worldwide Logistics (“Pegasus”), a California-based forwarding and logistics company, for apparent violations of US counter-narcotics sanctions and reporting obligations. According to OFAC, Pegasus facilitated the shipment of a machine supplied by a sanctioned Chinese company due to significant deficiencies in its sanctions compliance review process and overall compliance program.

The supplier, Youli Technology Development (“Youli”), was designated by OFAC in May 2023 for shipping machinery to US buyers involved in the manufacture of counterfeit pills. Following its designation, Youli changed its name to Huizhou Youli Fushi Co., Ltd., but key identifying information, including its email and phone number, remained unchanged. OFAC found that Pegasus screened only the company’s post-designation name, Huizhou Youli Fushi Co., Ltd., against its sanctions database and failed to screen additional identifiers such as the company’s address and phone number. OFAC determined that Pegasus did not voluntarily disclose the apparent violations, and that the matter constituted a non-egregious case.

OFAC stated that the enforcement action highlights the significant sanctions risks faced by logistics providers and other trade-related intermediaries. The agency further emphasized that it “strongly encourages international trade-related intermediaries and service providers to employ robust, risk-based sanctions compliance controls to effectively manage sanctions risk.”

Treasury Announces Third Round of Sanctions Removals under Sanctions Modernization Initiative

On October 5, OFAC announced the removal of 125 individuals and entities from its sanctions lists and updated 22 additional entries as part of the agency’s modernization initiative. According to OFAC, the removals consisted primarily of deceased individuals, defunct companies, and entries missing sufficient identifying information for effective compliance screening.

The action is the third round of sanctions list revisions, building on actions from May 28 and July 27, totaling nearly 300 sanctions removals. OFAC stated that all removals underwent interagency review and were determined not to adversely affect US foreign policy or national security interests.

OFAC Publishes Iran Alert and Amends One Iran-related Frequently Asked Question

On October 5, OFAC issued guidance warning foreign financial institutions that continue to conduct business with Iran or its financial sector that they may face sanctions under “Operation Economic Outcast.” OFAC emphasized that foreign financial institutions facilitating transactions with sanctioned Iranian banks or supporting Iran’s access to the international financial system could be targeted without advance notice and should immediately review and terminate such activities where appropriate.

Additionally, OFAC updated Frequently Asked Question (“FAQ”) 156 to reference the new alert. FAQ 156 explains how US and foreign financial institutions are notified when the Treasury Department imposes restrictions on a foreign financial institution under the Iranian Financial Sanctions Regulations.

UK Developments

OFSI Amends and Extends Maritime Mutual Re-Insurance Wind Down General Licence

OFSI has amended the Maritime Mutual Re-Insurance Wind Down General Licence (INT/2026/8893924), which provides targeted authorisations for certain activities connected with the wind-down of maritime mutual reinsurance arrangements that would otherwise be restricted under UK financial sanctions. The amendments, published on October 7, 2026, introduce a new definition of “Qualifying Overseas Wind-down Payment” and expand the permissions available under the licence, providing additional flexibility for parties undertaking qualifying wind-down activities. OFSI has also extended the licence by 12 months, with the revised expiry date now October 6, 2027. The changes provide additional time and scope for affected insurers, reinsurers and other parties to manage relevant arrangements, although businesses seeking to rely on the licence should review the amended provisions carefully to establish whether their proposed activities fall within the expanded permissions and comply with all applicable conditions.

UK Announces 38 new Russia Sanctions Targeting Oil Revenues, Financial Networks and Military Supply Chains

The UK Government has announced a further package of 38 sanctions measures under the Russia (Sanctions) (EU Exit) Regulations 2019, comprising the designation of 23 entities, three individuals, and the specification of 12 vessels. The UK Government has also amended the existing designations of two entities. According to an accompanying UK Government press release, the measures target individuals, businesses and vessels allegedly involved in supporting Russia’s oil exports, facilitating military production and circumventing financial sanctions. Among those targeted are 12 additional shadow fleet oil tankers suspected of facilitating Russian oil exports in circumvention of sanctions, alongside three cryptocurrency exchanges and two payment platforms allegedly used to bypass financial restrictions. Two of these financial entities are reported to have facilitated transactions involving the previously sanctioned A7 illicit finance network. The package also targets 17 individuals and entities involved in supplying goods critical to Russia’s military-industrial base, including Russian importers of machine tools, electronics and materials used in the production of missiles and drones. The measures reflect the UK’s continued focus on restricting Russian energy revenues, disrupting alternative financial channels and targeting procurement networks supporting Russia’s war in Ukraine, reinforcing the importance of sanctions screening and due diligence across maritime, financial and international supply-chain activities.

OFSI Issues General Licence Permitting Wind-down of Transactions Involving Zarubezhneft JSC

Following the designation of Zarubezhneft JSC under the UK’s Russia sanctions regime, OFSI has issued General Licence INT/2026/11080040, authorising the wind-down or divestment of transactions involving the Russian energy company and entities it directly or indirectly owns or controls. The licence also permits activities reasonably necessary to complete such wind-down or divestment arrangements, providing a limited period for businesses to terminate or disengage from existing commercial relationships that would otherwise be restricted by the applicable financial sanctions. The General Licence took effect on October 8, 2026, and expires at 23:59 on November 21, 2026, establishing a relatively short window for affected businesses to complete relevant activities. Persons seeking to rely on the licence should carefully review its scope and conditions, including applicable record-keeping requirements, and ensure that any wind-down or divestment activities are completed before the expiry deadline or otherwise authorised under an applicable licence.

OFSI Clarifies Treatment of Specific Licences Following Delisting

OFSI has published FAQ 205, clarifying the status of specific licences where a designated person is subsequently removed from the UK Sanctions List. The FAQ confirms that where a specific licence relates solely to a delisted person and no other applicable sanctions restrictions remain, the licence is no longer required and there is no need to apply to OFSI for its revocation. However, if the individual or entity is subsequently re-designated, any specific licences previously issued by OFSI will not automatically be reinstated, and a fresh licence application will be required to authorise activities that would otherwise be prohibited. OFSI also confirms that any pending specific licence applications which are rendered unnecessary by the delisting will be closed. The clarification provides greater certainty for businesses managing sanctions licences and highlights the importance of reassessing licensing requirements following changes to designation status, particularly where multiple designated persons or sanctions restrictions may be involved.

EU Developments

EU Council Adopts Largest Expansion of Russia Sanctions Designations Since 2022

On October 12, EU foreign ministers of the Council adopted restrictive measures against an additional 1,569 individuals and entities, constituting the largest single set of listings ever agreed by the EU under its Russia asset freeze sanctions regime. The new designations bring the total number of listings under the regime to nearly 4,600. The package was adopted following agreement on the listings by EU ambassadors in Coreper on October 7.

The new sanctions package targets 826 Russian companies associated with Russia’s military-industrial complex, as well as 743 individuals holding senior management positions in those companies. As announced by the EU Council, the listed entities include mid-level suppliers of Russia’s military industry, with a combined annual turnover exceeding €20 billion and employing more than 250,000 people. The designated companies supply key components used in advanced Russian weapons systems, including missiles, unmanned aerial vehicles (UAVs), and aircraft. These components include electronics and semiconductors, microcircuits and computers, communications equipment such as radars, antennas and transceivers, aviation, satellite and missile systems, explosives and ammunition, and optics and navigation systems.

Among the newly listed entities are Russian defense-sector companies such as Joint Stock Company Vektor, a manufacturer of defense electronics and communications systems, and Joint Stock Company Zavod Proton, a supplier to Russia’s aerospace and defense-industrial sectors. The package also designates individuals such as Dmitriy Igorevich Adamovich, General Director of Joint Stock Company Vektor, and Evgeniy Vasilevich Ushakov, General Director of Joint Stock Company Zavod Proton, among numerous senior managers of companies identified as forming part of Russia’s military-industrial complex.

Designated individuals and entities are subject to an asset freeze and a prohibition on making funds or economic resources available. In addition, listed individuals are subject to an EU travel ban.

EU Council Renews Sanctions Targeting Russia’s Hybrid Activities

The EU Council recently renewed the individual restrictive measures targeting those responsible for Russia’s destabilizing actions for another year, until October 9, 2027. The renewal comes in response to ongoing hybrid threats, including Foreign Information Manipulation and Interference (FIMI), targeting the EU and its Member States.

First adopted in October 2024, the sanctions regime targets individuals and entities involved in actions and policies pursued by the Russian government that undermine the EU’s fundamental values, security, independence, and integrity, as well as actors responsible for Russia’s hybrid activities against third countries and international organizations. At present, restrictive measures in view of Russia’s destabilizing activities apply to 80 individuals and 20 entities.

CJEU Judgment Sets Aside Order of the General Court in Global 8 Airlines v Commission

The Court of Justice of the European Union (CJEU) delivered its judgment in Case C‑482/24 P (Global 8 Airlines v Commission), following an appeal brought by Global 8 Airlines, a Kyrgyz airline company. The case concerned the inclusion of two of the airline’s aircraft on a list of aircraft subject to a flight ban under Article 3d of Council Regulation (EU) 833/2014. The airline had purchased both aircraft from a Russian company and learned of their inclusion on the list after Eurocontrol rejected a flight plan for one of the aircraft and confirmed that the Commission had supplied the list. Global 8 Airlines sought annulment of the Commission decision before the General Court, which dismissed the action as inadmissible by an order issued in April 2024, holding that the decision did not constitute an act amenable to review under Article 263 TFEU.

The Court of Justice set aside the General Court’s order and referred the case back to the General Court for examination. In its judgment, the Court of Justice recalled that any act of an EU institution that is intended to have binding legal effects may be the subject of an action for annulment. Determining whether an act produces such effects requires a specific examination of its content, taking account of its context and the powers of the institution which adopted the act.

The Court of Justice further clarified that whether an act is open to challenge must be assessed objectively, on the basis of its substance. Whether the act affects the applicant’s interests by bringing about a distinct change in its legal position is a separate question concerning the applicant’s standing under the fourth paragraph of Article 263 TFEU.

EU Council Extends Nicaragua and Niger Sanctions Regimes

On October 9, the EU Council extended the restrictive measures in view of the situation in Nicaragua by one year, until October 15, 2027. The sanctions regime, established in October 2019, targets individuals and entities responsible for serious human rights violations and actions, policies or activities that otherwise undermine democracy or the rule of law in Nicaragua. Currently, the restrictive measures apply to 21 individuals and 3 entities in total. Applicable restrictive measures include travel bans, asset freezes, and a prohibition on making funds or economic resources available.

In addition, the EU Council renewed the restrictive measures in view of the situation in Niger for another year, until October 24, 2027. No individuals or entities are currently designated under the regime. Nonetheless, the framework provides for asset freezes, a prohibition on making funds or economic resources available to listed individuals and entities, and an EU travel ban.

Asia-Pacific Developments

Japan Expands Russia-Related Export Restrictions

On October 6, 2026, Japan’s Ministry of Economy, Trade and Industry (METI) announced additional Russia-related sanctions under the Foreign Exchange and Foreign Trade Law, following a Cabinet decision approved on October 2. The measures expand Japan’s export prohibitions on goods deemed to support Russia’s industrial base, adding a broad range of products including minerals, chemicals, metals, machinery, industrial equipment, and precision instruments to the restricted list. According to METI, the new controls are intended to align Japan with measures adopted by other major economies and to contribute to international efforts responding to Russia’s invasion of Ukraine. The amended Export Trade Control Order is scheduled to be promulgated on October 9 and take effect on October 16.

Japan Reaffirms Support for ICC as US Expands Sanctions Against the Court

On October 11, 2026, Japan reportedly expressed “deep concerns” over US sanctions targeting the International Criminal Court (ICC), reaffirming its support for international courts. Chief Cabinet Secretary Minoru Kihara said the sanctions “run counter to Japan’s position,” although Tokyo stopped short of calling for their withdrawal. The disagreement was also reflected in a telephone call between Japanese Foreign Minister Toshimitsu Motegi and US Secretary of State Marco Rubio. Rubio defended the sanctions, arguing that the ICC’s actions threatened American sovereignty, while Motegi “conveyed the Japanese government’s position.” According to Japan’s Foreign Ministry, both officials agreed “to maintain close communication.” Separately, the Bureau of the ICC’s Assembly of States Parties called for the sanctions’ “immediate revocation,” condemned the coercive measures, and urged the international community to defend the court and its officials.

Malaysia’s Maritime Sector Faces US Sanctions Risks Over Iranian Oil Trade

On October 7, 2026, Malaysia’s maritime services sector reportedly faces heightened US sanctions risks. The case of local shipping agency Tefcas Marine highlights compliance challenges surrounding Iranian oil transfers. The company was sanctioned in late 2024 for allegedly “materially assisting” a network linked to sanctioned Houthi financier Sa’id al-Jamal after coordinating repairs and an inspection for the tanker Reneez. The vessel was not designated when the engagement began but became subject to sanctions during the repairs. Tefcas earned approximately USD 2,500 from the work but subsequently lost access to bank accounts and company email access, while at least nine other entities involved with the vessel remained undesignated. The case underscores sanctions exposure for Malaysian maritime service providers operating near a major hub for Iranian oil transfers, particularly smaller firms with limited screening resources. Targeting these small intermediaries may not have effectively disrupted the trade. Tefcas’s owner reportedly sought OFAC reconsideration in 2025 and was awaiting a response, while the tanker continued transporting Iranian oil under a different name and flag.

Australia Rejects Russian Diesel Imports

On October 11, 2026, Australia reportedly reaffirmed its opposition to purchasing Russian diesel, despite rising fuel prices and a reported US–Russia agreement to resume diesel shipments to the United States. Home Affairs Minister Tony Burke said Australia had “no interest in buying fuel from Russia,” stressing that Moscow should not benefit financially from ongoing conflicts. Energy Minister Chris Bowen separately said Australia was working with trading partners to prevent Russian fuel from reaching the country. Ukrainian officials urged international partners to impose further restrictions on Russia, warning that energy revenues finance its war effort. Australia already maintains sanctions targeting Russian individuals, businesses and the “shadow” tanker fleet, while legislation seeking to impose additional sanctions was “expected to pass Parliament next week.”

Listen to the news:

Global

The US-Ukraine bilateral relationship is rapidly souring over Russian diesel production and exports. Kyiv and Washington have found themselves at odds over energy relations with Russia and attacks on Russian infrastructure following a US announcement on sanctions relief and imports of Russian diesel. Ukrainian president Volodymyr Zelenskyy strongly criticized the deal, triggering a response from US president Donald Trump that it was time for Ukraine to select a new leader. Trump also announced a new energy ceasefire which would only apply to strikes on refineries, which Kyiv had reportedly been unaware of before Trump’s announcement.

The decision is spilling into the overall transatlantic relationship as tensions over US-Russia relations escalate. At a meeting between American and Ukrainian negotiators on Friday, the US reportedly threatened to cut intelligence sharing with Ukraine if Kyiv did not halt its strikes against Russian refineries. The US also warned it could block deliveries of weapons to Kyiv through the Prioritised Ukraine Requirements List (PURL), through which European countries pay for American weapons for Ukraine. European capitals and members of Congress from both parties have voiced staunch opposition to the agreement as providing relief to Russia while receiving little in return.

The agreement is the latest development in Washington’s reemerging interest in economic cooperation with Moscow. The US has invited Russia to participate in G20 meetings in the US and has reportedly begun considering an arrangement where Russia could receive sanctions relief in return for releasing political prisoners.

Read More: Politico, CNN, Ukrainska Pravda, AP News, Kyiv Independent, Stepwise Risk Outlook

Europe

ICYMI: On Saturday, Ireland advanced negotiations over the 20280-2034 EU budget, proposing €159 billion in cuts. The Irish presidency of the Council of the EU offered an 8% overall reduction in the size of the original budget proposal. No cuts were made to legacy EU spending schemes like agricultural subsidies or cohesion funds; all cuts were concentrated in new competitiveness initiatives, defense spending, and funds for EU candidates. This was a compromise to appease the “frugals,” like Germany and the Netherlands, that want to decrease their contributions to the budget, and the “Friends of Cohesion,” like France and Poland, that want to ringfence legacy redistribution schemes.

The compromise will not appease the competing factions. Frugals like Germany would prefer cuts to redistribution schemes to expand competitiveness and defense funds. And the Friends of Cohesion would prefer more new “own resources” (i.e., EU-level taxes) to raise money to fund both new competitiveness funds and legacy redistribution schemes. Both of the largest parliamentary groups in the European Parliament, the center-right European People’s Party and the center-left Socialists & Democrats, rejected the budget, which they see as too small to fund the EU’s priorities.

Read More: Politico, European Parliament, Stepwise Risk Outlook

Middle East

The Palestinian Authority postponed long-delayed parliamentary elections to September 2027. President Mahmoud Abbas cited Israeli restrictions in the West Bank and security barriers to holding elections in Gaza. The last parliamentary elections were held in 2006, when Hamas won most of the seats in the Palestinian Legislative Council, a repudiation of Abbas’ Fatah party. The PLC’s activities have been suspended since Fatah and Hamas violently split in 2007.

The Authority also promised to hold presidential elections in 2027. Abbas was elected to a four-year term in 2005 and managed to avoid subsequent elections through repeated delays. He and Fatah dominate the Palestinian Authority, with much of the population resenting his administration over allegations of corruption, authoritarianism, and collaboration with Israel’s occupation. The delay could undermine Palestine’s recent diplomatic recognitions, as France cited upcoming elections as key to its decision to recognize Palestinian sovereignty.

Read More: New York Times [paywall], Financial Times [paywall]

Asia-Pacific

The EU and China reached an unexpected trade agreement Friday, easing immediate tensions that threatened to escalate into a full-blown trade war. Brussels will cap Chinese hybrid vehicle imports at 350,000 annually for four years, less than half the 800,000 units the EU projected would enter the bloc in 2026. In exchange, Beijing will cut tariffs on European goods, including auto parts, olive oil, and footwear, worth nearly €4 billion annually.

While the agreement eases immediate trade tensions, it complicates the EU’s broader efforts to counter Chinese competition. The deal resembles a 2013 arrangement that limited Chinese solar panel exports, but ultimately led to Chinese manufacturers raising prices amid restricted supply and bolstering their position as the global supplier of solar panels. Meanwhile, since 2024 the EU has maintained additional tariffs of 7.8%–35.3% on Chinese electric vehicles, but exempted plug-in hybrids, leaving them more exposed to import competition.

The agreement could also complicate efforts to build EU consensus around tougher trade defenses. It comes just days after French President Emmanuel Macron and German Chancellor Friedrich Merz called for stronger measures against foreign market disruptions, namely China-driven “systematic distortions.” EU leaders are expected to discuss China at Thursday’s summit, where discussions on the deal could shed light on whether member states prioritize near-term de-escalation or more assertive measures against Beijing.

Read More: South China Morning Post [paywall], New York Times [paywall], Reuters [paywall], Euro News

Americas

On Monday, China sanctioned officials from Paraguay and Belize over their countries’ ties with Taiwan. The sanctions targeted Paraguayan Communications Minister Gustavo Villate and Belizean Foreign Minister Francis Fonseca. The measures, which are largely symbolic, include freezing any assets they may have in China and denying them visas and entry, as well as prohibiting Chinese persons from cooperating with them. A statement from China’s foreign ministry described the move as serving Chinese national sovereignty and security. Paraguay and Belize are among 12 remaining diplomatic allies of Taiwan, as other countries including Nicaragua and Honduras have switched allegiances from Taipei to Beijing in recent years.

The US State Department condemned the action in a statement from spokesperson Tommy Pigott. This statement also tied the issue to sovereignty, defending the rights of states in the Western Hemisphere to maintain international partnerships. Taiwan Deputy Foreign Minister Chen Ming-chi also spoke out against the move, highlighting Taiwan’s increased visibility on the international stage. The issue of diplomatic recognition of Taiwan is especially relevant to Latin America, where the US has been seeking to counteract Chinese influence in the region.

Read More: Reuters [paywall], AP, Al Jazeera

Geoeconomics

The IMF’s World Economic Outlook raises its global growth forecast, but the improvement depends on AI investment and easing energy disruption. Growth is projected at 3.1% in 2026, up from 3% in July, and 3.4% in 2027. Global inflation is forecast at 4.7% this year and 4.1% next, with US growth of 2.3% in both years. The baseline assumes the Strait of Hormuz reopens by March 2027, and shipping conditions normalize by that October. AI investment continues to offset some of the economic damage from higher energy prices, but that support creates its own vulnerability: in an adverse scenario involving a sharp AI investment slowdown, global output would be 1.1% below the baseline by 2028, with US output 1.8% lower.

Another IMF paper, the Global Financial Stability Report, warns that an AI market correction, sharply higher government bond yields or a major cyberattack could trigger broader financial stress. AI companies have become financing partners that promise to purchase chips or services, creating interconnected exposures if commercial returns disappoint. Weaker demand could simultaneously reduce investment values, undermine debt repayments and cancel expected revenue. Meanwhile, heavy government borrowing competes with growing AI-related bond issuance for investor capital, adding pressure to yields. Hedge funds have also increased their share of US Treasuries from approximately 4% in 2022 to 9% in 2025, often using substantial borrowing. A sharp selloff could force funds to unwind similar positions simultaneously, accelerating price declines and reducing the value of bonds used as collateral. Markets have remained broadly resilient, but these vulnerabilities could amplify otherwise manageable shocks.

Read More: IMF World Economic Outlook, IMF Global Financial Stability Report, Reuters [paywall], Reuters [paywall], Brookings

Disruptive Technology

ICYMI: Last week, Sen. Maria Cantwell (D, WA), the top Democrat on the Senate Commerce committee, released an AI regulatory framework focused on AI safety. Her proposal suggests that the National Institute of Standards and Technology (NIST), which houses the Center for AI Standards and Innovation (CAISI), should directly develop enforceable standards like any other regulatory agency. AI developers would be required to disclose AI testing and safety risks to third-party auditors and the government, strengthening CAISI’s current voluntary pre-release screening regime coordinated between AI developers and the White House. Sen. Cantwell also wants AI models to have built-in safeguards to prevent self-modification and the risk of a jailbreak, which is when AI users bypass a model’s safety controls.

Cantwell’s proposal could anchor Democrats’ vision for AI regulation but will compete with other regulatory approaches. Democrats anticipate control of the House of Representatives after the midterms, giving them increased influence on crafting AI policy. However, the Democrats maintain diverse views on AI, with many agreeing with Republicans on lighter-touch approaches, including safety disclosure requirements. Some Democrats want to regulate data center rollout on affordability concerns or cap AI development to prevent “superintelligence,” or when AI becomes much smarter than humans on certain tasks. Nonetheless, Sen. Cantwell’s proposal reflects growing momentum for stronger AI safety controls amid disclosed incidents of AI models escaping testing environments and hacking third parties.

Read More: The Seattle Times, The Hill, Politico

Energy

Indian refiners are cutting back on their imports of Russian crude oil. Increasing competition for imports with China, as well as recovering flows from the Middle East, are pushing down Indian imports of Russian crude. In July, Russian supplies made up more than 50% of Indian imports, but those numbers fell to just 35% in September.

Prices for Russian crude have spiked recently due to heightened demand. Since 2022, Russian oil generally sold at a steep discount due to Moscow’s loss of its European market and the imposition of sanctions, but this year Russia has been able to charge much higher prices for its flagship Urals crude. However, at the same time, increased freight rates for Russian Urals shipping from ports in western Russia are eating into Moscow’s ability to capitalize on climbing prices.

Read More: Bloomberg [paywall], Reuters [paywall], Interfax [in Russian]

Transnational Crime & Corruption

US authorities announced the arrest of Álvaro Pulido Vargas, a Colombian national accused of laundering over $2 billion in stolen Venezuelan public finances on behalf of Venezuelan government officials under former President Nicolás Maduro. Pulido was first indicted in 2019 alongside Maduro associate Alex Saab for stealing $350 million from a public housing program during the early 2010’s and transferring the funds to the US. In 2021, he was indicted again for laundering $1.6 billion stolen from a food and medicine program through US, Emirati, Antiguan, and other banks.

Pulido joins several Venezuela-associated fugitives arrested in the US. Alex Saab, accused of also being involved in money laundering efforts on behalf of Maduro, was arrested in May 2026 and pleaded guilty to money laundering in September.

Read More: New York Times [paywall], US Department of Justice

Defense

Doubts about the future of the joint Franco-German project for a next-generation tank are deepening. The French chief of defense staff, General Fabio Mandon, told the French parliament that Berlin had pulled out of the Main Ground Combat System (MGCS) program to develop a next-generation main battle tank. Soon afterwards, the Ministers of Defense of both France and Germany pushed back on Mandon’s claim, arguing that the project remained a cornerstone of cooperation between Berlin and Paris. Mandon also backpedaled, saying that he had meant that the project had simply been delayed until the late 2040s.

The MGCS would be the second major Franco-German defense program to collapse this year. This summer, the Paris and Berlin program for a next-generation fighter jet collapsed over differences over workshare and requirements. The MGCS has also been mired in difficulties for a long time as the two countries have struggled to align their policies and requirements.

The failure of Franco-German defense initiatives creates questions about how each capital will respond. Berlin is reportedly looking into either joining the Global Combat Air System project with the UK, Japan and Italy or starting its own project with Spain and Sweden. India has reportedly shown interest in cooperating with Paris on a fighter jet.

Read More: Focus [in German], Politico EU, Hartpunkt [in German], Reuters [paywall], Welt [in German], Defense News, Stepwise Risk Outlook

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

^{Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances.}

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s featured deep dive by Thomas Goldstein examines proposed internal reforms for EU enlargement.

European Commission Proposes Internal Reforms for EU Enlargement: What Comes Next

By Thomas Goldstein

^{“Special meeting of the European Council - March 2025 - P065852-462073“ by Dati Bendo / European Union is licensed under CC BY 4.0.}

On October 6, the European Commission proposed reforms to the EU enlargement process and the EU itself to enable four new frontrunners to join the bloc: Montenegro, Albania, Moldova, and Ukraine. Specifically, the Commission calls for new Accession Treaty safeguards to hold candidates accountable to reforms and a new “gradual integration” approach allowing members to participate in EU initiatives, including potentially the Single Market, as reforms are completed and before Treaty ratification. EU member states have increasingly voiced support for increasing flexibility in the accession process but remain skeptical of surrendering their cherished vetoes over foreign policy decisions. Moreover, Ukraine – whose accession is driving much of the enlargement debate – disapproves of limiting its agricultural exports to the Single Market, creating a potential obstacle to the Accession Treaty safeguards. Failing to reform the accession process makes enlargement improbable, creating downside risks for the EU’s agency and investment conditions in candidate countries. On the upside, gradual integration of countries like Ukraine could unlock industrial capacity for the EU.

In today’s full analysis:

• The Commission’s Envisioned Enlargement Reforms, Explained

• The Adoption Outlook

• The Risk Outlook

Read the Full Report Here

Or listen to the full report here:

Listen to the news:

Europe

Eurozone finance ministers called upon France to pass its proposed 2027 budget to contain a bond yield surge. The proposed budget would reduce the government’s deficit to 5% of GDP with €43 billion saved in new spending cuts, including through trims to health reimbursements and pension benefits. The government’s austerity agenda is unpopular, as evidenced by ongoing high school student protests frustrated with dilapidated schools.

Eurogroup finance ministers projected confidence in France’s ability to manage its spending. European Central Bank President Christine Lagarde stated that an intervention to stabilize France’s bond market would be unwarranted. Investment funds have also not resorted to a sustained sell-off, with some buying what are viewed as undervalued French bond prices. Nonetheless, France faces significant challenges. France’s 10-year bond yield is just short of 5%, the highest level since July 2002, and government debt comprises 121% of GDP.

The specter of France electing a populist President in April 2027 has added uncertainty to the country’s fiscal direction. Marine Le Pen, the leader of the populist right National Rally, is leading the polls with roughly a third of French voters. France is a run-off system, so the runner-up will either be the populist-left Jean-Luc Mélenchon or a centrist candidate like Édouard Philippe, both of whom poll around 18%. Marine Le Pen released a fiscal strategy endorsing spending cuts, which calmed markets this week.

Read More: Reuters [paywall], Politico, Financial Times [paywall]

Middle East

Syria rejected reports that it was considering sending troops to support the Saudi-led coalition in Yemen. On Wednesday, US media circulated reports from US officials that Damascus was “seriously considering” sending Syrian troops to Yemen following a Tuesday visit by President al-Sharaa to Riyadh. Saudi Arabia has provided significant economic support to the fledgling Syrian state, and Riyadh reportedly considers Syrian troops better trained and more experienced using Turkish drones than Yemeni government forces. On Thursday, Syria firmly denied the reports.

Deploying would have embroiled Syria in a regional war it has avoided. Syria is in a fragile postwar transition period and has thus far sought to stay out of the growing regional war to avoid damage to its currently integrating army, nascent democratic institutions, and developing economy. The US, which was reportedly consulted on the potential deployment, also worries that it could inject a religious dynamic into the war; the Syrian army is largely made up of Sunni former freedom fighters, while the Houthis are Zaydi Shia.

Read More: Axios, Reuters [paywall], The New Arab

Asia-Pacific

A series of cyberattacks targeting South Korean banks is suspected to have been carried out by a China-based actor using AI tools. Cybersecurity firm CrowdStrike’s report published Wednesday identified a single actor who allegedly used the Chinese-developed AI agent ARTEX alongside Anthropic’s Claude Code to target at least nine South Korean financial institutions since late September. The attacks underscore growing concerns that AI enables individual threat actors to conduct sophisticated, far-reaching attacks with fewer resources. Earlier this week, two South Korean megachurches were also suspected of being targeted by cyberattacks potentially using AI tools, compromising data on up to 850,000 members.

South Korean authorities are responding by tightening cybersecurity requirements across the financial sector and pushing firms to adopt AI-enabled defenses. On Sunday, the Financial Services Commission ordered financial institutions to review vulnerabilities across externally exposed systems and restrict outside access where possible, while the Ministry of Science and ICT activated an emergency response system with the Korea Internet & Security Agency. The FSC also called for greater use of AI-based defenses against AI-enabled attacks. The incidents are likely to increase scrutiny of third-party systems, which investigators believe were exploited in several of the banks, rather than the banks’ core networks.

Read More: CrowdStrike, New York Times [paywall], Reuters [paywall], Financial Times [paywall], Seoul Economic Daily, The Chosun Daily

Americas

Canadian Prime Minister Mark Carney announced this week that he will visit Türkiye from October 21-23. It will be the first official bilateral visit to Türkiye by a Canadian Prime Minister. Carney will meet with Turkish President Tayyip Erdogan in Ankara and with Turkish business leaders in Istanbul. He aims to strengthen Ottawa-Ankara cooperation on defense and energy while promoting Canada as a destination for foreign direct investment and trade.

The visit comes as Canada seeks to diversify its economic partnerships after trade talks with the US, its largest trading partner, collapsed. Carney has also visited Saudi Arabia, India and China this year. At the NATO summit in July, Carney and Erdogan announced negotiations for a free trade agreement between their two countries. Türkiye is also one of ten founding member states of Canada’s Defense Security and Resilience Bank, which is mostly made up of “middle powers” as Carney aims to push back against superpower hegemony.

Read More: Reuters [paywall], Middle East Eye, Turkish Minute

Africa

Eritrean soldiers reportedly crossed into Tigray and appear to be moving toward the regional capital, marking a major escalation in the Ethiopian conflict. Agence France-Presse reported that between 5,000 and 8,000 Eritrean troops are in Tigray, citing an “anonymous foreign security source.” A senior Ethiopian official told Reuters that Eritrea had deployed one mechanized division and three infantry divisions on October 7, but this has also not been verified. Ethiopia reportedly launched drone strikes against the Eritrean convoys. The incursion follows recent tactical gains by the Ethiopian National Defense Force (ENDF), including the recapture of Mekelle and its airport and the disruption of attempts by rebels to cut off trade corridors in the Afar region. Asmara potentially deployed forces to support the Tigray People’s Liberation Front against the ENDF’s counteroffensive and prevent a significant degradation of the group’s capabilities.

Eritrea continues to deny the presence of its troops in Tigray and condemned Ethiopia’s “unprovoked war of aggression.” Yemane Gebremeskel, Eritrea’s Information Minister, stated that Addis Ababa has effectively been waging a war against Asmara for the past three years, referencing Prime Minister Abiy Ahmed’s statements that secure access to the Red Sea is an existential issue and essential for Ethiopia’s modernization. The ENDF is likely to rely on drone strikes to repel Eritrean forces, but it is uncertain whether Asmara is willing to further escalate the conflict by deploying reinforcements.

Read More: Reuters [paywall], Reuters [paywall], Agence France-Presse, Critical Threats

Disruptive Technology

Ecosia, Germany’s leading search engine champion, is replacing France-based Mistral with an open-weight model. Ecosia CEO Christian Kroll suggested that Mistral is a “year behind” leading Chinese open-weight models, like GLM 5.2 or Kimi K3, and may not be a sovereign European model due to American and Korean investors. Kroll stated that the French model has recurring technical problems, including overloaded servers, and has higher costs than open-weight models. However, ditching Mistral for a Chinese model could create political risks for Ecosia, which is utilized by the UK’s National Health Service and Germany’s federal environment ministry, in addition to the prospect of developing a sovereign European tech stack.

Read More: Cybernews, Politico

Energy

South Korea is planning a more than $700 billion plan for the energy transition through 2035. South Korea’s government has released a strategy for energy transition and decarbonization that foresees 1,000 trillion won ($747 billion) in spending and investments. The K-GX, ​or Korea-Green Transformation strategy, will direct almost 800 trillion won into climate finance and will put 200 trillion won into fiscal measures. The government is aiming for 100 gigawatts of renewable energy capacity by 2030, and the strategy includes measures for decarbonizing South Korea’s highest-emitting industries and promoting ten green industries for the future.

South Korea has historically been a major importer of energy from the Middle East and is trying to diversify. Seoul is targeting a reduction in its dependence on Middle Eastern oil supplies to 50% by 2035 and to source new supplies of condensate, a component in producing naphtha (the key feedstock for petrochemicals). In 2025, South Korea imported 70% of its oil supplies, almost 80% of its naphtha, and 20% of its LNG from the Middle East.

The war in the Middle East has centered energy security as a core issue for many countries. Across the globe, capitals are looking to cut their dependence on foreign energy supplies, to develop domestic energy resources such as renewables, and to promote electrification of their economies to reduce reliance on oil and gas.

Read More: Reuters [paywall], Argus Media, Reuters [paywall], Council on Foreign Relations

Transnational Crime & Corruption

The Department of State’s 2026 Trafficking in Persons Report highlighted Southeast Asian scam centers, Cuban labor exports, and so-called “orphanage trafficking” as major global trafficking concerns. The first two dovetail with Trump Administration priorities to tackle global fraud and confront Cuba, while the latter has been tracked in State Department reports since 2019.

Compared to the prior year’s list, several countries were upgraded or downgraded in “tiers” of anti-human trafficking effectiveness. Shifts included upgrades for Israel from Tier 2 to Tier 1 and for Syria from Tier 3 to Tier 2 Watch List, and a downgrade for Hong Kong from Tier 2 Watch List to Tier 3. Syria’s upgrade was in recognition of anti-trafficking reforms implemented since Bashar al-Assad was removed from power. It was also removed from the list of countries accused of conducting state-sponsored trafficking. Syria, Libya, Mali, and Türkiye were removed from the list of countries accused of using or recruiting child soldiers, while Nigeria was added to the list.

Read More: US Department of State

Defense

The Pentagon is beginning to operationalize its FORTRESS AMERICA program for military installations in the US. A memorandum by the Under Secretary of Defense for Acquisition and Sustainment, Michael Duffey, instructed senior officials to take steps to operationalize the initiative, which is intended to boost resilience and harden military bases. Richard O’Malley has been tapped to serve as the Interim Director, FORTRESS America Program Office. O’Malley was nominated by the Trump administration to serve as deputy under secretary of defense for acquisition and sustainment, but he has not yet been approved by the Senate.

The initiative focuses on a number of areas. The memo lays out five foundational pillars for the program: space and spectrum resilience, installation hardening and cyber resilience, energy independence, supply chains and defense industrial base, and strategic defense reserves. Some pillars, like energy, are connected to other military projects such as the Army’s Project Janus to build nuclear reactors at military bases to ensure their access to reliable power.

Read More: Defense Scoop, The Hill, Defense One

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances. 

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s featured deep dive by Elton Smole examines business expectations surrounding the results of the Brazilian elections.

Brazilian Markets Reflect Optimistic Business Outlook Ahead of Key Runoff

By Elton Smole

^{"Pôr do sol sobre Congresso Nacional do Brasil" by Dasfour2022 is licensed under CC BY-SA 4.0.}

Markets in Brazil rallied this week after Flavio Bolsonaro’s unexpectedly strong showing in the first round of the presidential elections. The Bovespa index jumped 7.7% on Monday to a new closing record, the real (BRL) appreciated more than 4% against the US dollar, and internationally traded shares of Brazilian companies soared. The bullish reaction to Sunday’s election results were largely driven by expectations that Flavio Bolsonaro, the son of imprisoned former president Jair Bolsonaro, will have the leg up in the October 25 runoff by winning voters from the other conservative candidates that are now eliminated.

Incumbent Luiz Inacio Lula da Silva (Lula) admitted that the results were unexpected, launching a more aggressive campaign strategy to attempt to win votes from the 21% of Brazilians who abstained in the first round. However, the right’s victories in gubernatorial and congressional elections on Sunday point to a broader conservative shift, which would also strengthen Flavio Bolsonaro’s mandate to govern if he is elected. As a result, markets have begun to price in the likelihood of a Bolsonaro presidency in 2027. In this scenario, planned fiscal reforms and a business-friendly policy approach would benefit Brazilian equities and the BRL. Bolsonaro would also align Brazil with the Trump administration on regional security policy and seek to open Brazil’s critical minerals sector to US investment, while balancing strategic economic ties with China, Brazil’s largest trade partner.

In today’s full analysis:

• Conservative Gains in Congress

• Political Implications of a Bolsonaro Victory

• Financial Outlook and Business Risks

Read the Full Report Here

Or listen to the full report here:

Listen to the news:

Global

The US expressed support for the Greek-backed undersea power cable in the eastern Mediterranean, in a long-running dispute with Turkey. The Great Sea Interconnector is a €1.9 billion project to build a transmission cable linking Greece to Cyprus and later Israel. The project has been stalled for years over cost and a dispute between Greece and Turkey on overlapping claims to Exclusive Economic Zones and continental shelves in the Aegean Sea and the Eastern Mediterranean. In a statement to the Greek press, US Secretary of State Rubio emphasized diplomacy to advance the project and manage the dispute.

Shifting regional politics could unlock development in the Mediterranean. Egypt, Israel, Lebanon, Syria, Turkey and Greece have strong interests in developing energy sources in the Mediterranean and increased energy cooperation, linking the eastern Mediterranean countries to Europe. The end of the Syrian civil war, renewed Gulf investment in the Levant and Egypt, the retreat of Iranian and Hizballah influence in the Levant, and the blossoming Turkish-Saudi relationship all shake up the status quo that has forestalled delineation of maritime boundaries and regional economic cooperation. Greece, Cyprus and Egypt are moving forward to develop their planned energy corridor, optimizing existing infrastructure to accelerate project implementation, which will demonstrate the opportunity costs to the neighboring countries of not resolving territorial disputes.

Read More: Reuters [paywall], Great Sea Interconnector, SAIS Review of International Affairs, Cyprus Business News

Europe

A diplomatic dispute between Seoul and Kyiv is escalating. Seoul is withdrawing its envoy from Ukraine following accusations from Kyiv that shipments of diesel from South Korean ports helped Russia to withstand a domestic fuel crisis this summer brought on by Ukrainian attacks on Russian refineries. Korea has denied the claims by Ukraine’s top sanctions official. South Korea’s presidential office referred to the accusation as “inappropriate’ and stated that Seoul “consistently enforced sanctions and export controls against ​Russia.”

The diplomatic row originated after a transfer of North Korean prisoners of war (POWs) to South Korea became public. Ukrainian President Volodymyr Zelenskyy announced the transfer of two POWs to South Korea during the United Nations General Assembly. Seoul sharply criticized Ukraine’s decision to make the transfer public, claiming that Seoul and Kyiv had agreed to secrecy. Seoul subsequently demanded an apology from the Ukrainian government.

South Korea has become a major arms supplier to NATO’s Eastern Flank since 2022. Seoul’s defense exports to countries like Poland have surged as European states look to rapidly build their defense capabilities, and South Korea is also working on deepening security cooperation with the EU in areas like space infrastructure. Kyiv has also tried to acquire South Korean arms in the past, although Seoul has largely refused on the grounds that its laws prohibit sales to an active conflict zone.

Read More: Reuters [paywall], Kyiv Independent, Notes From Poland, Defence Industry Europe, BBC

Middle East

Iran pledged that “illegal” transit routes in the Strait of Hormuz will soon be closed as attacks on tankers reached early wartime levels. The pledge, by a member of the Iranian Revolutionary Guards command, comes as Iran has stepped up attacks on vessels transiting the waterway; the UK Maritime Trade Operations center reported 10 attacks from September 29^th to October 5^th, a high not reached since the early days of the US-Iran war (since then, multiple attacks – including on a tanker near Qatar, far from transit routes – have been recorded).

The pledge, and recent attacks, could reverse the US’ significant progress in opening the Strait in recent weeks and renew Iran’s leverage. Kpler reported that crude crossing the strait fell 27% from the Iran war high, levels similar to July, in light of the escalating threats. The US had, since then, been markedly successful in opening the waterway, mostly by escorting tankers in and out of a southern lane of the strait at night. The success – returning oil flows to almost a prewar level by late September - had reduced Iranian leverage in floundering peace negotiations. But Iran’s reassertion of its ability to reduce oil flows in the Strait is a calculated move to regain some of the influence, potentially scheduled to renew oil price hikes ahead of the midterm.

Read More: Reuters [paywall], TradeWinds, CNBC, The Wall Street Journal [paywall]

Asia-Pacific

Malaysian Prime Minister Anwar Ibrahim on Thursday pledged to support Myanmar’s reintegration into ASEAN during junta leader-turned-President Min Aung Hlaing’s two-day visit to Malaysia. Senior Myanmar officials have been barred from high-level ASEAN meetings for failing to implement the bloc’s peace plan, but Min Aung Hlaing’s election as president in April has prompted greater regional engagement despite widespread criticism of the vote’s credibility. Malaysia became the fifth ASEAN member Min Aung Hlaing has visited since taking office, after Laos, Thailand, Vietnam and Cambodia. His diplomatic outreach across the region and to China, India, Russia and Belarus underscores the military-backed government’s efforts to secure international normalization despite failing to resolve its civil war.

Malaysia’s engagement with Min Aung Hlaing reflects growing pressure to address the country’s long-standing refugee challenge, not recognition of Myanmar’s military-backed government, according to Prime Minister Anwar. Anwar hosted Min Aung Hlaing just one week after Malaysia began repatriating 1,500 Myanmar nationals, despite international objections over persecution risks. Malaysia hosts roughly 193,000 registered refugees from Myanmar, about two-thirds of whom are Rohingya. Although Malaysia initially welcomed Rohingya refugees, public sentiment has soured, with rising anti-Rohingya rhetoric contributing to at least nine refugee school closures. The two leaders also discussed restoring diplomatic ties and expanding economic cooperation, which exceeded $1 billion in the first eight months of 2026, up 140% YoY.

Read More: Nikkei Asia [paywall], Reuters [paywall], Stepwise

Americas

Venezuelan President Nicolas Maduro is expected to face new charges this week for alleged torture. Maduro is awaiting trial in New York, with a trial date set for June 1, 2027. He was indicted for alleged drug trafficking before his capture by US forces in January. The new charges expected to be brought against Maduro and his wife Cilia Flores by federal prosecutors this week are for the alleged torture of Americans detained in Venezuela during his rule. Flores is also due in court on Thursday for a bond hearing, and her trial is expected to be set for 2027.

Maduro and Flores have asked U.S. District Judge Alvin K. Hellerstein to dismiss the earlier indictment. They argue that they have immunity as foreign heads of state, although the judge has not yet heard arguments on those motions. In total, Maduro currently faces four charges: narco-terrorism conspiracy; cocaine importation conspiracy; possession of machine guns and destructive devices; and conspiracy to possess machine guns and destructive devices. The expected torture charges would add to this list, and additional individuals may also be charged.

Read More: CBS, CNN, BBC [paywall]

Geoeconomics

The African Union has launched the Africa Credit Rating Agency (AfCRA) to challenge assessments that African governments say inflate their borrowing costs. Launched on October 7 in Port Louis, Mauritius, the agency will assess governments, companies and financial institutions, with an expected emphasis on local-currency debt. Supporters argue that Moody’s, S&P Global and Fitch rely on incomplete data and insufficient local knowledge, creating an unjustified “Africa premium.” The AU says 23 African economies lack ratings from the three major agencies, giving AfCRA an opportunity to expand coverage. Although established under an AU mandate, the agency is intended to operate independently without government ownership to limit political conflicts.

AfCRA’s ability to lower borrowing costs will depend on whether investors trust its assessments. Many institutional investors follow mandates or regulatory requirements tied to established rating agencies, so a more favorable AfCRA rating would not automatically unlock financing. The agency will need transparent methodologies, reliable data and a demonstrated willingness to downgrade borrowers despite political pressure. Research remains divided over whether African countries face a systematic ratings penalty, while debt burdens and weak institutions present risks that a new agency cannot fix. Its most practical early contribution may therefore be improving information about previously unrated borrowers and supporting local-currency bond markets. That could help channel domestic savings into longer-term corporate and infrastructure financing while reducing borrowers’ dependence on foreign-currency debt.

Read More: Financial Times [paywall], Reuters [paywall], UN Economic Commission for Africa, German Institute for International and Security Affairs

Energy

Kazakhstan is looking into opening another main transport route for its oil exports. Kazakhstan’s leading oil producers are considering the establishment of a much larger Trans-Caspian transport route for oil exports, with the intent to move oil across the Caspian Sea and then into the Baku–Tbilisi–Ceyhan (BTC) pipeline. In 2022, Kazakh president Kassym-Jomart Tokayev announced the Trans-Caspian route as a priority for the government, and now a working group will put together a feasibility study on developing the route. The two most likely proposals under study are a subsea pipeline or a much larger fleet of tankers for the Caspian.

Kazakh oil exports are currently dependent on the Caspian Pipeline Consortium (CPC), which runs through Russia. Over 80% of Kazakhstan’s oil exports flow through the CPC to Russia’s Black Sea port of Novorossiysk. Astana’s alternatives, such as current shipments through the Caspian Sea, currently offer very limited capacity.

The CPC has faced disruptions from the fallout of Russia’s war against Ukraine on Black Sea shipping. Oil loading at Novorossiysk terminals stopped multiple times over the summer after drone attacks. This forced Kazakhstan to throttle its production and exports due to a lack of replacement routes to compensate for closures at the Novorossiysk port. Astana reportedly lowered production by more than half. The CPC in total handles approximately 2% of all global crude supplies.

Read More: The Times of Central Asia, Moscow Times, Reuters [paywall]

Defense

The EU has officially agreed on the possibility of a collective response to threats against any member’s orbital and space-related infrastructure. The EU’s Council Decision 2026/2195 provides for a collective response up to and including military means against threats to EU space infrastructure. The Council decision expands and broadens the U’s Space Threat Response Architecture created in 2021, which was originally designed for jointly owned/operated infrastructure.

The decision is part of the EU’s increasing focus on security and defense policy related to space. Across Europe, defense spending is boosting the space economy, with European government space spending rising 12% in 2025. Berlin in particular plans to invest €35 billion in space defense by 2030, and Paris is also planning an additional almost €5 billion between 2026 and 2040. The EU recently identified five priority areas for common defense spending, one of which was space. That makes those five areas eligible for funding through the European Defence Industry Program. The EU is also working on joint projects such as the IRIS2 satellite constellation for connectivity.

Read More: Breaking Defense, Space News [paywall], Defense News

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

^{Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances.}

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s featured deep dive by Ian Cameron examines potential US sanctions relief for Russia.

The Trump Administration Considers Sanctions Relief for Russia: Background, Outlook, and Implications

By Ian Cameron

^{"President Trump & the First Lady's Trip to Europe" by The White House is marked with Public Domain Mark 1.0.}

Washington appears to be trending back toward future economic engagement and sanctions relief for Russia despite its ongoing war with Ukraine, which could create misalignments between the US and Europe on sanctions policies and overall economic statecraft toward Russia. Over the last several months, the Trump administration has repeatedly signaled openness to reintegrating Russia into the global economy. At the same time, the EU’s stance on sanctions toward Russia and economic engagement is not softening but rather potentially hardening as Russia escalates its air war against Ukraine and its sabotage efforts against Europe.

Any moves by the US to offer sanctions relief to Russia will likely increase friction between the US and Europe on overarching policy goals regarding Russia and Ukraine. If the US provides Russia with concrete sanctions relief or economic engagement, companies could be confronted with compliance issues from divergent American and European sanctions regimes. American relief for Russia could markedly worsen US-European relations and undermine European trust in American policymaking given the overwhelming belief in most European capitals that Russia represents the most acute threat to the continent’s security.

In today’s full analysis:

• Potential For Sanctions Relief: Recent Developments

• US and European Divergences on Russia Are Reemerging

• Winter is Coming: Potential Risks and Implications

Read the Full Report Here

Or listen to the full report here:

Listen to the news:

Global

Logistics costs are keeping oil prices high despite increased flow of oil from the Persian Gulf. Shipowners are paying high risk premiums to keep the oil moving. Sailors and ship captains are receiving double or triple pay and hefty bonuses to crew ships transiting the Red Sea, Gulf of Oman and the Persian Gulf. Maritime war risk insurance for transiting the Strait of Hormuz, cargo insurance and the cost of bunker fuel remain elevated. The Persian Gulf is not the only chokepoint. Panama Canal restrictions are tightening, with the Canal Authority reducing transit capacity and charging surcharges for access. Panama Canal restrictions are related to below-expected rainfall. Geopolitical risks will keep logistics costs high, as a structural feature of the market rather than a temporary spike.

Read More: Financial Times [paywall], Renkert, Yahoo!Finance

Europe

French President Emmanuel Macron and German Chancellor Friedrich Merz jointly called for new trade tools to counter cheap foreign imports in a letter to the European Commission. Specifically, they call for a new “diversification tool” to reduce European dependencies on important supply chains, and second, they call for a “cut-off” tool to counter trading partners that deploy measures leading to “severe and systematic distortions” in specific markets. The second tool is somewhat similar to the existing but untested Anti-Coercion Instrument, but that tool requires a lengthy process for activation; a new “cut-off” tool, meanwhile, is envisioned as being activated by qualified majority, giving the Commission greater speed and discretion of action. Both of these tools would be “country-agnostic” but react to a rapidly growing trade deficit with China, in addition to Beijing’s restrictions on rare earths exports.

Germany’s support for delegating additional trade measures to Brussels bridges typical friction with France. As an export-driven economy, Germany typically prioritizes open trade rules and frets away from potentially provocative actions, especially in regards to China, a major export destination. However, its growing openness to protectionist measures may become a structural shift amid the increasing competitiveness of German manufacturers. German and French unity on additional measures sends a sharp signal to Beijing as EU Trade Commissioner Maroš Šefčovič flies there for trade negotiations.

Read More: Politico, Euronews, Financial Times [paywall]

Asia-Pacific

Ten Indian opposition lawmakers, including Congress leader Rahul Gandhi, were briefly detained Tuesday during a protest demanding the resignation of Chief Election Commissioner Gyanesh Kumar. Around 300 opposition lawmakers marched toward the Election Commission yesterday as part of near-daily protests led by opposition parties, student groups and the “Cockroach” youth movement. Police detained ten lawmakers for attempting to breach security barricades, as well as 260 people.

Protests began Friday over the Election Commission’s voter-roll revisions, which have removed about 130 million names nationwide. Opposition parties allege this has disenfranchised eligible voters and disproportionately affected minority communities, particularly Muslims. Meanwhile, the Election Commission says it is removing duplicate, deceased, “infiltrators” and otherwise ineligible voters. Critics also object to documentation requirements that could exclude eligible voters who cannot establish their eligibility.

Opposition parties accuse Kumar of using the commission to strengthen Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP), an allegation the government and commission reject. For instance, right after a voter roll revision in May that removed nine million names, the BJP won power in West Bengal after decades of not being able to win a majority for the state legislature. The protests come months after the student-led protests that forced the ouster of the federal education minister.

Read More: New York Times [paywall], The Hindu [paywall], Reuters [paywall], DW

Americas

Interpol has announced that its Operation Madre Tierra VIII crackdown on environmental crime led to 233 arrests across Latin America and the Caribbean. The operation, from June 1 to July 31, targeted illegal gold, timber and wildlife trafficking and involved nine countries in the region: Colombia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Panama. In addition to the 233 arrests, the operation reported 313 seizures, including 4.6 tons of cyanide, as well as mercury (used for illegal gold mining), ammunition, and the recovery of more than 1,000 live animals. The operation identified 312 individual suspects and 148,000 acres of illegally cleared forest. The investigation also uncovered financial mechanisms including alleged shell companies used to move profits.

Read More: INTERPOL, AP, The Washington Post [paywall]

Africa

Malian and Russian forces retook the town of Kidal, the most significant victory in recent months, but their ability to hold it remains uncertain. Kidal was captured by JNIM and its allied secular separatist group, the Azawad Liberation Front (FLA), in April and was a major blow to Russia’s credibility as a security guarantor. The Malian military and Russia’s Africa Corps reportedly employed significant airpower, prompting insurgents to withdraw rather than decisively defeating them. Given that much of northern Mali remains a stronghold of JNIM and FLA influence, the recapture is primarily symbolic and unlikely to substantially alter the broader security environment. However, if the Africa Corps is able to retain control, it will be better positioned to retake other towns in the Kidal region, although the Malian army would likely sustain high casualties.

Read More: Radio France Internationale, Al Jazeera, Financial Times [paywall]

Geoeconomics

The US trade deficit widened to its largest level in 17 months in August as record imports outpaced export growth. The goods-and-services gap increased 13.7% to $105.6 billion from a revised $92.8 billion in July. Imports rose 4.3% to $420.8 billion, while exports increased 1.4% to $315.2 billion. Capital-goods imports reached a record $146.4 billion, driven partly by semiconductor and machinery purchases supporting the AI buildout. Crude-oil imports increased by $3.3 billion and nonmonetary gold imports by $3.1 billion, adding to the imbalance. Despite the monthly deterioration, the cumulative deficit through August remained 19.9% below the same period in 2025.

The widening trade gap could weigh on measured GDP. The Atlanta Fed’s October 6 GDPNow model estimates that net exports will subtract roughly 2.7 percentage points from third-quarter growth, but still projects a 3.7% annualized expansion as consumption and investment remain strong. GDP accounting excludes foreign production from domestic output, meaning substantial spending on imported equipment can coexist with slower headline growth.

18 months out from “Liberation Day”, tariffs alone have been unable to narrow the trade imbalance. American demand for imported goods, despite the higher prices, remains strong. More fundamentally, research from the Peterson Institute finds that fiscal and exchange-rate policies play a much larger role than tariffs in determining trade balances. The paper estimates that each $1 reduction in a country’s budget deficit improves its current-account balance by about 30 cents, while each $1 of foreign-exchange reserve purchases improves it by roughly 50 cents or more.

Read More: BEA, Reuters [paywall], Atlanta Fed, Peterson Institute for International Economics

Defense

The US is pushing forward with its directed energy technology for counter-drone missions. The Pentagon has selected four vendors for a directed energy pilot program to counter drones. The program aims to build out the “operational use” of high-energy laser (HEL) and high-powered microwave (HPM) capabilities inside US territory, and it is being managed by the Army-led Joint Interagency Task Force (JIATF) 401. In December, JIATF 401 will conduct a “shoot-off” as part of the pilot program, and systems that perform well could be immediately purchased.

The Army is integrating directed energy systems into larger, layered counter-drone networks. As part of its Operation JAILBREAK FALCON FURY, the Army successfully deployed Epirus’ Leonidas high-power microwave weapon within a larger network connecting sensors, command decisions, and effects. As part of the Army’s Operation Jailbreak, the goal is to examine how to use sensors, command systems, and weapons provided by different suppliers.

Read More: Breaking Defense, Army Recognition

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances.

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s featured deep dive by Anni Coonan examines Iraq’s attempt to control Iranian backed militias.

Iraq’s High Risk, High Reward Effort to Control Iran-Backed Militias

By Anni Coonan

^{“Raising flag of Iraq and Popular Mobilization Forces after defeating DAESH” by Mahmoud Hosseini is licensed under CC BY 4.0.}

September 30^th was a momentous day for the US-Iraq bilateral relationship: the US withdrew the last of its troops, and the Iraqi government had pledged to bring Iran-backed elements of the Popular Mobilization Forces (PMF) under full state control, at long last, by the same date. While the withdrawal of US forces grabbed the most headlines and closed another chapter in a military presence that began in 2003, the prospective reworking of the PMF (for which the deadline has now been extended to June 2027) could ultimately have the greater impact on Iraq’s domestic security landscape and the regional balance of power. The end of the US’ presence in Iraq will prove popular for Prime Minister Ali al-Zaidi’s government and potentially hand Baghdad stronger leverage in efforts to disarm Iran-backed militias, reducing operational risks in Iraq and Iranian regional influence writ large. On the other hand, the expected difficulty of reworking the PMF promises government instability, which could increase Iranian influence, damage US credibility in Baghdad, scuttle major US and multinational energy investments in Iraq and potentially prompt new Western sanctions, which the US has long avoided.

In today’s full analysis:

• The Role of the PMF and Domestic Political Considerations

• Prospects for PMF Reform

• Implications for Regional Stability and Economic Interests

Read the Full Report Here

Or listen to the full report here:

Listen to the news:

Global

In the US, New York State has declared a statewide disaster emergency over a measles outbreak. According to the US Centers for Disease Control and Prevention, the US is having its worst year of infections since 1991. As of October 1, there have been 3,887 confirmed measles cases across 47 states. In 2025, there were 2,289 confirmed cases across 45 states. Measles is one of the most contagious human diseases known.

The surge in infections tracks with a dangerous upward global trend of the resurgence of the deadly but preventable disease. Between 2000 and 2024, the estimated number of measles cases worldwide decreased by 71%, from 38 million to 11 million, while measles-related deaths decreased by 88%, from 777 000 to 95 000. The decreases correlate with a steady increase in two-dose measles-mumps-rubella vaccine. Since then, Canada, Spain, Austria, Armenia, Azerbaijan, Uzbekistan and the UK have lost their elimination status. The US is now at risk of losing its status. To be considered measles-free by the WHO, a country must have no locally transmitted cases of the same strain for 12 months or longer.

Growing vaccine hesitancy and disruptions in immunization programs during the global pandemic are creating gaps in coverage. Measles spreads in areas where people are unvaccinated or under-vaccinated (missing one or both doses).

Read More: Reuters [paywall], Lancet, Reuters [paywall]

Europe

Spanish Prime Minister Pedro Sánchez has called a snap election on November 29 amid housing protests. Sánchez seeks to make the election a referendum on housing policy amid protests sparked by the eviction of an 87-year-old woman in Madrid. Spanish parliament rejected Sánchez’s proposed tenant protections after Junts, a pro-Catalan independence party, broke with the government’s support base and voted with the center-right People’s Party and populist right Vox party.

Sánchez faces an uphill battle. His Spanish Socialist Workers’ Party (PSOE) is polling around 26%, which is six points below his 2023 election result. The center-right People’s Party polls ahead at around 34% and Vox at 18%, which would give the political right a feasible path to a government coalition. However, Sánchez has defied expectations before, including in the previous 2023 election, when he cobbled together enough support for a minority government of the left and backed by Spanish decentralist parties. But a slew of corruption cases around Sánchez’s family and the fallout of the Ceuta mass migration wave in August could hurt him.

A right-wing government would likely shift Spain closer to the US. Sánchez is among the most critical European voices of the Trump administration, balking at increased defense spending commitments and seeking a cooperative orientation toward China. Sánchez also disrupted American overflight rights for the Iran war.

Read More: Associated Press, Politico, European Policy Centre

Middle East

Turkiye and Pakistan agreed to a military deployment in Saudi Arabia. Following a meeting in Riyadh, the three countries issued a statement pledging to provide “military forces and capabilities” quickly to the Kingdom to aid in defense and deterrence against rising Houthi strikes amid the new Saudi-backed offensive against the Iran-backed group in Yemen. No specifics have been given about the expedited deployments, although most helpful would be air defense systems and the troops to man them, given new Houthi airstrikes on Saudi airports and explosions heard over Riyadh.

The deployment will mark the first activation of the Mecca Agreement’s mutual defense pact, clarifying the limits of the commitment. The agreement has noticeably not been triggered amidst months of heavy airstrikes on Saudi Arabia by Iran; Pakistan has opted not to get involved in order to preserve its mediating relationship with Tehran, and both Pakistan and Turkiye have trade relationships with the country. For a defense deployment within Saudi Arabia against Yemen, the political stakes are much lower – especially as Saudi Arabia and Yemeni government forces appear to be winning, retaking Mokha, a key Bab al Mandeb chokepoint, late last night.

Read More: Al Jazeera, Le Monde, Carnegie Endowment for International Peace, BBC

Asia-Pacific

Japanese Prime Minister Sanae Takaichi’s speech in the Diet on Monday highlighted the growing tension between Japan’s push for growth-enhancing fiscal spending and mounting market concerns over debt burden. Takaichi pledged to “control” bond issuance and respond quickly to market turbulence but offered few signs she intends to scale back spending or tax cuts. Among her legislative priorities is a two-year plan to cut the consumption tax on food items from 8% to 1% starting next April; however, uncertainty over how the government will make up the resulting revenue shortfall adds to concerns over Japan’s fiscal position and contributed to pressure on government bonds.

Takaichi is betting growth generated from government-led investment can improve Japan’s position by attracting private investment. Her administration plans to focus large, long-term investments toward growth and economic security priorities, including artificial intelligence and semiconductors, outlined in her five-year action plan. However, the strategy comes as Japan faces rising borrowing costs while its debt remains roughly double the size of its economy. The question remains whether Takaichi can generate enough growth from increased spending to offset the higher borrowing costs it risks creating.

Read More: Nikkei Asia [paywall], Financial Times [paywall], Japan Today

Americas

The separatist Parti Québécois party won Quebec’s provincial election on Monday. The party returned to power for the first time in 12 years and will form the next government of the Francophone province. Its leader, Paul St-Pierre Plamondon, is committed to holding a referendum on Quebec’s secession from Canada. The victory could set the stage for what would be the third independence referendum in Quebec. However, St-Pierre Plamondon has said such a vote would come only after US President Donald Trump leaves office in 2029.

The result is a test of unity for Canadian Prime Minister Mark Carney. Carney has sought to rally Canadians in a moment of national unity after US tariffs kicked off a trade war, raising fears of economic pain for Canadians. The vote in Quebec comes just two weeks before voters in Alberta will decide whether or not to host a referendum on independence. Parti Québécois fell short of an outright majority in Quebec and may struggle to stay in power for a full four years as a minority government. And despite St-Pierre Plamondon’s advocacy for independence, voters generally showed little interest in the proposal during the campaign, focusing more on cost of living, health care, housing and US tariffs.

Read More: New York Times [paywall], Al Jazeera, AP

Geoeconomics

Europe’s recovery is gaining momentum, but rising inflation and borrowing costs are making it harder to sustain. The eurozone’s composite purchasing managers’ index reached 53.1 in September, its strongest reading since April 2023, as manufacturing and services expanded. AI investment is supporting activity, while Germany’s defense and infrastructure spending is increasing. However, annual inflation climbed to 3.8% from 3.2% in August, driven by an 18.8% increase in energy prices. Core inflation, excluding food and energy, rose more modestly to 2.5%, indicating that the acceleration remains concentrated in energy. The euro fell as low as $1.116 on October 5, its weakest level in 17 months, as concerns about France’s finances compounded pressure from higher energy costs. A weaker currency could further increase the cost of dollar-priced imports, reinforcing the squeeze on households and businesses.

France’s debt pressures are complicating the ECB’s effort to contain inflation without undermining growth. French 10-year government bond yields approached 5% last week, up from 3.2% before the Iran war, while the government faces a parliamentary battle over €43 billion in spending cuts and tax increases to address a deficit projected at 5.4% of GDP. Higher refinancing costs could absorb more revenue, while fiscal restraint would weaken demand. The ECB has already raised its deposit rate twice this year to 2.5%, but chief economist Philip Lane said on October 5 that rising market interest rates and reduced fiscal support could limit the need for further tightening. Its continuing quantitative tightening (allowing bonds to mature without replacing them) also leaves private investors to absorb more government debt. Former ECB executive board member Lorenzo Bini Smaghi has called for pausing that process to reduce market pressure while retaining interest rates as the main instrument for controlling inflation.

Read More: Reuters [paywall], Financial Times [paywall], Eurostat, Financial Times [paywall], Reuters [paywall], Financial Times [paywall], ECB

Disruptive Technology

US-based startup Reflection AI released Beam, an open-weight model comparable in capability to China-based Z.ai’s GLM 5.2. Beam reportedly performs well on advanced reasoning tasks, including for coding and agentic applications, with three to four times less inference compute cost, making it a potentially cost-efficient offering for business customers to customize their own AI applications. Beam’s capabilities allegedly surpass Thinking Machines Lab and France-based Mistral, thereby providing an open-weight alternative competitive to China’s offerings. The US may be interested in promoting Beam as the basis for exporting AI applications to allies or offering the basic code for sovereign AI systems that comply with US regulations.

Read More: TechCrunch, Semafor, Bloomberg [paywall]

Energy

The US and Russia are looking at a deal to sell the assets of a major Russian company in any future agreement to end the war in Ukraine. Russian president Vladimir Putin reportedly raised the prospect of Russian company Lukoil’s global assets during his last discussion with US envoys Steve Witkoff and Jared Kushner. According to reporting, Putin broached the topic as a way of proving that the US and Russia can do business even after everything that has happened between the US and Russia.

Lukoil owns a large portfolio of assets globally spanning oil fields, refineries, and gas stations. Numerous bidders have expressed interest in buying up parts of Lukoil’s global assets, but any potential sale would require political approval from both Washington and Moscow. At the moment, the leading bidder is a consortium that involves the US development finance corporation and several figures from the Middle East. Another group had initially agreed to buy the assets earlier this year but had its bid stall.

Read More: New York Times [paywall], Reuters [paywall]

Transnational Crime and Corruption

German authorities charged the country’s former foreign intelligence chief with treason for passing top secret intelligence to consulting clients, including foreign powers. August Hanning was President of the German Federal Intelligence Service (BND) from 1998 to 2005 and State Secretary of the Federal Ministry of the Interior from 2005 to 2009. For years after leaving government service, Hanning allegedly paid a longtime aide to pass intelligence documents to him and used them for briefings to consulting clients, including foreign intelligence officials.

Hamburg investigators reportedly opened the investigation in May 2026 after local police found intelligence files in Hanning’s home during a search in September 2025. Hanning had reportedly already come under investigation by Latvian police after a Latvian bank he was a board member of went bankrupt in 2019. The allegations against Hanning disrupt ongoing efforts to strengthen the BND’s legal ability to conduct espionage.

Read More: Financial Times [paywall], New York Times [paywall], Der Spiegel

Defense

Germany will provide Ukraine with another $1.1 billion in military support. Germany’s Chancellor Friedrich Merz announced the aid during a surprise visit to Kyiv. Berlin’s new aid package for Ukraine includes turbojet-powered drone interceptors, standoff weapons and space-based technology. Merz brought a significant delegation of business officials with him, who also signed 14 agreements totaling around €6.6 billion. The deals included agreements with defense companies for air defense interceptors, radars, and further deliveries of drone interceptors.

Germany’s aid package will fund tens of thousands of interceptor drones. One of the big industrial winners from Berlin’s new aid is the German defense technology company Quantum Systems; the aid will pay for drones developed by a joint project between Quantum Systems and Ukraine’s WIY Drones. The drones will be manufactured in Ukraine. Quantum Systems also signed a memorandum with Ukraine’s Fire Point defense company, which is one of the country’s leaders in defense technology. Beyond Quantum Systems, a number of German defense companies will receive orders from the new aid and deals as Germany looks to boost its defense industrial capacity, partner with Ukraine in defense technology, and build out its military capabilities.

Read More: Defense Post, The Guardian, Ukrainska Pravda, Stepwise Risk Outlook

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

^{Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances.}

The Sanctions Update, compiled by attorneys from Steptoe’s award-winning International Regulatory Compliance team and the Stepwise: Risk Outlook editorial team, publishes every Monday (subscribe here). Guided by the knowledge of Steptoe’s industry-leading International Trade and Regulatory Compliance team, the Sanctions Update compiles and contextualizes weekly developments in international regulatory enforcement and compliance, as well as offers insights on geopolitical context, business impacts, and forthcoming risks, and non-sanctions news updates.

For more detailed analysis on related issues, see Steptoe’s International Compliance Blog. For information on industry-specific monitoring or bespoke services, please contact the team here.

By Evan T. Abrams, Meredith Rathbone, Karl Hopkins, Guy Soussan, Alexandra Melia, Wendy Wysong, Ali Burney, Quentin Johnson, Elliot Letts, Algirdas Semeta, Melissa B. Mahle, Anni Coonan, Thomas Goldstein, Zayna Dembinski, Samuel Bloebaum, Elton Smole, Ian Cameron, Wilson Zhao, Zoey Hong, Hoi Chung Liu, Isabella Rao, Andy Xu Sofia, Jake Fitzpatrick, Carter Spahn, Chris Dantes

Listen to the sanctions update:

The Lede

US Conducts Sweeping Crackdown on Cartel Financial Facilitators and Leadership

^{“Baja California Sur” by Comisión Mexicana de Filmaciones is licensed under the Creative Commons Attribution-Share Alike 2.0 Generic license.}

The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) last week designated 56 individuals and entities allegedly tied to the Sinaloa Cartel and Tren de Aragua (TdA), marking one of the Trump administration’s heaviest weeks for cartel-related sanctions. The measures targeted not only alleged senior cartel figures but also money launderers, businesses, corrupt officials and other financial facilitators, underscoring Washington’s increasingly network-focused approach to disrupting transnational criminal organizations (TCOs). While the Trump administration expands its use of direct military involvement in Latin America to combat drug trafficking, last week’s designations build on the administration’s stated priority of also targeting the financial networks, including commercial banks and money exchanges, that are believed to sustain cartel operations.

The Sinaloa designations, which targeted 21 individuals and 25 entities, focused on the cartel’s operations in Baja California, where Treasury stated the group controls key trafficking routes into the US and benefits from local government protection. Beyond targeting the alleged leader of Los Mayos (one of Sinaloa’s main factions) and his inner circle, OFAC sought to disrupt the financial and operational networks sustaining the cartel’s presence in Tijuana and Mexicali. These included plaza bosses, individuals carrying out violence on their behalf, and businesses said to be involved in money laundering. One designated money exchange allegedly used cooperating exchanges in Southern California to collect US drug proceeds through “mirror transactions,” illustrating how these networks exploit cross-border financial infrastructure to move illicit funds.

The designations also target alleged links between the Sinaloa Cartel and former Mexican government officials. This includes the ex-husband of Baja California’s current governor and his brother, a former Mexicali public security director, and a former customs official who was also a legislative advisor to the Baja California state government. Treasury claims these individuals provided cartel members with protection, political favors, and assistance in laundering illicit proceeds in exchange for bribes. The inclusion of former officials fits into the broader US pressure campaign that increasingly portrays the cartels as having immense political sway in Mexico. This framing has accompanied US demands for Mexico to investigate and prosecute officials suspected of cartel ties. The April indictment of Sinaloa Governor Rubén Rocha Moya and nine other current and former officials marking a significant escalation as Rocha became the first sitting Mexican governor to face US drug-trafficking charges. While the latest OFAC action targets former officials accused of using their positions to benefit the cartel, it underscores Washington’s determination to increasingly extend pressure beyond criminal organizations themselves to the Mexican officials and institutions allegedly enabling them.

The US also sanctioned 10 targets involved in TdA’s ATM fraud scheme. TdA has reportedly enriched itself through “jackpotting” cyberattacks on US ATMs, in which criminals install malware, known as Ploutus, that forces the machines to release cash without debiting an account. According to OFAC, reported losses from ATM jackpotting attacks in the US totaled $40.73 million across more than 1,500 attacks as of August 2025, though it is unclear how many attacks are TdA-linked or when records began. OFAC sanctioned Anibal Alexander Canelon Aguirre (“Prometheus”), who allegedly created the malware used in ATM jackpotting operations that financially support TdA and facilitated cryptocurrency transactions to launder the proceeds. Alongside Prometheus, OFAC designated six alleged associates and a high-ranking TdA leader.

Last week’s sanctions underscore Washington’s continued effort to undermine cartels by disrupting the financial systems and political support that enable them to operate, alongside interdiction operations. US Ambassador to Mexico Ronald Johnson last month warned Mexico’s commercial banking sector that facilitating cartel money flows could cause them to face isolation from the North American financial system. The pressure comes as Mexico undergoes a new Financial Action Task Force (FATF) evaluation, with results scheduled for discussion this month. While Mexico has strengthened its AML framework since FATF’s 2018 assessment, the organization has previously identified weaknesses in enforcement, including low effectiveness in pursuing money launderers and confiscating illicit assets. The evaluation will assess whether Mexico has strengthened its financial-crime rules and whether authorities and financial institutions are effectively identifying and disrupting the illicit capital flows that sustain cartel networks. A poor evaluation, particularly a gray listing, would negatively impact foreign investment into Mexico by increasing the perceived compliance risks of financial institutions operating in the country.

US Developments

OFAC Publishes Cuba Sanctions Regulations, CACR Amendments, FAQs, and Compliance Alert

On September 29, the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced the publication of the Cuba Sanctions Regulations, which implement the authorities established under Executive Order (“E.O.”) 14404, “Imposing Sanctions on Those Responsible for Repression in Cuba and for Threats to United States National Security and Foreign Policy.” The Cuba Sanctions Regulations, 31 C.F.R. Part 516, authorize blocking sanctions against persons who operate in key sectors of the Cuban economy, support the Cuban government or sanctioned persons, engage in corruption or human rights abuses, or serve as senior officials of the Cuban government or associated blocked entities. The regulations also authorize secondary sanctions against foreign financial institutions that facilitate significant transactions for sanctioned persons and provide for related visa restrictions.

Additionally, OFAC amended the Cuban Assets Control Regulations (“CACR”), 31 C.F.R. Part 515, to implement portions of the Trump Administration’s Cuba policy. In particular, OFAC expanded restrictions on entities on the State Department’s Cuba Restricted List (“CRL”) by prohibiting both direct and indirect transactions with listed entities. OFAC also broadened the criteria for adding entities and subentities to the CRL and eliminated or amended several authorizations under the CACR, including:

· OFAC eliminated the general license authorizing Cuba-related “U-turn” transactions, meaning US financial institutions may no longer process certain Cuba-related transfers that originate and terminate outside the US;

· OFAC removed the authorization allowing US financial institutions to maintain accounts for Cuban independent private-sector entrepreneurs and now requires a specific authorization to unblock related funds; and

· OFAC narrowed general licenses (“GLs”) for educational travel and travel related to professional meetings and conferences in Cuba, subject to limited grandfathering and wind-down provisions.

OFAC issued new and amended Frequently Asked Questions to reflect the regulatory changes. OFAC also published an alert highlighting increased sanctions risks associated with Cuba-related transactions, particularly those involving CRL entities and indirect financial dealings that may implicate the amended regulations. We provide further analysis of these changes to the Cuba sanctions program in a recent blog post.

OFAC Targets Iran’s Industrial Sectors

On October 1, OFAC issued a sectoral sanctions determination covering Iran’s automotive and rail sectors, enabling action against persons determined to operate in either of those sectors. The determination was issued pursuant to E.O. 13902, which enables sanctions on entities or individuals operating in certain sectors of the Iranian economy.

On the same day, OFAC sanctioned 30 parties linked to Iran’s automotive, rail, manufacturing, financial, or metals sectors, including companies based in Hong Kong, China, the UAE, Indonesia, Türkiye, and Germany. The designations were taken pursuant to E.O. 13902, which targets several sectors of the Iranian economy, and E.O. 13871, which targets Iran’s iron, steel, aluminum, and copper sectors.

Notably, Hong Kong- and China-based actors accounted for 12 of the 30 designated parties. OFAC’s latest Iran-related designations were announced approximately one week after the US and China agreed to extend the so-called Busan Agreement. As discussed in our previous update, US Ambassador to China David Perdue stated that the US “made it very clear” to China that any direct or indirect assistance to Iran, including intelligence, parts, or military equipment, was “totally unacceptable.” The latest action suggests that the Trump Administration is likely to continue to sanction Chinese persons allegedly involved in sensitive sectors of the Iranian economy.

Treasury Takes Action Against Russian Banking Network

On October 1, the Treasury Department targeted A7 Network. The Treasury Department alleges that the A7 Network, a Russian shadow banking network, is used by the Iranian regime to evade sanctions and was created and backed by US-sanctioned persons. The A7 Network has purportedly developed a global web of “Sub-Agents,” companies that are structured to disguise payments linked to sanctioned sectors and persons as ordinary commercial activity.

Treasury’s Financial Crimes Enforcement Network (“FinCEN”) proposed a rule that would prohibit transmittals of funds regarding transactions involving the A7 Network’s Sub-Agents. FinCEN also issued an alert to assist financial institutions in detecting, identifying, and reporting suspicious activity related to the A7 Network.

OFAC also sanctioned the A7 Network as a significant transnational criminal organization. OFAC had previously sanctioned entities that were allegedly part of the A7 Network on August 14, 2025.

OFAC Targets Iranian Military Procurement Networks Under Operation Economic Outcast

On September 29, OFAC designated ten individuals and entities as part of Operation Economic Outcast. The designations target procurement networks allegedly supporting Iran’s Ministry of Defense and Armed Forces Logistics (“MODAFL”). OFAC alleges that the designated parties facilitated the acquisition of weapons systems, dual-use components, and other military goods for MODAFL and its affiliates involved in Iran’s missile and UAV programs. This action was taken pursuant to E.O. 13382, which targets proliferators of weapons of mass destruction.

OFAC Amends the Iranian Transactions and Sanctions Regulations to Incorporate E.O. 13902

On September 29, OFAC issued a final rule amending the Iranian Transactions and Sanctions Regulations (“ITSR”), 31 C.F.R. Part 560, to implement provisions of E.O. 13902, “Imposing Sanctions With Respect to Additional Sectors of Iran.” The incorporated authorities authorize the blocking of persons who operate in specified Iranian economic sectors, engage in certain significant sector-related transactions, support persons blocked under the order, or are owned or controlled by, or act for or on behalf of, such persons.

OFAC Sanctions Network of Tren de Aragua

On September 30, OFAC designated nine individuals and two entities allegedly involved in a fraud scheme linked to Tren de Aragua (“TdA”), a Venezuelan transnational criminal organization. According to OFAC, the network targeted US-based automated teller machines (“ATMs”) and used malware to force ATMs to dispense millions of dollars from US financial institutions.

TdA was designated as a Foreign Terrorist Organization by the Department of State on February 20, 2025, for alleged criminal activity including drug trafficking, human trafficking, extortion, and murder-for-hire. OFAC says the latest action is part of a larger campaign that has resulted in over 30 actions against more than 300 targets linked to transnational criminal organizations since 2025.

The action was taken pursuant to E.O. 13581, which blocks the property of transnational criminal organizations, and E.O. 13224, which blocks the property of those who commit or support terrorism.

OFAC Sanctions Sinaloa Cartel Leadership and Networks

On September 29, OFAC designated 25 entities and 21 individuals allegedly linked to the Sinaloa Cartel. The action targeted alleged cartel leadership, financial facilitators, money laundering networks, and corrupt public officials in Mexico’s Baja California region. The action was taken pursuant to E.O. 14059 and E.O. 13224.

OFAC’s designations included Ismael Zambada Sicairos, the alleged current leader of Los Mayos, as well as several of his close associates allegedly involved in drug trafficking, money laundering, extortion, and violence on behalf of the cartel.

OFAC also targeted the cartel’s alleged money laundering and corruption networks, including operators of currency exchanges, real estate ventures, security companies, and entertainment businesses allegedly used to launder money. OFAC also designated several current and former Mexican officials and political figures accused of facilitating cartel activities through bribery, influence, and corruption, including individuals allegedly connected to the cartel-controlled Mexicali trafficking corridor.

OFAC Sanctions Hamas Financing Network

On October 2, OFAC designated three individuals and two entities as part of efforts to target Hamas’s financial network. Specifically, OFAC sanctioned a Gaza-based member of the Hamas military wing and two France-based individuals and their affiliated charities for allegedly supporting Hamas’s fundraising activities. OFAC alleges that the two charities were part of a network that raised over $2 million in funds for Hamas through “deceptive charitable fronts and cryptocurrency channels.” This action was taken pursuant to E.O. 13224, as amended.

OFAC Expands Scope of Three Venezuela-Related GLs to Include Methanol

On September 28, OFAC issued three amended Venezuela-related GLs in order to add methanol to the list of Venezuelan petrochemical products subject to various authorizations under GL 46E, “Authorizing Certain Activities Involving Venezuelan-Origin Oil or Petrochemical Products;” GL 48D, “Authorizing the Supply of Certain Items and Services to Venezuela;” and GL 49B, “Authorizing Negotiations of and Entry Into Contingent Contracts for Certain Investment in Venezuela.” We previously covered the scope of these licenses in our February 2 and February 18 updates.

UK Developments

UK Amends Shah Deniz General Licence Following Introduction of New Iran Sanctions

The UK has amended General Licence INT/2025/7363752, which permits certain activities necessary for the continued operation of the Shah Deniz gas project, to reflect the new Iran sanctions that entered into force on September 29, 2026. The amendment brings within the licence the newly introduced prohibitions under regulations 17A (investments in relation to Iran) and 17C (insurance and reinsurance services) of the Iran (Sanctions) (Nuclear) (EU Exit) Regulations 2019. These restrictions were introduced by the Iran (Sanctions) (Amendment) Regulations 2026 as part of the UK’s wider reintroduction of sectoral sanctions on Iran. In parallel, the Office of Trade Sanctions Implementation (OTSI) has issued a new General Trade Licence for services necessary for the continued operation of the Shah Deniz project, also effective from September 29, 2026. Together, the licences provide targeted authorisations intended to enable the Shah Deniz project to continue operating notwithstanding the expanded financial and trade restrictions applicable to Iran. Businesses involved in the project should consider the application of the licences to their activities and familiarise themselves with the conditions associated with use of the licences.

OFSI Clarifies Application of New Licensing Approach for Designated Iranian Banks

OFSI has updated FAQ 204 to clarify the scope of the new licensing approach for designated Iranian banks. As previously reported, applications involving these banks will generally be refused unless required by law or there are exceptional and urgent circumstances justifying an exception, such as risks to life or environmental safety, essential regulatory payments, asset preservation or the wind-down of operations. OFSI has now confirmed, for the avoidance of doubt, that this approach will apply not only to new applications but also to all licence applications that remain open. Applicants with pending applications involving any of the five banks should therefore reassess them against the more restrictive criteria and consider whether additional information is required to demonstrate that their circumstances justify an exception to the presumption of denial.

OFSI Launches 2026 Frozen Asset Review

OFSI has published its updated notice for the 2026 Frozen Asset Review, requiring all persons holding funds or economic resources owned, held or controlled by a designated person to submit a report to OFSI by November 30, 2026. Reports must capture the value of relevant assets as at close of business on September 30, 2026, and cover assets frozen in the UK as well as assets held overseas where they are subject to UK financial sanctions legislation. For shares, securities and other debt or payment instruments, the value must be reported in GBP. Importantly, the obligation applies even where the relevant frozen assets have previously been reported to OFSI, meaning firms must make a fresh return for the 2026 review. Returns must be submitted using OFSI’s updated 2026 reporting template, which has changed since last year, and should not be submitted before the September 30 valuation date. Firms holding or administering frozen assets should therefore ensure that they identify all reportable assets, apply the required valuation date and use the latest template ahead of the November deadline.

OTSI Publishes General Trade Licences for Russian LNG Supplies to Japan and South Korea

OTSI has published two new General Trade Licences providing targeted, time-limited authorisations for UK involvement in the maritime transportation of Russian LNG to Japan and South Korea under specified pre-existing contractual arrangements. The licences follow the UK’s introduction in May 2026 of restrictions on UK involvement in the maritime transportation of Russian LNG, which from January 1, 2027, will extend to trade conducted under long-term contracts concluded before June 17, 2025. The licences permit UK involvement in Japanese and South Korean imports of LNG from the Sakhalin-2 Project where the supply contract was concluded before June 17, 2025, and the imports take place between January 1, 2027, and March 31, 2028, provided all applicable conditions are satisfied. They do not authorise trade under new contracts or transactions involving UK designated persons. The UK Government describes the measures as temporary support for the energy security of Japan and South Korea while those countries reduce their reliance on Russian energy, and businesses seeking to rely on the licences should carefully assess the applicable conditions and relevant contractual arrangements before doing so.

UK Announces New Russia Sanctions Targeting Energy Revenues, Disinformation and Human Rights Abuses

The UK Government has announced a further package of 31 sanctions measures against Russia, comprising the designation of 22 individuals and one entity and the specification of eight vessels under the Russia (Sanctions) (EU Exit) Regulations 2019. According to a UK Government press release, the package targets a range of actors and activities supporting Russia’s war against Ukraine, including LNG shadow fleet vessels, Kremlin-linked disinformation networks and individuals accused of involvement in the torture of Ukrainian civilians and the deportation and indoctrination of Ukrainian children. The 23 designated individuals and entities are subject to asset freezes, trust services sanctions and director disqualification sanctions, with the individuals additionally subject to travel bans, while the eight vessels face shipping and trade sanctions. The measures reflect the UK’s continued focus on restricting Russian energy revenues and the infrastructure supporting sanctions circumvention, while increasingly using the Russia sanctions regime to target disinformation activities and individuals associated with alleged abuses in occupied Ukrainian territory. A further two vessels also have been specified for their involvement in supporting the Government of Russia.

OFSI Extends Sakhalin-2 Permissions under Two Russia General Licences

OFSI has amended two General Licences relating to Russian oil and the Sakhalin-2 Project, extending the relevant Sakhalin-2 expiry dates to December 31, 2026. The amendments apply to the Oil Price Cap: Exempt Projects and Countries General Licence (INT/2022/2470156) and the Russian Oil Exempt Projects General Licence (INT/2025/5635700). The former provides targeted exemptions from aspects of the UK’s Russian oil services restrictions for specified projects and countries, while the latter permits certain business operations and transactions that would otherwise be prohibited under the Russia sanctions regime where they relate to specified exempt energy projects. The extension maintains the existing authorisations relating to Sakhalin-2 for a further limited period and follows other recent UK measures providing targeted exemptions for activities connected with the project. Persons seeking to rely on either General Licence should review the amended terms carefully to confirm the applicable permissions, conditions and reporting or record-keeping requirements.

EU Developments

EU Council Adopts New Listings Targeting the Unlawful Deportation of Ukrainian Children

The EU Council designated an additional 10 individuals and 17 entities under the EU sanctions regime in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine. The new listings target those responsible for the systematic unlawful deportation, forcible transfer, and forced assimilation of Ukrainian children to the Russian Federation and within temporarily occupied territories of Ukraine.

Among the individuals listed are Rustam Minnikhanov, President of the Republic of Tatarstan, for facilitating the illegal deportation of Ukrainian children to camps in the Tatarstan region, as well as education ministers and deputy ministers from Russian-occupied territories of Ukraine, the Minister of Sports and Tourism of the self-proclaimed Donetsk People’s Republic, and directors of children’s camps and schools involved in programs contributing to the ideological indoctrination and militarized education of Ukrainian children.

The entities listed include the Songdowon International Children’s Camp, a state-operated institution in the Democratic People’s Republic of Korea, which participates in organized programs involving the transfer of Ukrainian children from temporarily occupied territories of Ukraine in coordination with the Russian Federation. The listings also include a federal educational institution operating under Russia’s Ministry of Education, as well as children’s camps, sports centers, recreation, and tourism companies involved in cultural reorientation, propaganda-based education, and military-patriotic activities aimed at integrating children into Russian identity frameworks.

EU Council Adds Ten Individuals to Russia Human Rights Sanctions List

The EU Council amended Council Decision (CFSP) 2024/1484, adding ten individuals to the sanctions list for their responsibility in serious human rights violations, the repression of civil society and democratic opposition, and activities undermining democracy and the rule of law in Russia.

The newly listed individuals include three judges of the Supreme Court of the Russian Federation, an official in the Prosecutor General’s Office, and an official of the Central Election Commission of Russia involved in proceedings that resulted in the Yabloko political party being barred from participating in the September 2026 elections to the State Duma. Yabloko was the only political party that openly opposed Russia’s war of aggression against Ukraine. The listings also target a judge and a state prosecutor involved in the prosecution of Lev Shlosberg, a Yabloko opposition politician who was sentenced to 11 years and one month of imprisonment on charges linked to his public criticism of Russia’s war of aggression against Ukraine, as well as prosecutors and judges involved in proceedings against Yabloko leaders Maxim Kruglov and Nikolai Rybakov.

Following the latest listings, the EU’s Russia human rights sanctions regime now applies to 108 individuals and seven entities.

European Commission Publishes Updates to its FAQs on Sanctions Against Russia

The European Commission recently published a series of updates to its FAQs on sanctions against Russia. The revisions concern the sections on the movements of Russian diplomats, asset freezes and the prohibition to provide funds or economic resources, as well as export-related restrictions on dual-use goods and advanced technologies. The revised FAQs now include clarifications on whether travel plans are affected by events of force majeure under Articles 5v and 5w of Council Regulation (EU) 833/2014 and on the scope of the exemption for JSC Russian Railways introduced by Article 6g of Council Regulation (EU) 269/2014. In addition, the Commission updated its Correlation Table, which includes references correlating the goods in Annex VII to Council Regulation 833/2014 with the corresponding commodity codes as defined under the rules of the Common Customs Tariff and Combined Nomenclature (CN).

Lastly, the Commission updated its guidance on the Donetsk, Kherson, Luhansk and Zaporizhzhia oblasts under Council Regulation (EU) 2022/263, clarifying whether grain originating in non-government-controlled areas of Ukraine in those oblasts may transit through the EU.

EU Council Renews Burundi Sanctions Regime

On September 28, the EU Council renewed the restrictive measures in view of the situation in Burundi for another year, until October 31, 2027. The sanctions regime, originally established in 2015, targets individuals and entities responsible for undermining democracy or obstructing the search for a political solution in Burundi, as well as those involved in serious human rights violations and abuses.

EU Council Amends Sanctions Regime Targeting the Democratic Republic of Congo

The EU Council amended the sanctions regime in view of the situation in the Democratic Republic of the Congo (DRC), following an update at the UN level. Changes to Council Decision 2010/788/CFSP follow a July 14 decision of the UN Security Council Sanctions Committee to add six individuals and two entities to the sanctions list. As a result, four individuals and one entity already designated under the sanctions regime were transferred from Annex II to Annex I of Council Decision 2010/788/CFSP. The Alliance Fleuve Congo (AFC), a politico-military movement operating in eastern DRC, was also transferred to Annex I of Council Decision 2010/788/CFSP.

Asia-Pacific Developments

Cambodia Pledges Stronger Anti-Scam Cooperation Amid US Sanctions Scrutiny

Cambodia concluded an international conference on combating online scams with participating countries agreeing to strengthen cross-border cooperation against cyber fraud, human trafficking, and transnational criminal networks. During the event, Deputy Prime Minister Neth Savoeun emphasized that no country can effectively tackle technology-enabled scams on its own and stressed the importance of international collaboration. The conference took place against the backdrop of calls from US congressional leaders for an investigation into whether certain senior Cambodian officials should face sanctions over alleged links to scam operations, allegations that Cambodian officials have denied. Discussions focused on emerging fraud trends, cybersecurity, artificial intelligence, financial investigations, and trafficking networks, while participating countries endorsed a voluntary declaration encouraging information sharing, confiscation of criminal proceeds, and stronger protection for trafficking victims.

EU Sanctions Disrupt Money Transfers Between Russia, Kazakhstan and Georgia

Cross-border money transfers between Russia and neighboring countries, particularly Kazakhstan and Georgia, fell dramatically after the EU sanctioned the operator of the Zolotaya Korona payment system in July 2026. According to regulatory data, transfers from Russia to Kazakhstan dropped nearly twelvefold in August, while flows in the opposite direction declined even more sharply; transfers between Russia and Georgia also plunged to historically low levels, with transfers from Georgia to Russia reportedly falling to zero for the first time on record. The decline has been attributed to the sanctions’ impact on Zolotaya Korona, which had become one of the primary channels for international money transfers involving Russians after the withdrawal of major Western payment providers following Russia’s invasion of Ukraine. Once among the few large Russian payment systems still operating without sanctions restrictions, Zolotaya Korona has since suspended transfer services to several countries, significantly disrupting a key financial link used by Russian citizens, including those living abroad.

Japan Considers Expanded Sanctions on Russia

Japan is exploring additional sanctions against Russia as part of its response to Moscow’s continued war in Ukraine and Russian President Vladimir Putin’s recent visit to Etorofu Island, one of the disputed Northern Territories claimed by Japan. The measures under consideration would primarily target Russia’s “shadow fleet” of vessels used to evade existing sanctions and transport Russian energy exports, a critical source of revenue for the Russian economy. Japanese authorities are also evaluating tighter export controls and expanding the range of goods subject to export restrictions. The move would align Japan more closely with European countries that have recently stepped up economic pressure on Russia and reinforce Tokyo’s position that Russia’s actions violate international law.

Japan Further Eases Syria Sanctions

Japan has approved the removal of sanctions on 16 organizations linked to Syria, citing their potential role in supporting the country’s reconstruction and long-term stability. The decision forms part of Tokyo’s gradual relaxation of Syria-related restrictions following the collapse of the regime of former President Bashar al-Assad in 2024 and reflects Japan’s assessment of developments under Syria’s new government. Chief Cabinet Secretary Minoru Kihara stated that Syria’s stability is closely connected to broader stability in the Middle East and emphasized Japan’s commitment to supporting reconstruction efforts. Despite the latest easing measures, Japan continues to maintain sanctions on 59 individuals and 15 entities. The move builds on earlier steps, including the lifting of sanctions on four Syrian entities in 2025, while preserving restrictions originally imposed in response to the Assad government’s crackdown on anti-government demonstrations beginning in 2011.

India Presses US Lawmakers on Sanctions Concerns

India has expressed its concerns to the US regarding the recently enacted Sanctioning Russia and Iran Act (SRIA), arguing that the legislation could have significant consequences for both bilateral relations and the stability of global energy markets. During discussions in New Delhi with a bipartisan US congressional delegation led by Brian Mast, Chairman of the House Foreign Affairs Committee, Foreign Secretary Vikram Misri emphasized that the law’s provisions, which allow the US President to impose tariffs of up to 100% on countries purchasing Russian oil and gas, could disrupt established trade and energy arrangements and create broader economic uncertainty. Indian officials stressed that the country’s concerns extend beyond the direct impact on India, encompassing potential repercussions for international energy security and global market dynamics.

New Zealand Expands Enforcement of North Korea Sanctions

New Zealand has stepped up its role in enforcing UN sanctions on North Korea by deploying a Royal New Zealand Navy task group to conduct maritime surveillance operations in the Yellow Sea and East China Sea. As part of the multinational Pacific Security Maritime Exchange, the deployment aims to identify and report activities designed to evade sanctions targeting North Korea’s nuclear and ballistic missile programs. For the first time, the frigate Te Mana participated in sanctions-monitoring operations, tracking vessels suspected of transporting prohibited cargoes or engaging in illicit ship-to-ship transfers. The mission also focused on detecting common sanctions-evasion techniques, including AIS manipulation, vessel identity concealment, position spoofing, and the use of “shadow fleet” vessels.

Australia Targets Kadyrov-Linked Foundation Over Ukraine War

Australia has imposed sanctions on the Akhmat Kadyrov Foundation as part of a broader package targeting individuals, organizations, and vessels linked to Russia’s war in Ukraine. The foundation, headed by Aimani Kadyrova, mother of Chechen leader Ramzan Kadyrov, was added to Australia’s sanctions list alongside dozens of other entities associated with Russia’s military, financial, and administrative apparatus. Although Canberra did not provide a detailed justification specific to the foundation, it stated that the measures are intended to address activities undermining Ukraine’s sovereignty and territorial integrity. While the foundation presents itself as a charitable organization, reports indicate that since the start of the war it has directed substantial resources toward supporting Russian military operations and related projects in Ukraine. The move aligns Australia with several Western governments, including the US, EU, UK, and Canada, which have previously sanctioned the foundation over its alleged involvement in activities connected to the war and the treatment of Ukrainian children.

Iran Signals Nuclear Inspections-for-Sanctions Deal

Iran has reportedly indicated a willingness to restore access for international nuclear inspectors to facilities damaged during recent military strikes if it receives meaningful sanctions relief in return, suggesting a possible path to revive stalled negotiations with the US. During discussions on the sidelines of the UN General Assembly, Iranian Foreign Minister Abbas Araghchi raised the proposal with European and Middle Eastern counterparts, reflecting mounting economic pressure on Iran from sanctions and restrictions on its oil exports. The initiative would represent a significant concession, as international monitoring of Iran’s nuclear program has been severely curtailed in recent years. However, major obstacles remain, including Iran’s demand that broader international sanctions be eased and continued reluctance from Western governments to make such commitments.

Pakistan Balances Iran Ties and US Sanctions Pressure

Pakistan has signaled a more cautious stance toward new US sanctions on Iran, with its Foreign Office stating that the country will comply with all sanctions regimes applicable under international and domestic law. While Islamabad has not adopted US sanctions or suspended trade with Iran, the shift reflects growing concern over the financial and regulatory risks associated with dealings involving sanctioned Iranian entities, particularly for banks and cross-border transactions. At the same time, Pakistan continues to emphasize its strategic relationship with the US, maintain ties with Iran, and support diplomatic dialogue between Washington and Tehran, seeking to balance its competing foreign policy and economic interests.

Listen to the news:

Europe

Latvian Prime Minister Andris Kulbergs received an emboldened mandate in Sunday elections. Kulbergs’ conservative United List, which is hawkish on Russia, won 35% of the vote, about 20 points ahead of the closest challenger, the populist right Latvia First party, which advocates for loosening trade restrictions on Russia and dominated the country’s eastern regions. United List tripled its performance from 2022, but its previous coalition partners—which included the center-right New Unity and the agrarian Union of Greens and Farmers—performed poorly, with the latter failing to enter parliament and the former only receiving seven seats. The conservative National Alliance, United List’s other coalition partner, maintained 10 seats, which is fairly close to its 2022 result. If the United List renews its coalition with the National Alliance and New Unity, they will possess an eight-seat majority in parliament.

The Latvian election results suggest that Ukraine fatigue is low in the Baltics. Latvia was always unlikely to change its hawkish foreign policy orientation toward Russia. Nonetheless, Russia’s escalation of hybrid warfare tactics among NATO countries in the past year has likely hardened sentiment, despite disruptive economic reorientation away from Russia’s energy flows, electricity grid, and consumer base for Latvian exports.

Read More: AP, Politico, Central Election Commission [in Latvian]

Middle East

Yemeni forces, supported by Saudi Arabia, launched an offensive against the Iran-backed Houthis in a bid to retake key territory. On Sunday, following weeks of reports of mounting troops, Yemeni government forces launched a massive ground offensive against the Houthis in Yemen’s west, supplemented by Saudi airstrikes and cover, in a bid to regain the capital Sanaa (long controlled by the Houthis) and key sites enabling full control of the Bab al-Mandeb, where the Houthis have instituted a blockade on Saudi shipping. Houthis claimed to have seized a key highway linking Taiz to the government seat of Aden, and some sources claimed that there had been a new strike on Saudi’s east-west Yanbu pipeline, only recently reopened.

Saudi Arabia has struggled to secure international support to deal with the rising threat from the Houthis. On Thursday, Saudi officials were reportedly denied air support from the US for a second time. There does not appear to be any direct participation by signees of the Mecca Agreement, Turkiye and Pakistan, despite the existence of a mutual defense pact (although Pakistan has reportedly sent weapons). And although Saudi Arabia has publicly couched the offensive in terms of the Saudi-led coalition (a throwback to the active conflict with Yemen starting in 2015), no other coalition members appear to be participating. The Kingdom has made the tough decision to go it alone, likely anticipating unsustainable costs from the Red Sea closure and a likely lack of forthcoming support.

Read More: France 24, Axios, CNN, South China Morning Post [paywall]

Asia-Pacific

India and Pakistan traded accusations over the weekend following the deaths of two Pakistani civilians and the wounding of a third near the border in Punjab on Friday, prompting both sides to summon each other’s diplomats. Pakistan’s Foreign Ministry on Saturday said the casualties resulted from “unprovoked and lethal force” by India’s Border Security Force (BSF) against unarmed civilians. Meanwhile, India maintains the individuals crossed into its territory despite repeated warnings to retreat, prompting BSF to respond to what it deemed an imminent security threat.

New Delhi has framed the incident as part of a broader pattern of cross-border infiltration and drug trafficking originating from Pakistan, further straining already fragile bilateral relations. India’s Ministry of External Affairs accused “armed narcotics syndicates” operating from Pakistan of being behind the incident over the weekend and urged Islamabad to investigate suspected infiltration and drug-smuggling activities. Pakistan “categorically” rejected India’s allegations, underscoring the persistent divide between the two countries over cross-border security. The incident’s location in Punjab—a relatively less volatile stretch of the India-Pakistan border than the heavily disputed Kashmir frontier—raises concerns of cross-border security tensions flaring beyond the countries’ traditional flashpoints.

Read More: Government of India Ministry of External Affairs, Reuters [paywall], Al Jazeera

Americas

Flavio Bolsonaro outperformed polls in the first round of Brazil’s presidential elections, finishing ahead of incumbent Luiz Inacio Lula da Silva (Lula). Flavio Bolsonaro, the son of former president Jair Bolsonaro, received 47% of the vote compared to Lula’s 45%. The two will now face each other in a runoff on October 25. Bolsonaro has a clear advantage in the second round, as he is most likely to receive the votes that were cast for other right-wing candidates in the first round. This makes his unexpectedly strong showing on Sunday especially significant, in an election that will have far-reaching repercussions amid a broader right-wing wave in Latin America. Bolsonarista candidates were also widely successful in congressional races, including Jair Bolsonaro’s second son and his wife, who both won Senate seats. For Lula to pull ahead in the runoff, he will have to appeal to voters who did not cast ballots in the first round.

Markets are already responding positively to Sunday’s results. Bolsonaro’s pro-business campaign seeks to align Brazil closely with the Trump administration. The Brazilian real jumped over 4% against the US dollar on Monday morning, and overseas-traded assets posted gains. Ibovespa futures jumped more than 8%, the Frankfurt-listed MSCI Brazil ETF jumped 16%, and Brazilian companies’ overseas-listed shares saw significant gains. Brazilian stocks rallied as markets opened in Brazil this morning and are expected to continue to surge.

Read more: Reuters [paywall], The Guardian, AP, New York Times [paywall]

Africa

Egypt hosted the Quadrilateral Consultative Summit with Eritrea, Sudan and Somalia on Sunday, signaling the countries’ increasingly aligned interests regarding ongoing regional issues and conflicts. Among the statements in the group’s El-Alamein Joint Declaration was an affirmation for a united Sudan, an apparent rejection of a reported US peace proposal, which Sudanese authorities allege would permit a Libya-style arrangement of parallel governments led by the Sudanese Armed Forces and the Rapid Support Forces. The declaration rejected an independent Somaliland and called for a peaceful resolution to the conflict in Ethiopia.

Moreover, the four countries reaffirmed their opposition to Ethiopia’s Red Sea ambitions and the Grand Ethiopian Renaissance Dam (GERD). The declaration reiterated the group’s position that governance of the Red Sea is the “exclusive responsibility of the littoral states” and that there can be no “unilateral measures that harm the existing water uses of the two downstream Nile states,” both direct rebukes of Ethiopia’s efforts to expand its influence over Red Sea trade and develop additional Blue Nile hydropower projects.

The declaration is likely to further alienate Ethiopia, which views the four countries as conspiring against its interests and fueling conflict in Tigray. In response to the declaration, Ethiopia’s Foreign Ministry reaffirmed its right to utilize the GERD and asserted that regional maritime and security arrangements must account for its interests. As Ethiopia’s rhetoric towards Egypt, Eritrea and Sudan becomes increasingly confrontational and diplomatic relations collapse, tension surrounding Addis Ababa’s Blue Nile projects is likely to rise, while intensified proxy conflict in Sudan and northern Ethiopia remains possible.

Read More: Al Jazeera, The Arab Republic of Egypt, Reuters [paywall], Al Jazeera, Anadolu Ajansi, Stepwise Risk Outlook

Geoeconomics

US–India trade talks stall as both governments signal limited room for further concessions. Finance Minister Nirmala Sitharaman said on October 5 that negotiations had reached a “plateau” and further compromises would be “very, very difficult” for either side, although discussions continue. Her comments followed US Trade Representative Jamieson Greer’s October 1 statement that an agreement was not imminent after meeting Indian Commerce Minister Piyush Goyal. The two countries announced a framework in February covering Indian tariff reductions on US industrial goods and selected agricultural products, alongside India’s intention to purchase $500 billion in American goods over five years. However, the interim agreement implementing that framework remains unfinished, with Washington seeking additional concessions and New Delhi holding out for better terms.

The difficulty is determining what India would receive for opening its markets when further US tariffs remain possible. Legislation Trump signed on September 18 authorizes tariffs of up to 100% on imports from countries meeting specified criteria for purchases of Russian energy, creating another potential threat to Indian exports. India also awaits the outcome of a separate US investigation into excess manufacturing capacity under Section 301, which could produce additional duties. Goyal has rejected the premise that India has structural overcapacity in the sectors under examination.

Read More: Reuters [paywall], Reuters [paywall], White House, Atlantic Council

Disruptive Technology

Jay Clayton, the Director of National Intelligence, will lead a “Super Intelligence Force,” an interdepartmental task force that will include FTC Chairman Andrew Ferguson, Pentagon chief technology officer Emil Michael, and director of the Office of Personnel Management Scott Kupor. The task force, which replaces AI czar David Sacks and will report to White House chief of staff Susie Wiles, appears to have two objectives—to continue promoting American AI dominance while also bridging AI safety concerns. Clayton’s leadership of the task force may assuage AI safety voices; in his testimony to the Senate as the DNI, Clayton noted that AI is both an “opportunity and a threat” with national security implications. The task force may coordinate current White House efforts to interface with private industry to improve self-regulation, as well as coordinate AI safety and cybersecurity testing before the release of new frontier AI models.

Read More: AP, CBS News, ABC News

Energy

Russia is considering relaxing its ban on diesel exports next month. Deputy Prime Minister of Russia Alexander Novak recently claimed that Russia’s diesel market was “balanced” and that Moscow will look at partially lifting its ban on diesel exports in the event of “overproduction.” At the same time, Novak stated that Russia’s domestic fuel market remains strained from Ukraine’s attacks, and Moscow’s primary objective is to restart production from damaged facilities. Russia instituted its ban on diesel exports after Ukraine’s strikes on refineries and energy infrastructure triggered shortages in Russia’s domestic fuel market.

The global diesel market has been a major focus for the administration amid supply issues for refined products. The White House has pushed some countries in Europe to release diesel and crude oil from their emergency reserves and has warned it would institute a ban on US diesel exports if they did not. The G7 ultimately agreed to release 100 million barrels of oil and diesel over the next four months. US President Donald Trump has also repeatedly blamed Ukraine’s strikes on Russia for rising diesel prices in the US.

Read More: Moscow Times [in Russian], Reuters [paywall], Politico EU, Kyiv Post

Transnational Crime & Corruption

Netherlands Justice Minister David van Weel announced that EU development aid to Sierra Leone would be suspended until the country extradited a major cocaine trafficker. Van Weel noted that EUR 18 million in aid for education, food and infrastructure had been cancelled and a further EUR 22.5 million scheduled for 2027 could also be canceled. Sierra Leone’s Information Minister disputed van Weel’s statement, claiming that the EU aid was simply delayed due to procedural and timing issues and not as a punitive measure.

The action targeted Jos Leijdekkers, one of Europe’s most wanted drug traffickers. Leijdekkers has reportedly operated from Sierra Leone since 2022 as part of the so-called “Mocro Mafia” present in North Africa and Northwestern Europe. Dutch courts have sentenced him in absentia to 37 years in prison for drug trafficking, robbery, extortion and incitement to murder. Leijdekkers allegedly maintains ties to the family of Sierra Leone President Julius Maada Bio, including having a child with the president’s daughter, and other senior government officials.

Leijdekkers is a major actor in the South America-West Africa-Europe cocaine route. Significant quantities of cocaine are being shipped from South America’s east coast to West Africa, where the drugs are stored and later loaded onto tankers. These tankers then drop the cocaine off with ultra-fast speed boats in the waters south of Spain and Portugal, which then traffic the drugs to Iberian beaches and rivers. Each speedboat can carry cocaine valued at an estimated $250 million.

Read More: De Telegraaf [paywall; Dutch], Wall Street Journal [paywall], Global Initiative against Transnational Organized Crime

Defense

The French Air Force is planning to test its crewed fighter jets together with combat drones in 2028. The testing is part of France’s Hypairion project to experiment with AI in combat aviation. Hypairion’s goal is to open a modular architecture for France’s combat aircraft and sovereign AI technology, as well as ensuring that Paris is not too dependent on companies for critical systems. France’s goal is to ensure that the uncrewed systems it uses with its fighters are primarily under state control. The test versions of the “loyal wingmen,” the term for drones used alongside fighter jets, may not be the final version France uses and are instead primarily for testing purposes.

France is very focused on the development of sovereign AI capabilities for military and defense uses. France’s Ministerial Agency for Defence AI (Amiad), which will provide AI capabilities for Hypairion in several areas, is also using AI for the French Army’s Pendragon robotics project. Amiad also intends to create an industrial hub as part of Hypairion for industry players to work with the project. France has also invested in its own AI-powered battlefield command platform, which it has tested with NATO this year in order to look at interoperability.

Read More: Defense News, Army Recognition, Defense News

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances. 

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s Analysts' Brief examines the prospects for US-Iran negotiations.

Analysts' Brief: Prospects for US-Iran Negotiations

By Anni Coonan, Ian Cameron, and Zayna Dembinski

^{“The Gulf” by the European Space Agency is licensed under the Creative Commons Attribution-ShareAlike 3.0 IGO license.}

On Saturday, President Trump publicly rejected Iran’s most recent peace proposal, delivered via shuttle diplomacy by Qatar during the UN General Assembly in New York. The apparent failure of this most recent negotiating round raises old and new questions about the prospects for a durable resolution to the conflict, the trajectory of the energy market and regional dynamics – including the perspective of Pakistan, the mediator of the June MOU.

In today’s full analysis:

Anni Coonan, Middle East analyst: With prospects for negotiations dim, long-term stalemate seems most likely

Ian Cameron, energy analyst: Diplomatic uncertainty and global instability are keeping energy prices high even as oil flows move towards prewar levels

Zayna Dembinski, Asia analyst: A protracted Iran war will make it increasingly difficult for Pakistan to juggle its competing roles in the conflict.

Read the Full Brief Here

Or listen to the full brief here:

Listen to the news:

Global

United Nations’ Food and Agriculture Organization reported that world food prices in September rose to their highest in nearly four years. The FAO Food Price Index, which tracks monthly changes in international prices for a basket of food commodities, averaged 136.0 points, up from a revised 134.0 for August and the highest reading since November 2022. Increases in food prices are one of the basic drivers of inflation.

Food prices are increasing due to transportation disruptions and weather concerns. Sugar prices climbed 6.1% last month, on expectations of tighter global supplies in the 2026-2027 season. Below-normal rainfall is lowering production forecasts in Brazil, Thailand and India. Wheat prices climbed to their highest since August 2023, due to shipping disruptions in the Black Sea region and dry weather in parts of North America. Sorghum, barley and rice prices also increased, due to weather concerns and seasonally tighter supplies. Meat and dairy registered small declines in prices. These conditions are likely to persist well into 2027, if not beyond.

Read More: Reuters [paywall], Wall Street Journal [paywall], UN Food and Agriculture Organization

Europe

The EU and UK eye a November summit to advance a relations “reset,” but the summit will not discuss British participation in “Made in Europe” plans. Alongside the announcement of the summit, UK Prime Minister Andy Burnham reiterated that Brexit has “done more harm than good” and that the UK should evaluate its options, including rejoining the EU’s economic initiatives like the customs union and Single Market. French President Emmanuel Macron called Burnham’s statement “good news” but emphasized that the UK must meet EU obligations to reintegrate economically.

The long-delayed reset summit would likely focus on a youth mobility scheme and sectoral tariffs. Brussels wants the UK to grant up to 150,000 visas for EU citizens to study at British universities and work, but London wants only 50,000. Meanwhile, the UK wants to loosen tariffs and border checks on foodstuffs and agricultural goods. The EU and UK are compartmentalizing the thorny exclusion of “Made in Europe” industrial initiatives, partially because EU member states are still negotiating what that will look like.

Read More: The Guardian, Reuters [paywall], Financial Times [paywall]

Middle East

Both Iran and the US appeared poised for escalation amid another failed negotiating round. The Pentagon is sending the USS Theodore Roosevelt carrier group to join USS George H.W. Bush and USS George Washington in the Gulf, as well as the USS Makin Island Amphibious Ready Group, providing more options and firepower if the US chooses to attack. Meanwhile, sources told US media that Iran was preparing a broader and more forceful response in retaliation to any US attacks, including attacks on countries that support US military options and possible locations outside the Middle East.

The build-up comes as both sides are increasingly considering military escalation as ceasefire talks have failed to take hold. Yesterday, Iran reported that it had received an official response from the US (likely a reiteration of the public rejection over the weekend); both sides are telling sources that they do not believe a deal is within reach.

Read More: Reuters [paywall], Wall Street Journal [paywall], Wall Street Journal [paywall], AP

Asia-Pacific

The US Commerce Department has reportedly slowed export licensing for aircraft parts destined for China to increase Washington’s leverage in trade talks with Beijing. Commerce has reportedly slowed licensing approvals for aircraft parts and limited the volume of parts shipped to a Chinese state-owned aircraft manufacturer to prevent stockpiling. The department is also considering regulations that would make it easier to restrict exports of landing gear, aviation hydraulic fluid and other aircraft components, according to Reuters.

The restrictions could further complicate Beijing’s reported purchase agreement for 200 Boeing jets. Beijing has reportedly requested several years’ worth of spare parts for the aircraft and servicing, while Washington has been reluctant to guarantee future supplies, viewing them as potential leverage in trade negotiations. The reported request reflects concerns over China’s reliance on US suppliers amid recurring trade tensions. The agreement, announced during President Donald Trump’s May visit to China, remains vulnerable to broader US-China trade disputes, with the availability of aircraft components emerging as a point of contention and bargaining chip for concessions Washington is interested in.

Read More: Reuters [paywall], Politico, Simple Flying

Americas

Chilean President Jose Antonio Kast is facing a domestic backlash after Chile officially joined the Shield of the Americas coalition. The division over the issue in Chile has been the sharpest of any Latin American country to join the initiative, which is also known as the Americas Counter Cartel Coalition (A3C). Chile officially became a full member of the coalition last week, prompting former Presidents Michelle Bachelet and Gabriel Boric to release a joint declaration expressing concerns over Chile’s membership and calling on the government to reconsider the decision.

The backlash is largely driven by questions around the scope of membership obligations and implications for national sovereignty. Chile’s government has emphasized that membership in the coalition represents a political declaration, rather than a treaty with binding obligations. However, the statement of the former Chilean presidents expressed concerns over “subordinating foreign relations, security, or defense policy to priorities defined by a foreign power.” In addition to the Shield of the Americas declaration’s language around continental sovereignty, the debate in Chile also centered on the extent to which membership extends beyond counternarcotics to economic sectors, including critical mineral supply chains.

Read More: El Pais, AS/COA, Rio Times

Africa

Ethiopia and Eritrea severed diplomatic ties, further increasing the risk of a proxy conflict in northern Ethiopia. Ethiopia continues to accuse Eritrea, Sudan, and Egypt of supporting rebel groups and closed its embassy in Asmara while declaring 10 Eritrean diplomats persona non grata. Eritrea responded by closing its embassy in Addis Ababa, while Egypt declared an Ethiopian embassy counselor persona non grata. Should relations continue to deteriorate, Eritrea and Sudan could increase their support for the Tigray People’s Liberation Front (TPLF) through financial or military assistance, although Egyptian involvement is currently less likely.

Meanwhile, the Ethiopian National Defense Force (ENDF) launched a counteroffensive, halting key rebel advances in Tigray and Afar, though rebels could expand their use of drone warfare. Since recapturing Alamata on Monday, the ENDF appears to be advancing toward Tigray’s capital, Mekelle, which remains under the control of the Tigray People’s Liberation Front (TPLF). However, it is still too early to determine whether the ENDF can sustain these tactical gains. Moreover, the TPLF and other rebel groups could expand drone strikes targeting Addis Ababa and surrounding cities. Rebels reportedly attempted to launch drone attacks against ENDF headquarters in Addis Ababa. They also reportedly targeted Ethiopian Air Force headquarters in the Oromia region and an airport in the Afar region, likely seeking to force the ENDF to divert additional resources toward defending the capital rather than supporting the counteroffensive in the north.

Read More: Reuters [paywall], Critical Threats, Stepwise Risk Outlook

Disruptive Technology

European Commission officials reportedly dislike the current implementation of “sovereign backup” tech services to American systems. The Commission introduced a UK-produced video-chat software called Element Pro, which is also used by the UN and NATO. However, three anonymous officials told Politico Europe that the new software is inferior to American video-chat software services like Teams. Another official suggested that switching to a new service would be inherently disruptive but perhaps useful.

The Commission is rolling out alternatives to US-produced office suites to ensure continuity amid “disruptions,” namely if the US were to flip the “kill switch” on European access to American tech services. Those fears have increased with export controls on Anthropic’s Mythos 5 and Fable 5 models in June 2026 and the digital isolation of sanctioned officials in the Hague-based International Criminal Court starting in June 2025. The Austrian military has replaced American-made digital corporate services with German-produced LibreOffice in 2025, and the French government is using Linux instead of Windows.

Read More: Politico, AP, Foreign Policy [paywall], Stepwise Risk Outlook

Energy

China is reportedly reintroducing heavy restrictions on exports of refined oil products. Chinese refiners have reportedly stopped all exports of oil products to locations outside of Hong Kong and Macau, as Beijing looks to secure its own domestic energy supplies amid a continuing supply crunch in refined products. Chinese exports had plunged earlier this year from March to April but had soared in August. A number of countries import significant amounts of their refined products supply from China, such as Singapore, Vietnam, Australia, the Philippines, and Bangladesh.

Oil products are experiencing supply issues due to global issues with refining capacity. Russia halted diesel exports earlier this year over concerns about its own domestic supply following Ukrainian strikes on refiners, and Middle Eastern refining capacity also remains disrupted. The US is also considering a ban on diesel exports to support its own domestic market ahead of elections, and Washington has pushed Europe to release stocks from its reserves.

Read More: Reuters [paywall], Reuters [paywall], Deutsche Welle

Transnational Crime & Corruption

The US announced “unprecedented” sanctions against a Russian sanctions evasion network, declaring it a Transnational Criminal Organization. The Office of Foreign Assets Control release accused the A7 Network, operated primarily out of Russia and Kyrgyzstan by sanctioned Moldovan oligarch Ilan Shor, of helping Russian, Iranian and North Korean entities evade Western sanctions. A7 marketed itself as a parallel and alternative structure to the international SWIFT payment system. According to OFAC and independent researchers, A7 instead used shell “sub-agents” registered around the world to access the SWIFT system for sanctioned clients. Between January 2025 and June 2026, A7’s sub-agent network allegedly processed $17 billion, including to facilitate Iranian oil sales and weapons procurement.

The sanctions package proposes the creation of a list of known A7 sub-agents barred from the US financial system. Covered financial institutions would be required to make sure no clients are on the government-curated list and cease doing business with any designated A7 sub-agents. The Financial Crimes Enforcement Network’s notice of proposed rulemaking to set up the compliance program noted that cryptocurrency firms may be unable to block A7 sub-agents from using their platforms to transfer virtual currencies, due to technical limitations.

Read More: US Department of Treasury, Financial Crimes Enforcement Network, Financial Times [paywall], Stepwise Risk Outlook

Defense

Secretary of War Pete Hegseth announced a series of new initiatives at his “State of the Force” speech. The Department of War will establish a new combatant command, Autonomous Warfare Command (AutoWarCom), to procure new products in drone and robotics innovation. Hegseth also announced Fortress America, which will see every US base in the country have its own power supply disconnected from the national grid. The Pentagon will also conduct a study under the newly announced “Project Meridian” to lay out the future character of war, with a focus on American technological superiority.

The focus on autonomous warfare comes after the Pentagon ended an experimental drone unit earlier this year. The Army had created a dedicated drone battalion to study lessons from drone warfare and drone forces, such as the Ukrainian military’s use of drones. The unit returned to its airborne infantry mission after less than a year.

The administration has placed a significant emphasis on drone procurement since 2025. The White House issued an executive order in June 2025 directing the military to build up its arsenal of unmanned aerial systems. The Department of War also launched its Drone Dominance program in December 2025 to accelerate the build-out of the defense industrial base for drones.

Read More: The Hill, Breaking Defense, Defense Scoop

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances. 

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s featured deep dive by Elton Smole examines what US troops in Ecuador means for the future of counternarcotics in Latin America.

US Troops in Ecuador Present New Model for Counternarcotics in Latin America

By Elton Smole

^{“940th Military Police Company Conducts Exercise El Gato with Ecuadorian Armed Forces” by Staff Sgt. Caleb Sooter is marked with Public Domain Mark 1.0.}

The presence of US forces in Latin American counternarcotics operations has entered a new chapter as the Trump administration steps up engagement with Shield of the Americas partners to authorize direct land strikes and joint operations with US military personnel to combat cartels. The US has historically supported allied anti-narcotics operations in the region through equipment and intelligence sharing. The new model being deployed in Ecuador represents a shift to more direct involvement, which the Trump administration seeks to replicate across the region. This model has been welcomed by some right-wing governments, but comes with legal and geostrategic downside risks, including that strikes over the past year have failed to meaningfully achieve their intended purpose of reducing drug trafficking to the US. Still, the recent US actions in Ecuador appears to be setting a new model for US military involvement across the Western Hemisphere.

In today’s full analysis:

• Ecuador Raids Target Transnational Groups with US Boots on the Ground

• US Security Cooperation Terms Remain Uneven Across the Region

• Limited Results and Risks to Regional Stability

Read the Full Report Here

Or listen to the full report here:

Listen to the news:

Global

Amid a global shortage of diesel fuel, the US demands the EU draw down on emergency inventories or risk a US diesel export ban. EU countries hold nearly 109 million tons of emergency crude and fuel stocks. The EU’s emergency diesel stocks are mainly in Germany and France, accounting for about 35% of the total EU stockpile. The US has asked the EU to release 120 million barrels of diesel in the next six months, an amount equal to about one month of total EU diesel consumption. The average price of diesel in the EU has soared by around 40% since January, creating domestic pressures to increase available supply.

With major disruptions in global trade due to conflict, top producing countries are imposing diesel export bans, or considering new bans. The US, the largest global exporter (15.4% of the global market in 2025), is considering a diesel export ban due to rising prices and voter discontent with rising transportation costs and overall inflation. Russia, the second largest (9.5% in 2025), first imposed a partial export ban in September 2025, extending a full ban in July 2026, citing domestic needs related to the Ukraine War. Persian Gulf producers are struggling to get their diesel to market (about 10% of global supply) due to the blockage of the Strait of Hormuz. Chinese refiners have suspended exports of oil products to regions beyond Hong Kong and Macau until further notice from Beijing for domestic energy security.

Read More: Reuters [paywall], Yahoo!Finance, Reuters [paywall], Deutsche Welle, Politico

Europe

Slovakia Prime Minister Robert Fico raised the possibility of snap elections in January 2027 amid coalition division over the dismissal of a government minister from parliament. Tomáš Taraba, the former Deputy Prime Minister and Minister for Environment, had fallen out of favor with his own party, the Slovakia National Party (SNS), for continuing decarbonization initiatives against the wishes of SNS leadership. Taraba agreed alongside Fico and SNS in May to step down as Minister if the dispute was ongoing by the end of September, but he had refused to step down. Independents that back Fico’s government voted against it to dismiss Taraba from parliament, weakening the government’s thin majority.

If an election were held, Fico’s coalition is expected to lose seats. Fico’s left-wing Smer party is polling at about 17%, six points lower than its 2023 result. Fico’s coalition partners are fairing worse, with SNS polling at 2% (three points lower) and the social-democratic Voice – Social Democracy party polling at 7% (eight points lower). The highest polling party is currently the liberal Progressive Slovakia party at 20%. If Fico’s government collapses, parliament will have a chance to form a coalition based on the 2023 election results before snap elections.

Read More: RBC Ukraine, Reuters [paywall]

Middle East

The Syrian government met with Hizballah officials for the first time in a bid to calm tensions. Syria reportedly pledged not to intervene in Lebanon (including pledging not to answer US requests to create a peacekeeping presence there) and asked Hizballah to help stop cross-border smuggling and dismantle its remaining sleeper cells in Syria. The meeting was mediated by Turkiye and did not result in any concrete agreements. The parties have a troubled history: Syria under Assad leadership occupied Lebanon and exerted significant influence there for over 30 years until 2005, while Hizballah fighters fought on the side of President al-Assad during the civil war.

The meeting was reported days after Syria claimed to find an active Hizballah cell preparing rocket attacks. On Tuesday, Syrian intelligence services reportedly “thwarted a sabotage plot” in Daraa in which Hizballah agents were preparing rocket launchers, apparently for attacks against the Syrian state. Hizballah in Lebanon disputed the reports; the plans may have been undertaken by a splinter cell more closely aligned with Iran, which would prefer a destabilized Syria to better serve as a corridor for proxy activity.

Read More: Reuters [paywall], The Times of Israel, CNN, Al Majalla

Asia-Pacific

Chairman of the House Select Committee on China John Moolenaar yesterday called on the State Department to investigate strengthened China-ROK ties, arguing it poses “significant risks” to US interests. In a letter to Secretary of State Marco Rubio, Moolenaar highlights increased leader-level engagement and South Korean semiconductor investments in China, as well as what he characterizes as more lenient regulatory treatment of Chinese firms than US companies. He specifically contrasts Seoul’s treatment of Chinese e-commerce platforms with its handling of US-based Coupang, arguing the disparity could disadvantage American firms and increase Chinese access to Korean consumer data.

The letter comes as trade, investment and greater Korean contributions to regional security become increasingly central to the Washington-Seoul alliance. In exchange for tariff relief, Seoul pledged $350 billion in US investment. However, conflicting accounts of the talks and investment details have frequently protracted trade talks between the two allies. Most recently, President Trump yesterday announced South Korea would invest some $200 billion in US projects, including $54 billion for the Alaska LNG pipeline. In contrast, South Korea’s Industry Ministry Kim Jung-kwan earlier today pushed back on Trump’s characterization of the investment, stating “Putting out figures, or using definitive language, goes far beyond what was agreed.”

Read More: House Select Committee on China, The Chosun Daily, US Department of Commerce, Wall Street Journal [paywall], Channel News Asia

Americas

A controversy over Our Lady of Aparecida, Brazil’s patron saint, has become a flashpoint in Brazil’s elections just days before the first round of voting. Flávio Bolsonaro sparked the controversy after saying he would “declare Brazil belongs to Jesus Christ” if elected, prompting claims that he intended to remove Our Lady of Aparecida as Brazil’s patron saint. Evangelicals make up a key part of Bolsonaro’s base, as Catholicism is on the decline in Brazil. The claims about Our Lady of Aparecida, who is especially important for Catholics, were amplified by Lula supporters on social media. Bolsonaro then denied the allegations, calling them “fake news,” but the dispute has become a late campaign issue that could hurt him among Catholic voters in his tight race against Lula. Fake news and misinformation more broadly remain a key concern in the campaign. Brazilians will go to the polls on October 4 for the first round of voting.

Read More: AP, WRAL, Financial Times [paywall]

Africa

Explosions in Addis Ababa were reportedly drone strikes carried out by a rebel group. Explosions were heard in the capital and have been attributed to drone attacks by a rebel group affiliated with the Alliance for Survival, according to a source linked to the rebels cited by Reuters. If accurate, the attack marks the first in Ethiopia’s capital and a major escalation in the ongoing conflict between Addis Ababa and the Tigray People’s Liberation Front (TPLF).

In addition to the risks of greater regional instability and external actors becoming involved, the conflict could undermine regional counterterrorism initiatives. Ethiopia is reportedly considering withdrawing its 3,000 troops from the African Union Stabilization and Support Mission in Somalia (AUSSOM) to support operations against the TPLF, a move that could create a significant security gap along the Ethiopia-Somalia border.

Combined with Uganda threatening to withdraw all 4,500 troops by August 2027, AUSSOM will shrink substantially if one or both countries follow through on these actions (AUSSOM has approximately 11,900 troops in total), increasing the risk of a major resurgence in al-Shabaab activity. In such a scenario, the Federal Government of Somalia (FGS) would likely rely more heavily on Türkiye, its principal foreign security partner, but Ankara’s growing unpopularity among the anti-FGS coalition is likely to weaken the counterterrorism response significantly.

Read More: Reuters [paywall], Bloomberg [paywall], Somali Guardian, Stepwise Risk Outlook

Geoeconomics

US economic growth was revised higher for the second quarter as consumer spending and investment proved stronger than previously estimated. Real GDP expanded at a 2.2% annualized rate, up from the previous 1.5% estimate. First-quarter growth was also revised upward, from 2.1% to 2.5%. Consumer spending grew at a 3.8% pace, accelerating from 0.7% in the first quarter, while business investment excluding housing increased 9%. Private domestic demand, which combines consumption and fixed investment while excluding trade, inventories and government spending, rose 4.6%. Imports increased 12.6%, partly reflecting purchases of computer chips and other equipment supporting AI investment, subtracting nearly 1.7 percentage points from the GDP calculation. The Atlanta Fed’s GDPNow model points to continued momentum, estimating third-quarter growth at 3.7% on September 30, down from 5% following new consumption and trade data. That remains a preliminary model estimate ahead of the government’s October 29 release.

Rising Treasury yields could make that growth harder to sustain. The 10-year yield reached 5.34% on October 1, its highest since 2002, while the 30-year yield touched 5.68%. Persistent inflation concerns and stronger economic activity have reinforced expectations for elevated interest rates, while heavy government borrowing and corporate debt issuance for AI infrastructure are adding to bond supply. The selloff continued even after softer August inflation data reduced expectations for an October Fed hike. If sustained, higher yields would raise mortgage and corporate financing costs, discouraging home purchases and business investment. They could also weigh on equity valuations, weakening the wealth gains supporting household spending.

Read More: BEA, Reuters [paywall], The Wall Street Journal [paywall], Reuters [paywall], Brookings

Disruptive Technology

ICYMI: On Tuesday night, tech leaders signed a voluntary AI “self-policing” pledge at the White House. The accord, which President Trump called “morally binding,” involves four pledges. First, leading AI developers committed to “robust internal controls” to ensure model alignment in crucial high-risk areas, like cybersecurity, biosecurity, and chemical threats. Second, the developers committed to having internal teams ensure those controls work as intended. Third, the developers agreed to partner with third-party external auditors, similar to Dario Amodei’s calls for “embedding” third parties to ensure safety. Fourth, an independent committee of these companies’ board of directors will receive reports from the internal team and auditors.

The pledge is non-binding but appears to coalesce the industry and the White House closer toward an AI safety regulatory framework. As more hacking and misalignment incidents occur, momentum for stronger AI safety protocols is growing. The pledge bridges President Trump’s preferred emphasis on American AI dominance while also embracing the prospect of a federal third-party evaluation regime similar to Illinois, the only state with a mandatory embedding policy.

Read More: Associated Press, CBS News, The Hill

Energy

OPEC+ intends to keep their output targets unchanged at their upcoming meeting. While many of the group’s members have been raising production in recent months, they are still producing at well below their quota levels due to the fallout from the war with Iran. OPEC+ had increased output targets steadily throughout the year up until October, but according to reporting, there will likely be no more alterations to production targets in the fourth quarter of this year. OPEC+ is currently producing 25 million barrels per day (bpd), around 5 million less than in February.

Read More: Reuters [paywall], New York Times [paywall]

Transnational Crime and Corruption

The US sanctioned 10 people and entities connected to an ATM robbery ring connected to the Tren de Aragua (TdA) criminal group. According to the release by the Office of Foreign Assets Control (OFAC), the robbers carried out “jackpotting” attacks on ATMs in the US by installing malware on the machines that caused them to dispense cash without debiting an account. The TdA-linked scheme reportedly stole millions of dollars through jackpotting attacks, which were then largely laundered through cryptocurrency conversions. Since October 2025, 98 individuals have been indicted by the Department of Justice over ATM jackpotting schemes, many of whom allegedly had “extensive direct and indirect links” to TdA.

The jackpotting malware was reportedly developed by Anibal Alexander Canelon Aguirre (a/k/a Prometheus), a Venezuelan national and one of the FBI’s Ten Most Wanted Fugitives. Since at least 2024, Prometheus has allegedly provided the malware to US-based robbers and laundered the stolen cash through cryptocurrency transactions. Cryptocurrency diligence group Chainalysis linked Prometheus’ and his associates’ transactions to major stablecoin money laundering operations based in Mexico, Colombia, and Venezuela. The sanctioned individuals’ wallet addresses all utilized mainstream cryptocurrency exchanges to deposit stablecoins worth over $4.77 million, though it is unclear how much of this sum is derived from the jackpotting attacks.

Read More: US Department of the Treasury, Miami Herald, Chainalysis, Federal Bureau of Investigation

Defense

Germany is looking at potential partnership options for its next-generation fighter jet. Berlin is reportedly considering two potential paths for developing its next-generation fighter jet: joining the Global Combat Air Programme project with the UK, Italy and Japan or beginning a new joint development program with Spain and Sweden. Germany is in talks with Britain about potentially joining GCAP, which London is pushing for. However, Berlin reportedly sees a partnership with Sweden and Spain as more aligned with Germany’s needs and as more beneficial for Germany’s work share on a development project.

Germany’s joint development program with France fell apart earlier this year. Berlin had been partnering with Paris for years on the Future Combat Air System (FCAS) program, which collapsed this summer over disagreements over workshare, technology and knowledge sharing, and strategic requirements. Spain was also involved in the FCAS program.

Germany is rapidly increasing its defense expenditures and building its defense industrial base. Berlin is investing heavily across a number of different capability areas, and Germany’s defense expenditures are outstripping those of other European leaders like France and the UK. Germany is also directing the large majority of its investment and procurement into its own defense industrial ecosystem.

Read More: Welt [paywall] [in German], Politico EU, Stepwise Risk Outlook

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

^{Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances.}

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s featured deep dive by Samuel Bloebaum examines recent findings from the UN Crime Congress.

UN Crime Congress: Emerging Threats and International Divisions

By Samuel Bloebaum

^{“United Nations Office on Drugs and Crime - LOGO.jpg“ by Mariakikuta is licensed under CC BY-SA 4.0}

The United Nations Office on Drugs and Crime’s (UNODC) 15^th Congress on Crime Prevention and Criminal Justice 9, hosted in Abu Dhabi from September 26 through October 1, has revealed technology’s key role in facilitating new and dangerous varieties of transnational crime as well as deep divisions in the international community’s crime fighting agendas. The conference also marks the culmination of Abu Dhabi’s successful drive to revive the UAE’s international anti-money laundering reputation.

In today’s full analysis:

• Congress Priorities and Emerging Threats

• UAE: From Grey List to Anti-Crime Coordinator

• Divergent Visions for Cooperation

Read the Full Report Here

Or listen to the full report here:

Listen to the news:

Global

Russian-NATO tensions escalate with Russia’s threat to use nuclear weapons against NATO to protect its sovereignty in Kaliningrad, its Baltic Sea exclave. NATO is responding with criticism of Russian nuclear saber-rattling, noting NATO is a defensive alliance, but NATO leaders are increasingly concerned about Russian hybrid operations targeting NATO infrastructure. Russia remains bogged down in Ukraine, unable to make significant gains on the ground this year and is looking to other tactics to shore up its offensive capabilities. Russia controls the world’s largest nuclear arsenal, with an estimated 4,400 stockpiled warheads, of which 1,796 are strategically deployed, making nuclear risks credible.

The Baltic states are under constant Russian pressure. Moscow is using a mix of overt pressure and covert subversion, including information operations to sow discontent among the Russian-speaking population, amplify polarizing narratives and spread fear. Russia has also engaged in deniable sabotage of critical undersea cables, cyber disruption, airspace violations and border provocations by creating artificial migrant flows. While talk of a limited Russian military incursion into the Baltic region is nothing new, few think that Russia could muster a large enough force to overcome the combined forces of Estonia, Latvia and Lithuania.

Read More: Financial Times [paywall], EuroNews, EU Observer, Atlantic Council

Europe

The White House is reportedly looking at trading sanctions relief for Moscow releasing political prisoners. The Atlantic is reporting that John Coale, who the administration recently nominated to be special presidential envoy for hostage affairs, is pushing for the US to provide sanctions relief to Russia in exchange for the Kremlin releasing political prisoners. US President Donald Trump has reportedly embraced the strategy, and Coale has been testing it with Russian ally Belarus. Earlier this month, Minsk released 25 political prisoners in exchange for Washington removing sanctions on a state chemicals company, and Belarus has repeatedly released prisoners in deals with the US.

The sanctions relief push will potentially be coordinated with Trump’s envoys for the Russia-Ukraine war. Coale intends to cooperate with Steven Witkoff, one of Trump’s primary negotiators for a potential end to the conflict, who has been a point of contact for the administration with Russia.

The timing of potential sanctions relief clashes with the recently signed Lindsay Graham sanctions bill. Earlier this month, Trump signed the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026 into law, which allows the administration to impose tariffs on buyers of Russian energy. It also sanctions many Russian actors, although the sanctions are largely discretionary and can be waived by the White House.

Read More: The Atlantic [paywall], CBS News, New York Times [paywall], Stepwise Risk Outlook

Asia-Pacific

China on Tuesday opened a new air force support and training center in Laos, expanding its overseas military presence. The China-Laos Joint Support and Training Center and the China-Laos Friendship Aviation Academy are the new logistics facilities at the Ban Keun airport. China’s Ministry of National Defense said they are now operational and will be used to support air force training, including pilot training. The facility will reportedly be jointly maintained by China and Laos. The opening underscores decades of close Laos-China relations, underpinned by extensive economic, infrastructure and political cooperation.

The facility marks China’s first publicly recognized overseas military site focused on air force support and training and signals Beijing’s interest in deepening its security presence in Southeast Asia. China officially acknowledges only one dedicated overseas military support base, in Djibouti, and has a joint training and support center at Cambodia’s Ream Naval Base. Phnom Penh maintains that no Chinese personnel or warships are permanently stationed at Ream. The Laos facility could further expand the PLA’s ability to conduct training and sustain operations in mainland Southeast Asia and the South China Sea, while strengthening China’s access to regional transport and trade corridors.

Read More: Reuters [paywall], South China Morning Post [paywall], Global Times

Americas

The US restricted the visas of 27 Latin American individuals over alleged corruption and narcotrafficking on Monday. The State Department announced that it had revoked existing visas or imposed visa ineligibilities affecting nationals of Bolivia, Colombia, Ecuador, and Peru, targeting individuals accused of involvement in corruption or drug trafficking. Bolivia accounted for the largest share, as visas were revoked for 12 prosecutors, judges, former officials, a police colonel, and a businessman, while nine additional Bolivians without current visas were made generally ineligible for future visas. The US also revoked visas for Colombian businessman Euclides Torres Romero and Senator Martha Peralta Epieyu, two unnamed Ecuadorians, and Peruvian judge Juan Carlos Nunez Matos. Additionally, Washington designated Bolivian Attorney General Roger Mariaca for allegedly accepting bribes to facilitate narcotrafficking, making him and his immediate family ineligible to enter the US.

The move expands Washington’s use of visa restrictions as a regional pressure tool. The US has recently used similar measures against individuals in Mexico associated with the ruling Morena party. In these cases, the measures were used against individuals in countries that are members of the Shield of the Americas coalition, under which participating governments have pledged coordination on sanctions, designations, and financial measures against criminal actors. The recent focus on Bolivia, Colombia, Ecuador, and Peru reflects Washington pairing regional security cooperation with pressure on officials whom partner governments view as obstacles to counternarcotics and anti-corruption efforts. The action against Mariaca is particularly notable because it directly targets the sitting head of Bolivia’s prosecutorial system.

Read More: State Department, The Hill, AP [paywall]

Africa

Turkish F-16s conducted airstrikes near the town of Baidoa in support of Somali military operations against anti-government forces. Türkiye continues to provide support for the Federal Government of Somalia (FGS) as rising tensions between Mogadishu and state governments have prompted clashes between federal and state security forces. The strikes follow a previous Turkish airstrike in the town of Dolow on September 4, which the Jubbaland state government alleged was intended to target General Mahad Abdirahman, a former senior defense official who now opposes the FGS. In addition, opposition forces aligned with the former president of South West state, who was deposed by the FGS, accused Türkiye of targeting the president with strikes in early July and September.

Greater Turkish intervention could intensify internal political tensions and further fragment the security environment. Ankara is a critical security partner for Mogadishu and has significantly increased airstrikes against al-Shabaab this year. In turn, Türkiye’s state-owned energy company is conducting deepwater oil drilling in Somalia’s Exclusive Economic Zone, underscoring Ankara’s growing interest in a more secure and politically stable Somalia. If allegations that Türkiye is targeting opposition figures prove true, however, such operations are likely to generate further resistance from state governments and could escalate conflict between FGS and state security forces. This could create a security vacuum that criminal groups and al-Shabaab are likely to exploit. Intensifying anti-Turkish sentiment in Jubbaland or other areas is also possible, as the September 4 airstrike reportedly sparked multiple protests across the state.

Read More: Agence France-Presse, Critical Threats, Critical Threats

Geoeconomics

US inflation came in below expectations in August, giving the Federal Reserve more room to delay its next rate increase. The Fed’s preferred inflation measure, the Personal Consumption Expenditures price index, rose 0.3% from July, below the 0.4% forecast, while core PCE, which excludes food and energy, increased 0.2%. Annual headline and core inflation stood at 3.4% and 3.0%, respectively, both unchanged from July’s revised readings: changes to how the government measures software prices, portfolio-management fees and legal services lowered previously reported inflation, meaning the improvement partly reflects measurement changes. July’s annual headline rate was previously reported at 3.7%, and core inflation at 3.3%. Consumer spending nevertheless rose 0.9% in August, or 0.6% after inflation, showing that household demand remained strong.

Expectations for an October hike have weakened, although another increase before year-end remains in play. The Fed raised its benchmark rate by 25 basis points to 3.75%–4% on September 16. New York Fed President John Williams said on September 29 that there was “no need for urgency” and that one further increase late this year could be appropriate. Following Wednesday’s inflation release, futures markets assigned roughly a 47% probability to an October hike, compared with about 70% on Monday; much of that decline had already occurred before the PCE report. The decision will depend on whether subsequent data show inflation becoming more persistent despite September’s tightening.

Read More: Reuters [paywall], New York Fed, MarketWatch [paywall], Brookings

Disruptive Technology

ICYMI: Anthropic released an IPO prospectus highlighting potential risks, including a concentrated customer base and AI model unpredictability. The prospectus foresees a valuation of more than $2 trillion, surpassing the SpaceX IPO and doubling the company’s most recent valuation. However, several fiduciary and societal risks remain. In terms of the business, Anthropic’s capital expenditure expectations remain high at a planned $518 billion on cloud, computing, and infrastructure in the coming years. The company expects rapid growth to meet those obligations (the company’s annualized revenue is reported at $65 billion for 2026), but the company faced an operating loss of $8 billion in 2025, surpassing revenue ($4.6 billion). Moreover, about a quarter of revenue is concentrated among two large customers. In terms of downside societal risks, the company warns that AI misalignment—and at a potentially catastrophic scale—could threaten humanity, and not least public or regulatory pushback. Anthropic CEO Dario Amodei has called to “pace the frontier” of AI development.

Read More: CNBC, Financial Times [paywall], Reuters [paywall]

Energy

Energy flows out of the Middle East seem to be moving back towards their prewar levels. Data from the analytics firm Kpler indicates that Middle East exports of crude have returned to slightly below 80% of levels before the US war with Iran began. So far in September, flows from the region have reached 16.328 million barrels per day (bpd), the highest level since late February. The shift upwards in oil leaving the Middle East is occurring on the back of increased exports from Saudi Arabia and the United Arab Emirates. For example, Saudi Arabia has been able to shift exports back towards the Strait of Hormuz following damage to its pipeline to the Red Sea. In February, regional exports were around 19.5 million bpd.

Despite the increases in export flows, prices are remaining elevated as the US and Iran remain stalled on efforts to end the war. Futures prices for Brent crude are still over $100 dollars per barrel, and oil will likely see a monthly price increase of 14% in September, the biggest monthly move upwards since July. West Texas Intermediate will only increase 4% this month but still remains elevated. US President Donald Trump has recently ruled out easing sanctions on Iran and rejected an Iranian peace proposal.

Read More: Reuters [paywall], Reuters [paywall], Wall Street Journal [paywall]

Defense

German defense technology company STARK has presented its new 12-meter-long Vanta 12 Unmanned Surface Vessel (USV). The Vanta 12 is outfitted with STARK’s artificial intelligence platform Minerva and, according to the company, can autonomously patrol and monitor large tracts of ocean for long periods; it can also be outfitted with effectors to engage potential threats. According to STARK, the USV has a range of 1200 nautical miles and can reach speeds of up to 40 knots. The Vanta 12 was tested at the NATO REPMUS exercise this month together with manned and unmanned systems. The Vanta-12 is the latest in the Vanta series. Berlin has already procured STARK’s 6-meter-long Vanta-6 system. The series is designed to host different sensors and effectors depending on the requirements of the customer.

Read More: Hartpunkt [in German], Naval News

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances. 

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market.

Listen to the news:

Global

Patterns in global LNG energy trade are shifting under the weight of geopolitical conflict, demonstrating that global gas markets are rebalancing to build in greater resilience. Energy trade is no longer organized solely around the cheapest supplier or shortest route. The preference for buying LNG on the spot market is giving way to renewed interest in long-term LNG contracts to mitigate against acute shortages or unaffordable bills. Countries and companies are prioritizing diversification to reduce dependence on one dominant source or market. This is creating strong incentives for alternative suppliers and markets for LNG, with the market expected to grow by 7% in 2026.

Canada is now poised to become a major LNG supplier to Asia and Europe. Canada’s decision to become an energy superpower is being driven by a domestic re-evaluation of the value of fossil fuels to national economic security under the Carney government. The souring of relations with the US has created further incentives to develop the Canadian oil sands for export to Asian and European markets. New policies supporting investment and easing regulatory and permitting uncertainty have unlocked the sector, drawing the interests of energy majors to form international consortiums such as Canada LNG. Proposed LNG export projects could enable Canada to send 55% of its natural-gas exports to non-US markets by the early to mid-2030s, according to the government’s estimate.

Read More: Wall Street Journal [paywall], Financial Times [paywall], International Energy Agency

Europe

EU defense ministers discussed a bloc-wide “emergency security protocol” yesterday, but reception appears icy. In her annual State of the European Union speech about two weeks ago, European Commission President Ursula von der Leyen proposed a “European Security Council” to coordinate responses to hybrid or conventional threats. This emergency protocol would therefore be similar to Article IV in NATO, which is when allies can convene upon request to discuss a security matter (this was triggered twice last year due to Russian drone incursions onto NATO territory). But some officials reportedly view the EU as the wrong forum to discuss these matters due to stringent transparency rules. The EU’s chief diplomat, Kaja Kallas, emphasized in a press conference that discussions over an emergency security protocol are “initial” and there was a strong understanding that such a protocol would not duplicate NATO’s Article IV.

Read More: Politico, Financial Times [paywall], European External Action Service

Middle East

US forces are scheduled to pull out of Iraq by Wednesday, ending the military presence after 23 years. The withdrawal, agreed to by Washington and Baghdad in 2024, is widely celebrated in Iraq. However, it risks creating a security vacuum. Pro-Iranian militia groups are poised to seek greater influence over security and politics. Sunni tribal leaders are concerned about a resurgence of ethnic conflict. Islamic State (ISIS) fighters remain embedded in the Sunni community and could seek to exploit the US withdrawal to reassert its agenda to establish a caliphate in Iraq.

The future of the US relationship with Iraq is uncertain. Some analysts assess that the departure of troops is yet another example of the US abandoning its partners. Others, opposed to the US “forever wars,” argue that Iraq needs to move forward with security reform, disarming militias and integrating fighters into Iraq’s Armed Forces, measures that could not be taken while the US “occupying force” remained in the country. The departure will allow the US and Iraq to normalize the bilateral relationship, shifting focus to diplomacy and trade. Baghdad wants US companies to stay and invest in the country’s future. Their presence, if coupled with continued US intelligence cooperation, counterterrorism support and security assistance, could help create a new foundation for the bilateral relationship and the prospect for greater stability in the Arab heartland.

Read More: Reuters [paywall], Atlantic Council

Asia-Pacific

South Korea on Tuesday said land mines that severely injured two South Korean soldiers in the demilitarized zone (DMZ) were “highly likely” to have been planted by North Korea. The explosions occurred roughly 30 feet south of the Military Demarcation Line (MDL), on the South Korean side of the border. South Korea’s military said evidence indicated the mines were North Korean and appeared to have been deliberately planted, rather than having migrated from the North, amid Pyongyang’s recent border fortification efforts.

Seoul’s military has called the incident a clear violation of the Korean War armistice and warned of “appropriate and corresponding” measures, while President Lee Jae Myung has called for a thorough investigation before determining a response. The distinction is significant: the UN Command has said recent North Korean fencing, road repairs and defensive mine-laying do not violate the armistice if they remain north of the MDL, while mines placed south of the MDL would constitute a violation. The incident overall complicates Lee’s efforts to prioritize engagement with Pyongyang, potentially forcing Seoul to balance its push for dialogue with a military response if North Korean responsibility is confirmed.

Read More: Yonhap News Agency, NK News, Wall Street Journal [paywall], Reuters [paywall]

Americas

The Venezuelan government released more than three dozen political prisoners over the weekend. According to human rights groups, 39 dissidents were freed from across multiple prisons between Friday and Saturday. Eight were accused of narco-terrorism, and six were accused of working with the US government to overthrow former Venezuelan President Nicolas Maduro. As of September 18, 344 political prisoners reportedly remained in detention, after the Venezuelan government announced it had freed 131 people. More than 1,000 political prisoners have been freed so far this year.

The recent release coincided with the second round of talks between the Venezuelan interim government and the opposition. The first round of negotiations in August focused on earthquake recovery and retrieving frozen overseas funds. In the talks, the opposition is led by Dinorah Figuera, while Maria Corina Machado remains in exile. The talks are ostensibly aimed at eventually holding elections. At the UN General Assembly last week, Venezuela’s interim President Delcy Rodriguez promised that Venezuela would eventually hold elections, although she did not give a timeline. The ongoing release of political prisoners, despite having slowed in recent months, provides concrete momentum for the ongoing opposition talks.

Read More: Al Jazeera, ABC, BBC [paywall]

Africa

The Ethiopian National Defense Force (ENDF) reportedly captured the strategically located town of Alamata as part of its push to regain control of Tigray’s capital. Alamata lies near Tigray’s southern border with Amhara and serves as a key logistics hub for the movement of troops, fuel, and supplies. The ENDF is advancing toward Mekelle, Tigray’s capital, in an effort to reverse recent tactical gains made by the Tigray People’s Liberation Front (TPLF) across the region. The TPLF appears to retain control of all three airports in Tigray, which are typically under federal authority, limiting the ENDF’s ability to airlift reinforcements directly into the region. During the first Tigray war, however, control of Alamata shifted multiple times, highlighting that this tactical success may prove temporary.

Meanwhile, fighting continues across the neighboring Afar and Amhara regions. The ENDF remains engaged with both the TPLF and the Amhara Fano Nationalist Movement, a rebel group affiliated with the Alliance for Survival. The Tigrayan rebels’ offensive into Afar may be aimed at disrupting supply routes from Djibouti, Ethiopia’s key economic partner and principal gateway to Red Sea trade. The TPLF has yet to capture sufficient territory to effectively block these trade corridors. If it were to do so, however, it could significantly shift the conflict in the rebels’ favor while likely triggering a major escalation from Addis Ababa.

Read More: Reuters [paywall], Al Jazeera, Critical Threats, Council on Foreign Relations

Geoeconomics

US Section 232 pharmaceutical tariffs expanded on September 29, exposing imported patented medicines and their ingredients to a default duty of 100%, subject to extensive exemptions. The April order had already taken effect for designated companies on July 31; the latest deadline extends it to remaining manufacturers. Generics and biosimilars remain outside this round. Covered products from the EU, Japan, South Korea, Switzerland and Liechtenstein face a 15% rate unless they qualify for lower treatment, while British products receive zero Section 232 duties. Commerce also clarified exemptions for specified specialty medicines from designated trading partners, including India, covering categories such as cell and gene therapies and plasma-derived treatments. Imports used solely for clinical trials, research or other noncommercial purposes also qualify for zero duties.

The policy ties tariff relief to US manufacturing commitments and drug-pricing concessions. Manufacturers with approved US production plans can qualify for a 20% rate, while those also accepting most-favored-nation pricing agreements, linking American prices to lower prices abroad, can receive zero duties through January 20, 2029. The 20% rate is scheduled to rise to 100% in April 2030. These arrangements could encourage investment in American production, but additional American factories may also continue relying on foreign ingredients, meaning that domestic investment alone will not eliminate the supply dependencies used to justify the tariffs.

Read More: US Customs and Border Protection, White House, Commerce Department, American Action Forum, Chemistry Today

Disruptive Technology

ICYMI: A DC appeals court upheld the Pentagon’s designation of Anthropic as a supply chain risk. The designation, which previously was only applied to foreign companies, disallows the Pentagon and any military contractor from using Anthropic’s applications in their operations or supply chain. The company was designated after pushing back against the Pentagon’s use of Claude for military operations, which is a violation of Anthropic’s code. Politically, the Trump administration and Anthropic also diverge on whether to slow down AI development and how to regulate AI deployment. In the meantime, Anthropic could petition the full DC Court of Appeals or appeal to the Supreme Court. A separate but parallel supply chain risk designation was struck down by a San Francisco appeals court in August.

Read More: The Hill, Politico, CNBC

Energy

Russia will restrict the amount of energy data it publishes going forward. Russian President Vladimir Putin has approved a decree tightening rules governing the publication of data about the country’s energy trade. The new decree prohibits publication and access to any information about Russia’s export contracts: volumes, prices, method of transport, payment settlements, and other relevant details. The decree will also affect what media outlets can publish.

The move is designed to hinder efforts at sanctions enforcement by Western countries. It is the continuation of past decisions to restrict outside access to information about Russia’s trade and economic situation in order to undercut sanctions against the country. For example, Russia had already shut off access to official data about crude oil production prior to the new decree.

Read More: Reuters [paywall], Bloomberg [paywall], Meduza

Defense

The Navy’s revitalization efforts for public shipyards will likely take longer than originally expected. The Government Accountability Office (GAO) has reported that the Shipyard Infrastructure Optimization Program (SIOP) – which the Navy originally estimated at $21 billion dollars – will actually run up a price tag of almost $200 billion. The GAO also assessed that SIOP could take decades longer than originally estimated by the Navy, lasting 50 years instead of the original assessment of 20 years. The GAO report concluded that the initial estimate, made in 2018, “omitted key costs” and that factors such as commodity prices are also contributing to increases in the overall price tag. The SIOP is designed to revitalize the US’ four public shipyards in Virginia, Maine, Washington and Hawaii that handle repairs for the Navy’s nuclear-powered vessels.

Read More: Breaking Defense, Defense One, Business Insider

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

^{Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances.}

The Sanctions Update, compiled by attorneys from Steptoe’s award-winning International Regulatory Compliance team and the Stepwise: Risk Outlook editorial team, publishes every Monday (subscribe here). Guided by the knowledge of Steptoe’s industry-leading International Trade and Regulatory Compliance team, the Sanctions Update compiles and contextualizes weekly developments in international regulatory enforcement and compliance, as well as offers insights on geopolitical context, business impacts, and forthcoming risks, and non-sanctions news updates.

For more detailed analysis on related issues, see Steptoe’s International Compliance Blog. For information on industry-specific monitoring or bespoke services, please contact the team here.

By Evan T. Abrams, Meredith Rathbone, Karl Hopkins, Guy Soussan, Alexandra Melia, Wendy Wysong, Ali Burney, Quentin Johnson, Elliot Letts, Algirdas Semeta, Melissa B. Mahle, Anni Coonan, Thomas Goldstein, Zayna Dembinski, Samuel Bloebaum, Elton Smole, Ian Cameron, Wilson Zhao, Zoey Hong, Kiki Dong, Kuangqi Zhong, Andy Xu Sofia, Jake Fitzpatrick, Carter Spahn, Chris Dantes

Listen to the sanctions update:

The Lede

US Lifts Sanctions on Eritrea as Conflict in Ethiopia Reignites

^{"Ethiopian soldiers under AMISOM training for combat" by AMISOM Public Information is marked with CCO 1.0.}

On September 18, the Office of Foreign Assets Control announced the expiration of Executive Order 14046, ending 11 designations, including sanctions on Eritrea’s ruling party and military. The Biden administration deemed Eritrean authorities complicit in Ethiopia’s alleged human rights abuses during the war against the Tigray People’s Liberation Front (TPLF), leading to sanctions and a decline in relations. Recently, the Trump administration has sought to balance relations with both countries to stabilize the Horn of Africa, using the lifting of sanctions as an initial step toward expanding engagement with Asmara. However, the TPLF’s declaration of a “defensive war” against Ethiopia on September 23 and ongoing attacks could escalate into a full-scale war and invite Eritrean involvement, particularly as its rivalry with Ethiopia has intensified and caused Asmara to align with the Tigrayan rebels. If this occurs, the US could reimpose sanctions on Eritrea and potentially sanction Ethiopia if it perceives both sides are resistant to peace talks, which would likely be mediated by Washington.

The Ethiopia-TPLF Conflict, Explained

The first Tigray war began in November 2020 after months of worsening tensions between Addis Ababa and the TPLF. The TPLF was the dominant political force in the country until the appointment of Prime Minister Abiy Ahmed Ali, an ethnic Oromo, in 2018. Despite promising to heal decades of ethnic strife, the federal government delayed national elections, extended Abiy’s term, and opposed local elections in Tigray, creating tensions with Tigrayan authorities that culminated in armed conflict. Although historically an adversary of Ethiopia, Eritrea sided with Addis Ababa in the war, motivated by its longstanding rivalry with the TPLF and border security concerns. Other rebel groups entered the conflict: the Oromo Liberation Army allied with the TPLF, while Fano militants fought alongside the government.

The war ended in 2022 with the signing of the Pretoria Agreement, but the agreement did not fully address the TPLF’s grievances. Key political and territorial disputes were never resolved in the years following the agreement, including massive population displacement and restrictions on the authority of the Tigrayan government. The agreement also excluded Eritrea and the Fano militias, undermining a previous reset in Ethiopia-Eritrea relations and contributing to a Fano insurgency in 2023.

The End to a Fragile Peace and Possibility of Regional Conflict

Following drone strikes in Tigray by the Ethiopian military in August, the TPLF and six other rebel groups announced the formation of the Ethiopian Peoples’ Forces Alliance for Survival last week. The alliance, which also includes the Fano militias that fought the TPLF in the war, outlined the organization’s objectives as overthrowing the Abiy government and establishing a democracy, the details of which are unclear as the groups have historically advocated for different governance structures. Days later, fighting erupted in the Tigray, Afar, and Amhara regions. The TPLF seized the airport in Mekelle, Tigray’s capital, and claimed their attacks were defensive measures against bombardments from federal forces.

It remains unclear how federal forces will respond beyond retaking territory seized by Tigrayan rebels. Expanded drone strikes in Tigray or an occupation of the region are possibilities, but doing either would likely invite greater retaliation from the TPLF and potentially trigger insurgencies in neighboring regions.

In addition to the risk of a prolonged war between Addis Ababa and the TPLF, regional and external actors could become involved, creating a complex proxy conflict in northern Ethiopia. Ethiopia-Eritrea relations have worsened in part due to statements from Abiy that access to the Red Sea (Ethiopia has been landlocked since Eritrea’s independence in 1993) is an existential issue. Eritrea interprets these statements as a threat to its sovereignty and fears Ethiopia seeks to eventually control its port of Assab. To counter Ethiopia’s regional ambitions, Eritrea has increasingly aligned with the Sudanese Armed Forces (SAF), the TPLF, and Fano militias, a network that Ethiopia characterizes as a shadow military alliance known as Tsimdo. The extent of these groups’ cooperation is unclear; however, Eritrean officials have visited Tigray, indicating deepening security ties to hedge against Ethiopia.

A broader regional conflict, in turn, could provide Gulf states with an opportunity to expand their influence across the Horn of Africa. The UAE has substantial interests in Ethiopia, including agricultural imports, investments, and security cooperation. Moreover, the UAE has allegedly used Ethiopia as a training and logistical hub for the Rapid Support Forces, the paramilitary group fighting the Saudi-aligned SAF in Sudan. As Saudi-UAE competition has intensified in Sudan and elsewhere, Riyadh may cultivate deeper ties with Eritrea to counter Abu Dhabi and secure the Red Sea, although the extent to which it would support Eritrea in a conflict is uncertain.

US Interests and Potential Response

As efforts to resolve the Sudan war have stalled and Somalia becomes increasingly unstable, the Trump administration is seeking closer partnerships with Ethiopia and Eritrea, leveraging potential investment deals and other bilateral economic agreements to dissuade both actors from going to war or further engaging in proxy conflicts. A major Ethiopian offensive in Tigray could displace thousands, leading to refugee flows that could further destabilize the Horn and extend far beyond the region. Another core interest is stabilizing the Red Sea and cooperating with littoral states, including Eritrea, to maintain maritime security as trade through the Bab el-Mandeb is increasingly under threat by the Houthis and Somali piracy.

The US Ambassador to Ethiopia, Ervin Massinga, condemned the TPLF attacks and warned that sanctions would be imposed on other rebel groups that join (the TPLF was sanctioned earlier this year). If Eritrea provides arms to the TPLF, the reimposition of sanctions is possible, particularly if the conflict drags on and Asmara shows little willingness to participate in peace negotiations. At the same time, sanctions on Ethiopia are also possible for the same reasons, as the Trump administration has previously sanctioned multiple parties in African conflicts to compel all sides to reach a peaceful settlement. However, sanctions alone are unlikely to bring the parties to the negotiating table given their limited effectiveness during the first Tigray war and the strategic imperatives at stake, particularly if the UAE backs Ethiopia. Brokering a lasting settlement will likely require significant reforms to the administration of Tigray, conditions that Addis Ababa may resist.

Implications for Businesses

Should the US impose sanctions on Ethiopian officials or the Ethiopian National Defense Force, businesses will have to navigate a more complex regulatory environment. Major investment initiatives, such as Washington’s push to secure US investment in the Bishoftu International Airport—positioned to become Africa’s largest air hub—are likely to be disrupted if the TPLF expands targeting of critical infrastructure. Other future projects, such as the Nigerian Dangote Group’s planned petroleum pipeline through Djibouti and Ethiopia, are unlikely to move forward in a prolonged conflict regardless of whether additional regional actors become involved. Any of these scenarios could significantly raise the risks of operating within the country, delay US, Chinese, or Gulf investment in critical sectors, and disrupt intra-African trade at a time when food scarcity is worsening in unstable and war-torn Sub-Saharan African states. Eritrean involvement could increase perceived geopolitical risk in the Red Sea, potentially raising risk premiums and shipping costs.

US Developments

US and China Extend Trade Truce by Two Months

On September 23, Treasury Secretary Scott Bessent announced the US and China agreed to extend their trade truce by two months. Originally set to expire on November 10, Secretary Bessent said the US-China economic détente will be extended to January 10, 2027. The agreement followed a meeting between Secretary Bessent and his Chinese counterpart, Vice Premier He Lifeng, and coincided with the start of President Xi Jinping’s three-day state visit to Washington, DC.

The extension is a continuation of the Busan Agreement between the US and China, which was agreed upon in October 2025. The Busan Agreement suspended Chinese export controls on rare earths, and the implementation of the US Bureau of Industry and Security’s (“BIS”) Affiliates Rule, which extends the application of the Entity List restrictions to affiliates owned 50 percent or more by an Entity List entity. Although not explicitly stated by Secretary Bessent, US officials reportedly confirmed that the two-month extension applies to the BIS Affiliates Rule.

President Donald Trump recently received authority under the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026 that would permit him to impose tariffs of up to 100 percent on China due to its status as a major market for Russian oil. We covered the bill in our previous update. The trade truce appears likely to delay President Trump’s use of the bill’s tariff authorities against China.

Although the Busan Agreement has delayed US imposition of further tariffs and export controls on China, it has not prevented sanctions designations involving Chinese individuals and entities. Many sanctions designations involving China-based individuals and entities over the past year were made under the Treasury’s Iran sanctions program. Most notably, on the day of the launch of “Operation Economic Outcast,” the Treasury Department designated numerous Chinese entities, individuals, and vessels as part of a broader action involving nearly 60 targets for allegedly supporting Iran.

In their discussions this week, President Trump reportedly told President Xi that Chinese help for Iran is unacceptable. On September 25, David Purdue, the US Ambassador to China, said that the US “made it very clear to [China] weeks ago that… any help they’d give Iran, whether it be direct or indirect, whether it be intelligence or parts or military equipment, was totally unacceptable.” We expect that the Trump Administration will continue to sanction Chinese persons allegedly involved in sensitive sectors of the Iranian economy, such as oil and defense.

Countries Ban Iranian Airlines Following US Sanctions on Iran’s Aviation Sector

Last week, several countries suspended flights operated by Iranian airlines to and from their airports, reflecting the broader impact of recent US measures targeting Iran’s aviation sector.

On September 24, the United Arab Emirates, the Middle East’s busiest aviation hub, announced it would suspend all flights by Iranian airlines. The UAE’s General Civil Aviation Authority said the flights were suspended “in light of the US ban imposed on Iranian airlines from using airports in various countries around the world.” Other countries that suspended flights from Iranian airlines include Oman, Iraq, Azerbaijan, Georgia, and Turkmenistan. On September 8, the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) sanctioned 36 targets for supporting Iran’s aviation sector, including 27 Iranian commercial airlines. We covered the sanctions on Iran’s aviation sector in our September 14 update.

OFAC Consolidates Information on Enforcement Penalties and Removes Syria General License

On September 24, OFAC issued a final rule adding the Sanctions Penalties Regulation. The new regulation consolidates information about enforcement procedures and penalties, including the rights of US persons being investigated for violations. The information was previously located throughout 31 CFR chapter V. The new rule became effective on September 25.

On the same day, OFAC issued another final rule amending the Terrorism List Government Sanctions Regulations and removing and reserving a Syria-specific general license in order to implement the removal of Syria from the State Sponsor of Terrorism list.

OFAC Removes One Individual and One Entity from the DRC Sanctions List

On September 23, OFAC removed François Olenga and Safari Club from the Specially Designated Nationals List. Olenga was designated in 2017 for allegedly undermining democratic processes in the Democratic Republic of Congo, while Safari Club was designated for being owned or controlled by Olenga. OFAC did not provide comment on the delisting.

UK Developments

OFSI Introduces Presumption of Denial for Licence Applications Involving Designated Iranian Banks

OFSI has published guidance introducing a new licensing approach for transactions involving five designated Iranian banks: (i) Bank Sepah, (ii) Melli Bank plc, (iii) Bank Saderat, (iv) Persia International Bank; and (v) Bank Tejarat. With immediate effect, HM Treasury will apply a presumption of denial to licence applications involving these banks, meaning applications will generally be refused unless there are clear and compelling grounds for an exception. OFSI has also published FAQ 204 providing further detail on how this approach will operate in practice, confirming that applications will continue to be assessed on their individual facts but generally will only be granted when required by law or in exceptional and urgent circumstances. Examples include circumstances involving risks to life or environmental safety, essential regulatory payments, the preservation of assets, or the orderly wind-down of operations. The FAQ therefore indicates that the threshold for licensing transactions involving the five banks will be significantly higher than under OFSI’s ordinary case-by-case licensing approach, with applicants expected to demonstrate why their circumstances justify an exception to the general presumption of refusal.

OFSI has also confirmed that it will not renew the Iran Interim Basic Necessities General Licence (INT/2025/7628424) when it expires on October 22, 2026. Transactions currently relying on that licence will therefore cease to be authorised after expiry unless another applicable general licence or a specific HM Treasury licence is available, making it important for firms currently relying on the licence to assess alternative authorisation arrangements ahead of the deadline.

EU Developments

EU Council Renews Russia Asset Freeze Sanctions Regime for Three Years

On September 22, the EU Council renewed the restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine under Council Decision 2014/145/CFSP and Council Regulation (EU) 269/2014, until September 22, 2029. The renewal extended the targeted financial sanctions and travel bans applicable to more than 3,000 listed individuals and entities and, for the first time, provided for their renewal for a three-year period rather than the customary six-month period.

At the same time, the Council removed Russian businessmen Alisher Usmanov and Mikhail Fridman, as well as Andrey Falaleev and Redbird Corporate Services Ltd., from the EU sanctions list. In addition, the entries of 104 individuals and 71 entities designated under the EU asset freeze sanctions regime were updated.

According to reports, EU Member States agreed to delist Alisher Usmanov and Mikhail Fridman as part of a political compromise that secured unanimous support for the three-year renewal of the sanctions regime. France reportedly advocated for Usmanov’s removal amid negotiations with Azerbaijan concerning the release of French nationals detained in the country. The day after the Council adopted the renewal, Azerbaijani President Ilham Aliyev pardoned French national Martin Ryan, who had been convicted on espionage charges. Meanwhile, Luxembourg reportedly supported Fridman’s delisting during the negotiations, against the backdrop of a $16 billion arbitration claim brought by Fridman concerning assets frozen by the Grand Duchy under EU sanctions.

The negotiations proved contentious, with Latvia initially opposing the proposed delistings before ultimately abstaining and allowing the renewal decision to be adopted. Following the decision, Latvian Prime Minister Andris Kulbergs reportedly indicated that Latvia would look to impose national sanctions measures against the delisted individuals.

EU Council Announces News Listing Targeting Russian Hybrid Threats

The EU Council recently adopted restrictive measures against an additional individual involved in Russia’s continued hybrid activities, in particular Foreign Information Manipulation and Interference (FIMI) targeting the EU and its Member States and partners. The newly designated individual under the restrictive measures in view of Russia’s destabilizing activities is Russian media figure and former senior executive of Russia Today France, Xenia Fedorova.

According to the Council, Fedorova participated in the implementation and dissemination of RT France’s editorial line, including narratives aligned with those promoted by the Russian authorities in the context of Russia’s war of aggression against Ukraine. Following the suspension of RT’s broadcasting activities in the EU, Fedorova continued to disseminate such narratives through French media outlets, including CNews, Europe 1, and Le JDNews. The listing also notes that French authorities publicly identified Fedorova as relaying Kremlin disinformation and adopted an expulsion measure against her in July 2026.

With this update, EU sanctions in response to Russia’s destabilizing actions now apply to a total of 81 individuals and 20 entities.

EU Council Updates Sanctions Listings Targeting Individuals and Entities Associated with the Taliban

The EU Council updated the entries relating to 24 individuals and one entity under the restrictive measures directed against certain individuals, groups, undertakings and entities in view of the situation in Afghanistan, following an update at the UN level. Changes under Council Regulation (EU) 753/2011 reflect the March and April decisions of the UN Security Council Sanctions Committee updating the identifying information of 24 individuals associated with the Taliban, as well as that of Haji Khairullah Haji Sattar Money Exchange (HKHS). According to HKHS’s updated listing, Taliban leaders have used HKHS to disseminate funds to Taliban shadow governors and commanders and to receive informal money remittance transfers for the Taliban.

Asia-Pacific Developments

China imposed export restrictions on an additional two precursor chemicals used in the production of fentanyl

On September 22, 2026, China expanded its export control regime on drug-related precursor chemicals by adding two more substances to the list of chemicals that require export permits for shipments to the United States, Canada, and Mexico, bringing the total number of controlled chemicals to 18. The move came ahead of a meeting between Chinese President Xi Jinping and US President Donald Trump and reflects continued pressure from the United States, which has long criticized China as a major source of precursor chemicals used in the illicit manufacture of fentanyl, methamphetamine, and other synthetic drugs.

China Criticizes Expanded US Sanctions Campaign Targeting Iranian Aviation Sector

On September 22, 2026, China reaffirmed its opposition to US sanctions against Iran, with Foreign Ministry spokesman stating that Beijing rejects unilateral sanctions that are not authorized by the UN Security Council and opposes the extraterritorial application of US laws. At the same time, US Treasury Secretary Scott Bessent announced that, beginning September 23, the United States would seek to effectively halt the global operations of Iranian commercial airlines by enforcing sanctions against 27 Iranian airlines and related aviation entities.

Japan Reaffirms Support for Ukraine and Sanctions Pressure on Russia

On September 22, 2026, Japanese Prime Minister Sanae Takaichi reaffirmed Japan’s support for Ukraine during her first formal meeting with Ukrainian President Volodymyr Zelenskyy on the sidelines of the UN General Assembly, pledging to continue coordinating with the international community on assistance to Ukraine and sanctions against Russia. Takaichi emphasized that sustained international support is essential to achieving a fair and lasting peace, while Zelenskyy thanked Japan for its humanitarian and energy assistance.

South Korean President Urges Sanctions Relief for North Korea in Exchange for Nuclear Freeze

South Korean President Lee Jae Myung has called on the United States to consider easing sanctions on North Korea in exchange for a freeze on Pyongyang’s nuclear weapons and intercontinental ballistic missile programs, arguing that existing sanctions have had limited effectiveness and that diplomacy offers the only realistic path forward. Lee advocated a step-by-step approach in which sanctions relief and other incentives would help build trust following a negotiated freeze, eventually encouraging North Korea to scale back its nuclear arsenal.

Australia Expands Russia Sanctions as It Commits to Long-Term Ukraine Support

On September 23, 2026, Ukraine and Australia signed a 10-year bilateral security agreement during the UN General Assembly, formalizing long-term cooperation in defense, energy security, democratic reforms, and broader geopolitical coordination. The agreement highlights the expanded pressure on Russia by imposing 106 new sanctions designations, including measures targeting 38 vessels associated with Russia’s “shadow fleet” used to circumvent restrictions on fossil fuel exports, as well as organizations involved in the indoctrination and militarization of children, including Ukrainian children taken from occupied territories.

Listen to the news:

Global

A new UN Environment Programme report examines the risks and impacts of living in an era of 1.5°C, focusing on adaptation and development approaches responding to changing conditions. The report assesses that mitigation and adaptation are interconnected and mutually reinforcing. They must advance together, responding to emerging risks. Weak mitigation will increase impacts and potentially divert funds to emergency responses, while mitigation efforts that are not adapted will be vulnerable.

The report also urges urgent actions to limit emissions to mitigate overshoot of 1.5°C, saying there are no good outcomes in remaining above 1.5°C. Those outcomes include intensified extreme weather, ecosystem loss, submersion of coastal regions, and severe damage to human health, food security, water supplies, nature, cities, infrastructure and economies. In addition to sustained reductions in greenhouse gas emissions, further investment and deployment of carbon dioxide removal should be pursued. The UN’s most optimistic scenario has warming peaking around 1.8°C before declining.

Read More: UN Environment Programme, Overshoot Commission

Europe

German Foreign Minister Johann Wadephul held a surprise bilateral meeting with Russian Foreign Minister Sergey Lavrov on the sidelines of the UN General Assembly’s high-level week. This is the first interaction between the German and Russian chief diplomats since the full-scale invasion of Ukraine in February 2022. Wadephul shared that he discussed Russia’s recent hybrid activity, including the failed August attack on Ukrainian cargo planes at the Leipzig Halle international airport, and that Germany can defend itself amid further provocation.

The Wadephul-Lavrov meeting could suggest that Germany sees an opportunity for Ukraine mediation. Germany has suggested that it would support Russia-Ukraine peace talks if Moscow took them seriously. Momentum for renewing peace talks is growing, especially after the Trump administration’s recent shuttle diplomacy between Moscow and Kyiv. The US is also reportedly planning to invite Russian President Vladimir Putin to the Miami G20 summit, which Wadephul commended as an “opportunity” to advance serious negotiations. Germany may attempt to directly involve itself, either as a European voice or a European “track,” and compete with other European players to become a mediator.

Read More: Politico, Financial Times [paywall], Council on Foreign Relations

Asia-Pacific

According to US Ambassador to China David Perdue, President Trump asked Chinese President Xi Jinping whether China would like to buy US weapons during high-level talks last week. Following Perdue’s statement, the White House said it has no plans to sell arms to China, while the State Department said US law prohibits such sales. The comments come as Trump continues to hold up a $14 billion arms package for Taiwan, despite longstanding US policy to provide Taiwan with defense articles and services for its self-defense. Trump said in May that he was holding the Taiwan sale because it was a “very good negotiating chip” in dealings with China.

The remarks raise questions among US allies about the consistency of Washington’s regional security commitments. The US has maintained an arms embargo on China since 1989, while Beijing remains a principal US strategic and military competitor. Although the White House and State Department quickly clarified that there are no plans to sell weapons to China, Perdue’s comments add uncertainty for Asian partners about how the administration will balance US-China engagement with its existing security commitments in the region.

Read More: New York Times [paywall], South China Morning Post [paywall]

Americas

Colombia will seek financing from the IMF to address its fiscal crisis. Colombian President Abelardo de la Espriella announced during a Sunday night televised address that his government would begin discussions with the IMF led by Finance Minister Miguel Gomez. De la Espriella emphasized the severity of Colombia’s fiscal situation in the speech, stating that the “balance is in the red” and placing the blame on the previous government of leftist Gustavo Petro. IMF loans are often tied to austerity measures, which can be deeply unpopular and have recently caused unrest in Bolivia.

The announcement represents a dramatic policy shift for De la Espriella’s administration. Just weeks ago, Gomez stated that Colombia would not turn to the IMF and would rely on other measures to balance the budget. However, De la Espriella said during his televised address that state revenues were no longer covering debt servicing and operating expenses, making it necessary to borrow in domestic and international markets. Colombia’s public debt stands near 60% of GDP, and the government estimates a deficit of 9.4% of GDP for 2027, up from the Petro government’s projection of 6.7%.

Read More: El Pais [Spanish], ColombiaOne, Bloomberg [paywall]

Geoeconomics

The US and China have agreed on a framework to reduce tariffs on roughly $60 billion in bilateral trade following last week’s Trump–Xi summit. Under the “30-for-30” arrangement, each government identified approximately $30 billion in imports from the other country for more favorable tariff treatment, measured using 2024 trade values. China’s proposed reductions cover US agricultural products, medical devices and cosmetics, while the US list includes Chinese household appliances, toys and children’s car seats. The reductions remain subject to domestic legal procedures. The two governments also advanced their trade and investment boards and established an agricultural working group to address market-access barriers. These measures accompany the extension of their existing trade truce through January 10, 2027.

The package could lower costs for selected businesses. Lower Chinese duties would improve the competitiveness of US corn, wheat, meat and dairy exports, while reduced US tariffs could ease costs for retailers importing covered consumer goods. Soybeans were excluded from China’s list, leaving a major American agricultural export outside the tariff relief. The $60 billion figure describes existing trade covered by the proposed reductions, so it does not establish how much additional business the agreement will generate. The agricultural working group could help by addressing regulatory barriers that prevent sales even when tariffs are revoked.

Read More: USTR, White House, The Korea Times, CSIS

Disruptive Technology

Google will send its first “Suncatcher” orbital data center into space on October 1. The experimental design is small, about the size of a refrigerator containing about four AI-enabling tensor processing units (TPUs). A typical data center would host thousands of these chips, but the idea is to launch clusters of satellites with dozens of these TPUs. To get there, Google wants to test whether an orbital data center is both technically and logistically feasible, while also identifying unforeseen engineering challenges in space, including the TPUs’ fragility to radiation in space, orbital and launch forces, and extreme temperatures. Google also wants to test whether the TPUs function effectively after six years, which is when the satellites are expected to reenter Earth’s atmosphere. Some Google analysts noted that, like Waymo, a viable new service could take at least a decade of tinkering and progress.

Orbital data centers are supported across the AI industry. SpaceX, which is facilitating the Suncatcher launch, has bet its own valuation on the prospect of becoming a major AI player, partially on the assumption that it is poised to be a first mover on data centers in space. Orbital data centers could gain traction as the political costs grow to the high energy demand of terrestrial data centers.

Read More: Ars Technica, The New York Times [paywall]

Energy

The EU is pushing member states to cut energy demand amid rising prices. EU Commissioner for Energy and Housing Dan Jørgensen wrote a letter to EU ministers on September 25 asking them to consider tools to reduce demand for gas and electricity. At the same time, Jørgensen offered assurances that there is no risk to the EU’s “security of supply” despite global supply issues and price volatility. The EU depends on imports to meet its energy needs, with foreign suppliers providing about 80% of the EU’s gas needs. Starting in January, the EU will also phase out purchases of Russian LNG.

The EU is looking at low gas storage levels going into the winter. Across the EU, gas storage is only at 70%, which puts it more than 10% below where it was at this point last year. Storage levels vary across the bloc and some countries, such as Germany, have stockpiled barely more than 50% of total capacity. In a best-case scenario, Germany can likely only reach 77% of capacity before winter, according to Germany’s gas storage industry association INES.

Read More: Reuters [paywall], Politico EU, Reuters [paywall]

Transnational Crime & Corruption

UK authorities arrested five individuals near a Royal Air Force base and charged them with planning a terror attack. The men, all London-based UK nationals, were charged under the UK’s Explosives Act and Terrorism Act, but no official information has been released about their motivations. UK and US authorities claimed that the arrested individuals had been known to intelligence services. The men were arrested after a local resident near the RAF base called the police and reported seeing three vans blocking a road near the base.

Media reports indicated that investigators suspected Iran was behind the plot. The RAF base near the arrests had been used as a staging point for US strikes on Iran, and the Iranian government has specifically threatened to target the facility in retaliation. Iranian government representatives denied any link to an attack on the base. UK domestic intelligence has repeatedly warned of Iran-sympathetic and -directed groups carrying out arson attacks and hate crimes in the UK since the start of the Iran war.

Read More: Financial Times [paywall], Wall Street Journal [paywall], BBC

Defense

South Korea is introducing its first domestically developed fighter jet into its armed forces. Seoul has reached a significant milestone in its national arms industry with the entry into service of Korea Aerospace Industries (KAI) KF-21. South Korea has already bought 40 KF-21s in its Block 1 configuration, which will have a primarily air-to-air role. South Korea is also working on a Block 2 of the KF-21, which will have air-to-ground capabilities, and Seoul is reportedly considering purchasing 80 jets in this configuration. The KF-21 is a 4.5-generation fighter and will field a mixture of sensors and weapons from both South Korea and Western suppliers.

South Korean defense exports have surged in recent years. Seoul’s defense exports have started widening from primarily tanks and self-propelled howitzers to air defense systems, missiles, and aircraft as the country sees a major expansion in its defense exports business. South Korea is exploring exports of the KF-21 to Indonesia, and South Korea has also been exporting air defense interceptors to the Middle East as countries grapple with the fallout of the US war with Iran. South Korea has also developed strong defense industrial ties with countries in Europe like Poland, which has become a major purchaser of South Korean defense products.

Read More: Breaking Defense, Seoul Economic Daily, Lowy Institute

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances. 

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s first-ever Dissent Channel by Thomas Goldstein and Ian Cameron debates whether German Chancellor Friedrich Merz will resign.

Dissent Channel: Will German Chancellor Friedrich Merz Resign?

By Thomas Goldstein and Ian Cameron

^{“Prime Minister Keir Starmer and Friedrich Merz visit Airbus (54661461238)“ by Number 10 is licensed under CC BY 4.0.}

Welcome to Dissent Channel, a new Stepwise segment in which Global Strategic Engagement Team analysts will debate the impacts of geopolitical developments. Today, Germany: in September, three regional elections occurred in the German states of Saxony-Anhalt, Mecklenburg-Vorpommern, and Berlin. The Christian Democratic Union (CDU), the party of current chancellor Friedrich Merz, experienced disastrous results. The CDU’s vote share in Mecklenburg-Vorpommern was the worst in the party’s history, reaching just 4.9%, below the threshold to enter regional parliament.

The CDU’s decline has raised questions about Merz’s survival as chancellor or whether he will be forced to step down. Our team’s Europe analysts, Ian Cameron and Thomas Goldstein, debate Merz’s future.

In today’s analysis:

Ian Cameron – Merz will survive the fallout of the recent regional elections, but he is losing the ability to govern effectively

Thomas Goldstein – Merz may resist stepping down, but his Chancellorship appears terminal

Read the Full Report Here

Or listen to the full report here:

Listen to the news:

Global

At the UN, 80 countries signed a joint statement demanding the immediate reopening of the Strait of Hormuz. The statement, led by Bahrain, called for safe, secure, and unimpeded transit for all commercial vessels without the imposition of tolls, conditions, or illegal charges. The statement also condemned Houthi actions, including the resumption of conflict in Yemen, strikes on Saudi Arabia, and Red Sea shipping attacks, warning that an advance toward the Bab el-Mandeb Strait further imperils global trade. The statement followed an unsuccessful effort by Bahrain to secure UN Security Council support for a similar draft resolution, vetoed by Russia and China in April.

Reopening the strategic waterway has become a central demand by the US in the negotiations with Iran, which resumed on the margins of the UN this week. Iran is reportedly feeling the economic squeeze from the expanding blockade, now extended from maritime to Iran’s airlines. But the US is also under pressure from the elevated energy prices feeding inflation in the run-up to midterm elections. It is possible that another temporary deal could be reached, but the fiery speeches at UNGA demonstrate the difficulty of de-escalation when both sides continue to threaten escalation.

Read More: Reuters [paywall], Reuters [paywall]

Europe

The right-sovereigntist Alternative for Germany (AfD) and left-populist Alliance Sahra Wagenknecht (BSW) reportedly struck a loose agreement to elect an AfD speaker and BSW vice-speaker in Saxony-Anhalt. If confirmed, this will be the first demonstrated parliamentary cooperation between far-right and far-left factions in Germany’s postwar history. The AfD, which won nearly 44% of the vote in September 6 elections, previously dismissed a coalition with the BSW, which won only 5.3%. Nonetheless, the BSW could support a minority AfD government or elect regional leader Ulrich Siegmund in some sort of quid pro quo. This would bring the AfD to power in a federal state for the first time and pose a major test for the party.

Several obstacles remain for formal AfD-BSW cooperation. The BSW is internally divided on cooperation with the AfD, which converges on migration and a dovish approach to Russia but otherwise radically disagrees on economic policy. The AfD may calculate that cooperation is the wrong approach. It wants to rule without any coalition partner and has signaled willingness to bide more time and exploit the dysfunction of the political center’s multiparty coalitions. The AfD caucus will meet on Tuesday to discuss the merits of the reported deal.

Read More: Tagesspiegel [in German], Stepwise Risk Outlook

Americas

The US and Argentina launched an investment agreement on Wednesday with a focus on critical minerals. The agreement will finance up to $7 billion in infrastructure projects in Argentina with the aim of boosting Argentine natural gas and critical mineral exports. Argentine Foreign Minister Pablo Quirno and US Deputy Secretary of State Chris Landau met to discuss the agreement in New York at a forum on supply chains and energy infrastructure.

The agreement seeks to secure $6 billion in investment for a large-scale Argentine LNG project. Through the project, Argentina is seeking to convert its natural gas reserves into an export industry. However, Argentina still lacks sufficient infrastructure to process, liquefy and transfer the gas to international markets. The agreement with the US also covers investments in critical minerals. Argentina has large deposits of lithium and copper that make up key components in green energy technologies.

Read More: ABC, Yahoo! Finance, InsideTrade

Energy

Russia is lowering its projections for both natural gas production and exports. The revision to natural gas expectations comes as Europe is preparing to end all purchases of Russian LNG starting in January 2027. However, natural gas production for this year will still outstrip 2025’s production. Energy export projections are used to inform Russia’s budget due to their impact on Russian state revenues, and Russia’s budget up through 2029 will incorporate the new forecasts. Russia also recently revised its output projections for oil to a 17-year low. Across the energy sector, although primarily targeting oil, Ukraine has been waging a campaign against Russia’s energy infrastructure.

Europe had remained a significant buyer of Russian LNG despite its sanctions regime. In July, the EU purchased a record amount of LNG from Russia’s Yamal LNG facility. In the first half of 2026, almost all Yamal LNG cargoes were directed to the EU.

Read More: Reuters [paywall], Moscow Times [in Russian], Kyiv Independent

Defense

Italy has placed an order for two new naval destroyers with a state-backed defense company. Italy will purchase two DDX destroyers from Orizzonte Sistemi Navali (OSN), a joint venture between state shipyard Fincantieri and state defense company Leonardo. The deal was arranged by OCCAR (Organisation Conjointe de Coopération en matière d’Armement), the EU’s defense procurement office. The ships are meant to replace Italy’s two currently operational Horizon-class destroyers, but all four will operate simultaneously for a period before the current ships are retired.

Earlier this year, Rome asked for €8 billion ($9.3 billion) in cheap loans from the EU for defense spending. Italy had originally considered €14.9 billion but ultimately scaled back. Rome had hesitated somewhat regarding SAFE due to political pressure to prioritize public spending over defense. Italy has had difficulty raising its defense spending, which only reached 2.8% in 2026.

Read More: Defense News, Defense Post, Defense News

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

^{Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances.}

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s featured deep dive by Elton Smole examines Bolivia’s loan agreement with the IMF and the potential for renewed unrest.

Bolivia Braces for Renewed Unrest as IMF Loan Arrangement Advances

By Elton Smole

^{“La Paz, Bolivia, morning light” by VassilPhoto is licensed under the Creative Commons Attribution-Share Alike 4.0 International license.}

Bolivia’s Congress approved a $1.9 billion loan agreement with the International Monetary Fund (IMF) on Friday, giving conservative President Rodrigo Paz a major victory but raising the risk of renewed unrest. The loan’s conditions include the elimination of fuel subsidies, and pump prices rose 83% after the government issued Supreme Decree 5716 on Saturday, eliminating a diesel subsidy that Paz said cost $55 million per week. Unions responded with a national assembly to organize opposition to the loan agreement, setting the stage for a continuation of nationwide roadblocks that have paralyzed the country twice over the past year.

Paz, who took office last November after nearly two decades of socialist rule by Evo Morales’s Movement for Socialism (MAS) party, has aligned Bolivia with the Trump administration. He has moved to open the country to foreign investment, and has so far managed to push through sweeping economic reforms while forcefully quelling domestic unrest. After months of road blockades by unions, farmers, and supporters of Morales, Paz deployed security forces to clear the blockades under a state of emergency, which Bolivia’s Congress recently extended from September 17 to December 17. With international support, Paz has demonstrated his ability to withstand domestic pressures and will continue his stronghanded approach as the country braces for another wave of unrest.

In today’s full analysis:

• Economic Reforms Open the Door to Foreign Investment

• Road Blockades, an Early Test for Paz, Set to Continue

• Reforms March Ahead, Despite Risks of Unrest

Read the Full Report Here

Or listen to the full report here:

Listen to the news:

Europe

ICYMI: The EU and the Philippines reached a “substantial agreement” in trade negotiations on Tuesday. The framework of a free trade agreement (FTA) appears to be the removal of 94% of tariff lines, including European machinery and Filipino agrifood exports; the opening of the Philippines’ procurement market; partial harmonization of sanitary and phytosanitary rules on food products; rules facilitating digital trade, including data transfers; and an ambition to facilitate European investment in sustainable energy and critical mineral projects. An FTA with the Philippines will likely expand the volume of bilateral trade, which was already €17.6 billion in 2025.

An EU-Philippines FTA bolsters the bloc’s diversification from the US and China. The EU continues to hold fast to the WTO-backed liberalized trading order, as reflected by the EU’s progress in advancing FTAs with the Mercosur bloc, Australia, and India in the past couple of years. The EU will be especially interested in the Philippines’ critical mineral reserves, including copper, nickel, and cobalt.

Read More: European Commission, AP, Politico

Middle East

President Trump’s Board of Peace unveiled a $2.45 billion recovery plan for Gaza. The 66-project plan, the text of which has not been publicly released, was announced at a meeting of the multinational board on the sidelines of UNGA in New York this week. The plan sets a six-month roadmap for the implementation of early postwar reconstruction of Gaza, where an estimated 80% of all structures have been destroyed.

Optimism for the plan is muted given that it does not address the lack of progress on the peace plan or, yet, the makeup of a promised international stabilization force. Progress on last year’s Israel-Hamas peace deal has stalled for months, with Israel and Hamas at odds over the timeline for Hamas to disarm and Israel to withdraw, and clashes and strikes are common. Early reporting on the plan indicated that details about standing up a government and the makeup of a long-awaited multinational stabilization force would be included, but early details have not emerged. The deal will be good for Gaza if it can be implemented, but there is no clear way to do that as yet.

Read More: Axios, BBC, International Crisis Group

Asia-Pacific

Today US President Donald Trump is hosting Chinese President Xi Jinping at the White House as part of a three-day summit. After a lavish welcome ceremony including military bands and a flyover of US military jets, the pair are set to cover a range of issues in bilateral talks. One central topic of discussion will be AI. US Treasury Secretary Scott Bessent indicated that China was eager to engage with the US on AI issues, including coordination on identifying risks from rogue AI agents or non-state actors, and would likely agree to a national security notification system for AI risks. However, Trump said he does not expect that the talks will result in the imposition of concrete guardrails on AI development.

Read More: New York Times [paywall], CBS, CNN, Bloomberg [paywall]

Americas

The United States and 14 regional partners announced new cooperation measures under the Shield of the Americas initiative. In the Joint Statement on Defending Hemispheric Sovereignty, released Tuesday, the countries commit to deeper cooperation on economic security and countering transnational criminal organizations. Participating governments, including Argentina, Bolivia, Chile, Colombia, Ecuador and Peru, pledged greater intelligence sharing and security cooperation, while also exploring investment screening, protecting critical-mineral supply chains and promoting trusted suppliers for digital infrastructure. The initiative is organized around three pillars: economic cooperation, anti-crime sanctions coordination and multilateral engagement.

The initiative’s first joint action will target 24 narco-terrorist organizations. The list includes MS-13, Tren de Aragua, the Sinaloa and Jalisco New Generation cartels, Colombia’s ELN and FARC dissident groups, and several Brazilian and Ecuadorian criminal organizations. Participating governments intend to pursue measures including asset freezes, visa and immigration restrictions, and penalties for individuals who knowingly provide material support to the groups. They also plan to seek consultations through the Organization of American States under the Rio Treaty, potentially providing a framework for broader collective action.

Read More: US Department of State, Al Jazeera, Buenos Aires Times

Geoeconomics

The US and China have agreed to extend their trade truce through January 10, 2027, giving negotiators two additional months to pursue a broader agreement. Treasury Secretary Scott Bessent announced the extension on September 23 after meeting with Chinese Vice Premier He Lifeng. The agreement postpones the November 10 expiration of the Busan framework, which paired US tariff relief with Chinese commitments to ease critical-mineral export restrictions and purchase American agricultural goods. Negotiators are also discussing tariff reductions on roughly $30 billion in non-sensitive goods, alongside financial services and agricultural purchases. Bessent said it remained unclear whether a broader deal could be completed by the new deadline.

The extension gives businesses more time to plan shipments, but implementation problems continue to undermine the truce. Bessent said China was meeting its commitment to purchase 25 million tons of US soybeans but lagging on other agricultural purchases, while US officials have also reported shortfalls in rare-earth deliveries. Deeper disagreements also remain: Washington wants Beijing to reduce industrial subsidies and reliance on export-led growth, while China seeks relief from US restrictions on sensitive technologies.

Read More: Reuters [paywall], White House, South China Morning Post [paywall], CSIS

Energy

Tankers are becoming a bottleneck in global energy supplies. The war in the Middle East has created shortages in Very Large Crude Carriers (VLCCs), as those ships must take slower, less efficient routes, thereby limiting their availability. The going rate to hire a supertanker from the Middle East to China has risen more than 40-fold this year, and the cost of shipping oil from Brazil to China has likewise spiked. The issue has been exacerbated by large numbers of ships waiting in the Middle East to load their cargoes. The spiking shipping costs and the lack of availability are driving down the amount of oil refineries can access and afford.

The tanker shortage is compounding with other issues affecting energy supplies. Strikes against Russian and Middle Eastern energy infrastructure have been continuing, such as the recent damage to a Saudi pipeline, and are acting as another damper on global supplies. Global refining capacity has also suffered from the drops in diesel exports from both Russia and the Middle East.

Read More: Financial Times [paywall], Wall Street Journal [paywall], Wall Street Journal [paywall]

Transnational Crime & Corruption

A hacking group claimed to have stolen the personal information of thousands of FBI employees as well as sensitive investigative files. The group, ShinyHunters, said it had exploited a previously unknown bug in Oracle’s PeopleSoft human resources and financial software to access FBI systems. Representatives from the group provided multiple media outlets with samples of the stolen data, which included the names, titles, home addresses, phone numbers, and medical information of thousands of FBI employees, job applicants, and their spouses.

ShinyHunters threatened to release or sell the data and has been accused of extortion in the past. An FBI advisory earlier this year alleged that ShinyHunters frequently demanded ransom payments from victims of its hacks. The group disputed the FBI’s allegations and claimed to not be financially motivated, demanding that the FBI advisory be taken down in exchange for deleting the stolen data.

The hack could expose FBI investigators working on sensitive anti-terrorism and national security-related initiatives. The data sample released to news media included references to the FBI working on counterespionage initiatives and telecommunications intercept operations not previously publicly disclosed by the bureau.

Read More: 404 Media, Reuters [paywall], New York Times [paywall]

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances. 

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s featured deep dive by Carter Spahn examines the economy of the new space race.

The Race to Build the Space Economy

By Carter Spahn

^{“KENNEDY, JOHN F. - PRESIDENT - Houston, Texas Visit“ by NASA is marked with Public Domain Mark 1.0.}

We choose to go to the Moon in this decade and do the other things, not because they are easy, but because they are hard. – John F. Kennedy, 1962

Countries no longer choose to go to space; they have to.

US-Soviet competition at the peak of the Cold War thrust the world into the space age, defined not only by intergovernmental competition and national pride, but also by economic necessity. Since 1965, corporations have sent assets into orbit to claim market share in telecommunications, television broadcasting, remote sensing, and weather monitoring. Space-based infrastructure has lowered costs and improved productivity on Earth by enabling services that support most of the world’s economy.

Today, a new space race has taken off. Driven by falling launch costs, rapid private-sector innovation, and intensifying strategic competition between the US and China, space represents both a commercial market and a domain of national power. While the depths of space are infinite, viable opportunities are finite. Being first in space is no longer merely a symbolic act of planting a flag on the moon. Rather, it secures the most valuable places to operate, where you can build the infrastructure that could make it cheaper for later arrivals to become customers instead of competitors. That infrastructure could make space a place to manufacture specialized materials and medicines, generate energy, and extract resources, creating new products for Earth and the means to sustain economic activity beyond it. As the US and China compete for primacy in space, the stakes of showcasing the supremacy of their differing innovation ecosystems are on full display. This time, the contest will be measured not only by extraordinary national achievements; the outcome will shape which companies and countries build and profit from the next economy, and the terms on which everyone else can access it.

In today’s full analysis:

• Building an Economy Beyond Earth

• A New Era of Competition

• The Implications of the Next Economy

Read the Full Report Here

Or listen to the full report here:

Listen to the news:

Global

US President Trump reversed positions and now backs a ban on diesel exports as a way to curb record fuel prices. Diesel prices have hit record levels due to supply constraints caused by the Iran and Ukraine wars, surging more than 70% since late February. High fuel prices create a vulnerability for Republicans in the approaching November elections, creating political pressure to provide some relief to US consumers, with whom the affordability of food and other necessities is of great concern.

A diesel export ban would likely create more problems than it would solve. US Energy Secretary Wright is warning that a ban would create regional market disruptions, with gluts in the Gulf Coast forcing producers to reduce production, not just of diesel but other distillates, such as jet fuel. A ban would not lower prices beyond several weeks. S&P Global Energy estimates that U.S. refiners would need to reduce crude runs by nearly 2 million barrels a day—more than 10%—to eliminate the resulting diesel surplus.

An export ban would remove the single largest source of global diesel from the market, risking a surge in the global price of diesel. Of the 8 million barrels of diesel traded globally by sea each day, the US supplies about 1.5 million barrels, about 20% of market share. An export ban would hit developing countries hard and send shockwaves across Europe, which is heavily reliant on imports of American petroleum products. With Mexico and other Latin American economies relying on US diesel (Latin America buys nearly two-thirds of US diesel exports), a ban risks driving up prices for US supply chains for food and agricultural products. Additionally, other countries could retaliate by reducing or cutting off fuel exports to US regional markets, such as California and the East Coast.

Read More: Reuters [paywall], Wall Street Journal [paywall], American Petroleum Institute, Atlantic Council

Europe

On the sidelines of the UN General Assembly, the US, Denmark, and Greenland signed a defense agreement allowing two additional US bases in Greenland. As part of the deal, the US will be allowed to open bases at Narsarsuaq in the south and Mestersvig in the east, as well as expand the current Pituffik Space Base, which collects information for missile warning systems and space surveillance. The agreement reaffirmed the US military’s right to access Greenland for the defense of the NATO area covered under Article 5, including via President Trump’s envisaged Golden Dome missile defense system, which is still in conceptual stages. No non-NATO country will be allowed to open military installations in Greenland or invest in or operate mining projects without consent from the US, Greenland, and Denmark. If Greenland becomes independent, it maintains Denmark’s responsibilities and obligations.

The agreement ends the transatlantic Greenland dispute, for now. The US appears to have achieved its military objectives of expanding its Arctic military presence and preventing a Russian or Chinese foothold on the island. Moreover, ratifying and implementing the agreement could take a few years, extending beyond the Trump administration’s tenure. Nonetheless, the US could revisit the agreement if it becomes perceived as outdated, such as if Russia’s Arctic build-up accelerates. The Trump administration will likely prioritize the Golden Dome in the short term.

Read More: Politico, Associated Press, CBS News

Middle East

Iran and the US held their first negotiations in months, raising hopes for a settlement. Washington and Tehran held talks via shuttle, mediated by Qatar, on the sidelines of the UN General Assembly in New York. Iranian conditions for an end to the war reportedly included an end to hostilities on all fronts, a halt to US “acts of aggression,” an end to the naval blockade, and the release of frozen Iranian funds. US conditions were not reported, although any deal would likely be limited in scope (similar to the summer MOU).

Oil prices fell on hopes for diplomacy, even as rhetoric escalated and strikes in the region were reported. At his UNGA speech, President Trump said he had a decision between negotiation and “annihilating” Iran. Over the last several days, the IRGC reportedly struck new targets in the Strait of Hormuz, following days of reporting that the regime was considering new escalation in anticipation of potential US strikes.

Read More: Reuters [paywall], Iran International, CNN, AP, TradeWinds News, Al Jazeera

Asia-Pacific

Chinese President Xi Jinping is expected to land at Joint Base Andrews today in the first formal visit to Washington by China’s head of state in over a decade. US President Donald Trump is expected to greet Xi personally on the tarmac, kicking off the three-day state visit that will include talks with Trump at the White House on Thursday. Trade is expected to top the agenda, which also includes artificial intelligence and Taiwan. A key focus will be whether the two sides can extend their October 2025 trade truce, which suspended higher US tariffs while China eased restrictions on critical rare-earth exports. It is set to expire in November.

Expectations for major breakthroughs or business deals remain low, and the summit is likely to focus more on preserving the current détente than resolving deeper disputes. Xi has an incentive to extend the truce as China contends with an economic slowdown, while Trump faces pressure to avoid higher consumer prices ahead of the November midterm elections. Beijing also retains leverage through its dominance of critical-mineral supply chains, while Xi is expected to press Trump on Taiwan, including a pending multibillion-dollar US arms sale that Trump has so far withheld approval for.

Read more: BBC, New York Times [paywall], Wall Street Journal [paywall], Reuters [paywall]

Americas

A UN report released on Monday concluded that US boat strikes against alleged drug smugglers plausibly constitute crimes against humanity. The report by UN special rapporteur Ben Saul found reasonable grounds to believe that 68 strikes carried out between September 2025 and August 2026, which killed at least 223 people, amounted to crimes against humanity of murder under customary international law. Saul rejected the Trump administration’s argument that the strikes were justified as self-defense against designated terrorist organizations, arguing that drug trafficking does not constitute an armed attack. He also said the strikes were neither necessary nor proportionate.

The US has continued the campaign under Operation Southern Spear despite ongoing legal scrutiny. The Pentagon announced two additional strikes in September, bringing the total to 70 vessels and 234 people killed since the campaign began a year ago. The most recent strike, on Saturday, killed four people in the Caribbean. The UN finding raises the prospect of individual criminal liability for officials who ordered or carried out unlawful strikes. The Trump administration has continued to defend the campaign as part of its broader effort against narco-terrorism. The UN report could nonetheless intensify pressure for greater scrutiny.

Read More: New York Times [paywall], The Guardian, BBC

Africa

War has erupted in Ethiopia’s Tigray region, ending a fragile peace between Addis Ababa and the Tigray People’s Liberation Front (TPLF). The TPLF seized the airport in Mekelle, Tigray’s capital, and declared war on the Ethiopian government. The Tigray regional government stated it was responding to “intensive bombardments” by federal forces on Tuesday, including airstrikes, drone attacks, and artillery fire. The declaration followed an announcement that the TPLF had formed an alliance with other ethnic rebel groups seeking to overthrow Prime Minister Abiy Ahmed Ali’s government. Fighting has also been reported in the neighboring regions of Afar and Amhara. Other members of the alliance do not appear to be engaging federal forces but could soon declare war on the government.

Read More: Radio France Internationale, DW

Disruptive Technology

ICYMI: The US and China have agreed to advance an AI safety dialogue. US Treasury Secretary Scott Bessent stated that he and Chinese Vice Premier He Lifeng agreed to establish a formalized dialogue on AI safety with a direct line of communication regarding AI incidents, thereby following up on a similar commitment from May 2026. An operationalized dialogue could become a forum to discuss technical protocols and how to respond to determined AI risks. A dialogue also leaves substantial flexibility for how to manage AI safety as both the US and China fine-tune their policy approaches. A separate 22-country declaration at the UN, led by Finland, calls for managing AI risks through an international institution similar to the IAEA, but neither the US nor China signed onto the document.

Read More: Yahoo!finance, Reuters [paywall], Politico

Energy

The US is considering an investment fund for rebuilding energy infrastructure in the Middle East. The proposal, which the US is calling the Partnership for Allied Trust and Construction (PACT), would see the US commit $5 billion dollars and ask partners in the region to match with their own $5 billion contribution. PACT also aims to reduce the reliance on the Strait of Hormuz for regional energy shipping. The Development Finance Corporation (DFC) would manage the fund. It is unclear when or if other regional countries would sign onto the initiative and commit their own money.

The US war with Iran has resulted in extensive damage to regional energy infrastructure. By April 15, the conflict had led to as much as $58 billion dollars of damage to energy infrastructure. While active hostilities have significantly lessened since earlier phases of the war, damage is still accumulating. A major Saudi Arabian east-west pipeline that Riyadh uses to reroute oil from the Strait of Hormuz suffered significant damage this month, although it has now partially returned to operation. However, a full restart likely won’t occur for at least a month.

Read More: Wall Street Journal [paywall], Reuters [paywall], CNBC

Transnational Crime and Corruption

Russian government-backed payment processor A7 allegedly developed an international money laundering network to help Russian firms evade sanctions. A Financial Times investigation found that at least $6.9 billion was laundered through A7 front companies that accessed the international financial system, in violation of international sanctions. The funds were reportedly used to acquire “war-related goods.” A7’s front companies reportedly used a sophisticated system of forged invoices to disguise the nature of their transactions.

A7 began the alleged money laundering operations in 2024 and shifted its strategy over time. Initially, most of A7’s front companies set up bank accounts in Kyrgyzstan, with much of the money routed through the state-controlled Trading Company of the Kyrgyz Republic. After several Kyrgyz banks were placed under scrutiny for facilitating suspicious A7-linked transactions, the shell company network diversified towards the UAE and Hong Kong. 17 separate front entities opened bank accounts with First Abu Dhabi Bank, which is over 55% owned by the Abu Dhabi government and ruling family. The bank facilitated over $1.7 billion in payments for A7 entities and helped them convert Emirati dirhams into dollars, euros and renminbi.

Read More: Financial Times [paywall], Wall Street Journal [paywall], Open Source Centre

Defense

Seoul is looking to partner with the EU on space-based communications infrastructure. South Korea signed an agreement with the EU last week on cooperation in the realm of secure satellite communications and to explore South Korea’s integration into the EU’s IRIS2 satellite communications constellation. The agreement establishes a working group that will exchange information about current and future programs for satellite communications, joint applications and technical areas of future cooperation. The cooperation could potentially involve the future linkage of Seoul’s planned military communications satellites with the EU’s IRIS2.

IRIS2 has not yet launched but is set to begin its first phase by the end of 2029. The constellation will ultimately include 348 satellites primarily in Low Earth Orbit (LEO) but also 18 in Medium Earth Orbit (MEO).

Read More: Defense Industry Europe, Hartpunkt [in German]

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

^{Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances.}

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s featured deep dive by Anni Coonan examines the potential impacts of the US F-35 sale to Saudi Arabia.

The US Sale of F-35s to Saudi Arabia: How, Why and What Next

By Anni Coonan

^{“F35 Lightning during the Oregon International Airshow” by Air Force Senior Airman Alexander Cook is in the public domain.}

On September 17th, the US announced the pending sale of F-35 fighter jets to Saudi Arabia. The Kingdom has long sought the purchase, but it has proven controversial for critics in Washington concerned with Saudi Arabia’s ties to China and consequences for Israel’s qualitative military edge. Washington’s agreement to sell Riyadh the world’s most advanced multirole stealth fighter would make it the first Middle Eastern country other than Israel to operate the aircraft. And occurring against the backdrop of an escalating US-Iran war, the sale could have significant implications for the regional balance of power, Gulf defense independence, Iranian security perceptions, US-Gulf partnerships, and the operating environment for regional businesses and international commodities.

In today’s full analysis:

• Why Riyadh Wants F-35s, and why the US Wants to Sell Them

• Lingering Concerns: Chinese Tech and Israel’s QME

• What the Sale Means for the Region

Read the Full Report Here

Or listen to the full report here:

Listen to the news:

Global

Russia gives its backing to the expansion of the UN Security Council while maintaining the existing veto system. The UN Security Council is composed of five permanent members with veto powers, including Britain, China, France, Russia and the US. There are ten non-permanent members, elected for staggered two-year terms, split up by world regions for a global balance: Africa and Asia with five seats, Western Europe and other states with two seats, Latin America and the Caribbean with two seats and Eastern Europe with one seat. The Russian statement came in the context of Turkish calls to reform the global body.

UN Security Council reform has been under discussion for decades without progress. Formed in 1945, the last reform of the organization was in 1963, increasing non-permanent seats from six to ten. Permanent members support expansion in principle but disagree over various proposals to make the body more representative, inclusive and democratic. There is some agreement in principle to adding G4 nations (Brazil, Germany, India and Japan). However, permanent members oppose altering or restricting the existing veto power of current members, citing concerns about diluting the council’s effectiveness. Given the current geopolitical rivalry, it is unlikely that discussion of reform will advance, and the effectiveness of the body will continue to be limited by disputes among the veto-wielding permanent members.

Read More: Reuters [paywall], Stimson Center

Europe

The EU is still struggling to agree on its latest sanctions package. Latvia was the sole vote opposing a compromise that would have extended most sanctions for three years in exchange for delisting two Russian oligarchs. France, Luxembourg, and Slovakia have drawn pushback from other EU countries with their attempts to delist the two oligarchs to further national policy goals. The ambassadors of the EU member states will continue negotiations today, and they have until the end of the day to reach unanimity.
The EU is increasingly running up against sanctions deadlines. While the EU will almost certainly find a compromise — all sanctions will lapse if one isn’t found — the last several rounds of sanctions negotiations have demonstrated that it’s becoming more difficult for member states to compromise and negotiate on sanctions issues.

Read More: Politico EU, Reuters [paywall], Kyiv Post

Middle East

Iraq’s Prime Minister pledged to disarm his country’s Iran-backed militias by June 27, 2027. Iraq is under mounting pressure from the US (and, increasingly, attacks by its Gulf neighbors) over its close ties to Iran and Iran-backed elements active in the country or under the umbrella of Iraq’s unwieldy patchwork of militias. Iraqi Prime Minister al-Zaidi, a political newcomer, made the claim for the first time in a weekend profile with the New York Times. This deadline is separate from al-Zaidi’s pledge to bring the Iran-backed groups under full control of the state by September 30 (recently recast as the start of the regulatory process).

The announcement comes on the eve of the US’ wind-down of Operation Inherent Resolve; it will withdraw final troops from Iraq following a 20+ year presence. President Trump made the promise to al-Zaidi, whom he backed in government formation, over the summer. The withdrawal of US troops and end of the US-backed d-ISIS coalition’s military mission is a concession to al-Zaidi, given the historic unpopularity of US troops in Iraq. But the withdrawal could pose risks for an ISIS resurgence (especially as Syria, whose military is stretched thin, has taken over the operation within its borders).

Read More: New York Times [paywall], Euronews, Atlantic Council, Al-Monitor [paywall]

Asia-Pacific

North Korea launched two short-range ballistic missiles off its eastern coast on Sunday. These tests brought the total number of ballistic missiles launched by North Korea this year to 15. This is three times the amount launched last year. The office of the Prime Minister of Japan issued a warning as the missiles fell into the Sea of Japan.

South Korean President Lee Jae Myung called on US President Donald Trump to ease sanctions on Pyongyang in exchange for an agreement that freezes its nuclear weapons program. This is a break with decades of South Korean policy towards North Korea. Despite describing such an agreement as unpalatable, he also said there is no realistic alternative. Russia and China have both increasingly embraced North Korea as a strategic partner. North Korea recently opened its first road bridge to Russia and is repairing a previously abandoned bridge to China. North Korea has also sent troops to support Russia’s war in Ukraine.

Read More: ABC, New York Times [paywall], AP

Americas

Eighteen suspects were extradited to the US from Haiti on Sunday over the 2021 assassination of Haitian President Jovenel Moïse. They were among 30 individuals indicted for the attack, who are allegedly Colombian mercenaries who posed as Drug Enforcement Administration (DEA) agents. According to the indictment, they killed Moïse for personal gain. They will face justice in Florida. The former Haiti Ministry of Justice employee Joseph Badio is accused of being the mastermind behind the plot. A Florida jury convicted four men in the killing in May, and five others have pleaded guilty.

Haiti’s first elections in a decade are scheduled for December 13. Haitian officials are pushing ahead with preparations, despite continued outbreaks of violence. Armed groups control large areas of the capital, Port-au-Prince, and observers fear that the violence could undermine the electoral process. Haitian officials have called for increased security forces and electoral observers to support the process, as elections originally planned for August 30 were pushed back due to the security challenges.

Read More: NPR, ABC, Al Jazeera

Africa

Seven Ethiopian rebel groups announced an alliance against the Ethiopian government, marking a major escalation in tensions between Addis Ababa and Tigrayan militants. The alliance includes the Tigray People’s Liberation Front (TPLF), which fought the Ethiopian government in a civil war from 2020 to 2022, as well as Oromo and Fano rebel groups. The announcement follows armed clashes between the TPLF and the Ethiopian National Defense Force in August amid disagreements between Tigrayan authorities and Addis Ababa over the implementation of the Pretoria Agreement, which was signed to end the Tigray war.

A war in Ethiopia could draw in other Horn of Africa states and their Gulf backers, further destabilizing the Red Sea region and creating a proxy conflict that would be difficult for the US to contain. Eritrea, a longstanding rival of Ethiopia, has deepened ties with the TPLF to counterbalance Addis Ababa’s regional ambitions, while the Sudanese Armed Forces have also strengthened relations with Asmara and could potentially support Eritrean efforts to undermine Ethiopia. Ethiopia has also accused Eritrea of supplying arms to the group. Meanwhile, Saudi Arabia and the UAE back Eritrea and Ethiopia, respectively, and a broader conflict involving multiple African states could prompt the Gulf countries to increase support for their preferred actors in pursuit of their regional interests.

At the same time, it is unclear how effectively the alliance can function given the conflicting objectives of its member groups. The Amhara Fano National Movement previously fought alongside the Ethiopian government against the TPLF during the Tigray war. These political differences could weaken or ultimately fracture the alliance, though the risk of conflict between the government and the TPLF or other rebel groups would remain.

Read More: Reuters [paywall], Al Jazeera, The Soufan Center, Stepwise Risk Outlook

Geoeconomics

The IMF and World Bank have approved reforms to their Debt Sustainability Framework for Low-Income Countries, the first update since 2017. Expected to take effect in the second half of 2027, the changes expand how the institutions assess governments’ ability to manage their debt. A new domestic-debt assessment will examine vulnerabilities including banks’ exposure to their own governments. A separate long-term development assessment will consider the fiscal costs and growth benefits of investments in infrastructure, human capital and climate adaptation. The reforms also strengthen stress tests, improve checks on economic forecasts and encourage more comprehensive debt reporting, aiming to capture risks arising from increasingly diverse borrowing sources while better accounting for countries’ development needs.

The reforms aim to clarify when countries need debt relief. These assessments influence access to concessional loans and grants and help determine how much debt relief creditors must provide. More detailed risk assessments are intended to clarify which countries can address their difficulties through policy changes and financing support, and which require more fundamental action. Giving greater consideration to the long-term benefits of development spending could improve decisions about productive borrowing, but does not create additional borrowing capacity. Results will still depend on credible forecasts and complete disclosure of liabilities, with the review identifying overly optimistic long-term export and revenue projections, alongside gaps in reporting state-owned enterprise debt.

Read More: IMF, Reuters [paywall], World Bank, Carnegie Endowment

Energy

The EU will maintain its opposition to new drilling in the Arctic. The EU had been reassessing its policy towards Arctic energy exploration but ultimately decided to continue its support for a future ban on Arctic oil and gas drilling, in line with the EU’s decision not to purchase any energy supplies from future Arctic projects. Oslo had been pressuring the bloc to drop its opposition to Arctic drilling projects because, while not a member of the EU, Norway is tightly economically integrated with the EU and sells most of its energy resources to the bloc.

The EU is currently in the process of revising its Arctic policy. Earlier this month, EU leaders met in Finland to plan out the EU’s future approach towards the Arctic as the region becomes a focal point of great power competition and economic potential as a shipping route and source of resources like minerals. The EU is also preparing to unveil a new Arctic strategy, which was last updated in 2021.

The Arctic has taken on increasing importance for a range of global actors. The war in Iran has highlighted the Arctic’s potential as a shipping route, and both China and South Korea are testing routes through Russia’s Northern Sea Route. Russia operates significant energy projects in the region, and it has also been the focus of increasing military attention from Russia, NATO, and China.

Read More: Reuters [paywall], Deutsche Welle, The Guardian, High North News, Stepwise Risk Outlook

Defense

The US Army has awarded a contract to a Ukrainian defense firm for long-range reconnaissance drones. The Army is giving Skyeton a $10.64 million contract to purchase the company’s Raybird drones and the services relevant to operating the drones. The Raybird is a Ukrainian-origin reconnaissance platform with up to 24 hours of endurance and a maximum distance of 2,500 km. The exact number of systems the Army is procuring, and the purposes they will be used for, were not revealed by the Army.

Raybird systems have seen extensive combat time in Ukraine. By June of this year, the Raybird has more than 350,000 combat flight hours, with Skyeton specifically advertising it as supporting long-range fires capabilities like the HIMARS multiple rocket launcher due to its endurance.

The US has partnered with Ukrainian companies in the past on drone technologies. Ukrainian drone manufacturer F-Drones gave 2,000 drones to the US for evaluation as part of the Pentagon’s Drone Dominance program earlier this summer. Skyeton also has plans to build its primary manufacturing facility in North Carolina and to invest $3.1 million. In the facility.

Read More: Army Recognition, Stars and Stripes [paywall], Kyiv Independent

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances. 

The Sanctions Update, compiled by attorneys from Steptoe’s award-winning International Regulatory Compliance team and the Stepwise: Risk Outlook editorial team, publishes every Monday (subscribe here). Guided by the knowledge of Steptoe’s industry-leading International Trade and Regulatory Compliance team, the Sanctions Update compiles and contextualizes weekly developments in international regulatory enforcement and compliance, as well as offers insights on geopolitical context, business impacts, and forthcoming risks, and non-sanctions news updates.

For more detailed analysis on related issues, see Steptoe’s International Compliance Blog. For information on industry-specific monitoring or bespoke services, please contact the team here.

By Evan T. Abrams, Meredith Rathbone, Karl Hopkins, Guy Soussan, Alexandra Melia, Wendy Wysong, Ali Burney, Quentin Johnson, Elliot Letts, Algirdas Semeta, Melissa B. Mahle, Anni Coonan, Thomas Goldstein, Zayna Dembinski, Samuel Bloebaum, Elton Smole, Ian Cameron, Wilson Zhao, Zoey Hong, Kiki Dong, Isabella Rao, Andy Xu Sofia, Jake Fitzpatrick, Carter Spahn, Chris Dantes

Listen to the sanctions update:

The Lede

Sanctions Relief for Prisoner Release: US and French Transactional Diplomacy Tests Western Sanctions Policy

^{“2020 Belarusian protests — Minsk, 16 August p0048“ by Homoatrox is licensed under CC BY-SA 3.0.}

Western countries appear more willing to use sanctions waivers to achieve transactional geopolitical goals, opening new diplomatic avenues but also risking strain on alliances and raising compliance uncertainty for businesses. This trend is highlighted by last week’s US prisoner-for-sanctions-relief deal with Belarus and a similar proposed deal between France and Azerbaijan. Targeted sanctions waivers or full delistings can be a powerful motivator to change the behavior of political influencers. However, repeated use of such tactics could undermine the public narrative behind a sanctions campaign. It could also weaken relationships between countries coordinating sanctions efforts if individual states push for delistings in pursuit of their own policy goals. Finally, rogue states could exploit increased willingness to issue sanctions waivers for one-off prisoner deals by arresting foreign travelers to gain bargaining chips. Businesses face increased uncertainty about the direction and longevity of sanctions programs if quid pro quo waivers can be issued at any time. Multinational companies also face elevated risks that their expat employees could be arbitrarily arrested in pursuit of a sanctions delisting deal.

Belarus Deals Reveal Limits of Sanctions Relief Strategy

On September 16, US Special Envoy to Belarus John Coale announced that Belarus had released 25 prisoners in exchange for the US lifting sanctions on two Belarusian manufacturing companies. Coale also promised Belarusian President Alexander Lukashenko that US banks would unfreeze tens of millions of dollars in frozen Belarusian assets.

Since the start of the second Trump administration, the US has repeatedly used sanctions waivers on Belarusian businesses to secure prisoner releases and nudge Belarusian policy away from Russia. As of early 2025, Special Envoy Coale declared that his mission was to secure the release of over 1,200 Belarusian prisoners. In December 2025, the US lifted sanctions on Belarusian potash production, a significant engine of the Belarusian economy, in exchange for the release of 123 Belarusian prisoners, including several leading figures in the country’s opposition movements. Lukashenko freed another 250 prisoners in March 2026 after the US agreed to drop sanctions on two Belarusian banks and the country’s finance ministry.

But US sanctions relief alone has had limited success in bringing Belarus into the Western orbit. While the US delistings allowed Belarusian potash to be more easily exported to the wider world, the industry relies heavily on Russia for exports. Belarus is reportedly seeking access to more conveniently located export facilities in Lithuania, where access is blocked by EU sanctions. Belarusian opposition figures warned in June that Lukashenko was re-arresting dissidents and delaying further releases over the US’ inability to influence EU sanctions relief.

The sanctions-relief-for-prisoners strategy may face diminishing returns. The 25 prisoners released most recently are significantly fewer than the “hundreds” Coale had suggested in earlier statements. Coale told news media afterwards that he would return to Belarus in October to secure the release of “hundreds more prisoners” and negotiate with the EU to restore Belarusian potash exports through Lithuania. US media estimated that around 900 alleged political prisoners remain in Belarusian jails.

The US appears unlikely to secure EU sanctions relief on Belarusian potash, which would require a consensus among the 27 member states. US negotiators would need to overcome strained US-EU relations, in addition to deeper distrust of Lukashenko among EU member states than within the Trump administration. Without EU cooperation, Coale will likely only secure the release of an additional few dozen prisoners during his planned October visit to Minsk.

France Tests EU Unity with Sanctions-for-Prisoners Deal

Ad hoc transactional sanctions relief is particularly disruptive for the EU, where any one state can endanger an entire sanctions package by pushing for individual relief, since each package must be renewed unanimously every six months. On September 14, member states were forced to delay a vote on prolonging Russia-related sanctions by a week after France and Slovakia pushed at the last minute for the delisting of Uzbek-Russian billionaire Alisher Usmanov. According to media reports, Usmanov’s delisting was part of an indirect deal to release a French-British businessman from an Azerbaijani prison, where he was arrested on espionage charges in 2023 and sentenced in March 2026 to 10 years.

Hungary and Slovakia reportedly pushed for Usmanov’s delisting earlier in 2026, with Turkish President Recep Tayyip Erdogan also urging the EU to delist him due to “Usmanov’s sincere efforts to fully cooperate with the EU institutions, as well as taking into account humanitarian considerations.”

While debates over sanctions targets are an expected part of the EU’s rolling sanctions campaign against Russia, explicitly tying Usmanov’s delisting to a prisoner release is unprecedented for the EU. Ukraine, alongside several unnamed EU diplomats, criticized France for pushing for the delisting at the last minute. If member states do not unanimously approve the sanctions for another six-month extension, the approximately 3,000 designations on individuals and entities will automatically expire. France risks straining EU cohesion by exploiting this leverage to obtain a prisoner release. Russia could also exploit these “political delisting” debates by offering individualized delisting deals to a few EU member states every time sanctions are up for renewal, forcing the EU to go through last-minute internal negotiations every six months.

Implications for Businesses

For businesses, an increase in the use of transactional sanctions-relief deals could open up new opportunities for foreign dealmaking with newly unsanctioned companies. However, it also introduces more uncertainty into how sanctions policies are implemented and coordinated between the US, EU, and other allies. Especially under the current administration, the US is prioritizing a realpolitik approach to sanctions delistings that further national security goals, such as rapprochement with Belarus amid declining Russian influence. France also cherishes its strategic autonomy, especially in the context of the generally more multilateral EU. Both countries’ strategies split from the rhetoric of other EU member states, where norms are institutionalized within sanctions policy. Large-scale sanctions relief deals could make US-EU sanctions regimes inconsistent, and EU member state haggling, such as in the case of France, could increasingly force greater malleability in the EU’s regime. Calls to reform the EU sanctions process, such as to qualified majority instead of unanimity or decreasing the frequency of rollovers, may increase.

Businesses also face increased regulatory volatility. Companies may be less able to predict whether a sanctions designation will remain in place as delistings become bargaining chips in diplomatic negotiations. This could complicate long-term investment decisions, particularly in sectors where sanctions compliance is a significant factor in decision-making.

US Developments

The Lindsey O. Graham Sanctioning Russia and Iran Act of 2026 Becomes Law

On September 16, the US House of Representatives passed the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026 by a vote of 262 to 159, and President Donald Trump signed the bill into law on September 18. Originally introduced in April 2025, the Act gained momentum after the President signaled support in November 2025, conditioned on new tariff authorities and flexibility over the imposition of sanctions. Absent a presidential waiver, the Act imposes sanctions on various persons and entities, including Russian officials, certain Russian financial institutions, and Russia’s “shadow fleet” vessels.

The Act also authorizes sanctions on persons who knowingly sell, lease, provide, or facilitate the provision of goods or services relating to Russia’s defense industrial base, including computer numerical control (“CNC”) tools, lubricant additives, specialty chemicals, chemical coatings, military-grade fiber optics, advanced sensors, items on the Bureau of Industry and Security’s (“BIS”) Common High Priority Items List, and any other products designated by US authorities as critical to Russia’s defense industrial base.

Additionally, the Act authorizes the President to impose tariffs of up to 100 percent on the largest purchasers of Russian oil and natural gas, as well as countries facilitating Russian oil sanctions evasion. The law is expected to have the most impact on China and India, which are reportedly the largest purchasers of Russian crude oil. China’s Commerce Ministry voiced its opposition to the new sanctions. President Trump is scheduled to meet with President Xi Jinping at the White House on September 24. Trade and national security issues are expected to take center stage at the meeting.

OFAC Targets Digital Asset Exchange in Operation Economic Outcast

On September 17, OFAC designated BitBank, Pishtaz Simorgh Electronic Trade Company (“Pishtaz Simorgh”), and three individuals as part of Operation Economic Outcast. According to OFAC, BitBank is a digital asset exchange controlled by OFAC-designated Iranian financier Babak Zanjani. OFAC further identified Pishtaz Simorgh as the developer of BitBank’s digital assets software. The designated individuals and entities were described as key components of Iran’s digital assets-based sanctions evasion infrastructure. OFAC previously designated multiple digital assets entities and individuals allegedly linked to Zanjani on January 30 and July 24. We previously reported on Operation Economic Outcast in a recent blog post.

State Department Sanctions Cuba’s Nickel Sector and Military R&D Apparatus

On September 17, the State Department sanctioned 11 Cuban targets, including four state-owned enterprises in the nickel mining industry, four military research and development enterprises, and three military officials. These actions were pursuant to E.O. 14404, “Imposing Sanctions on Those Responsible for Repression in Cuba and for Threats to United States National Security and Foreign Policy.” These sanctions follow recent Cuba designations by the State Department on September 3, which included Empresa Importadora y Abastecedora del Níquel, a state-owned nickel industry support services company.

OFAC Removes Ethiopia-related Designations After Expiration of Emergency with Respect to the Situation in Ethiopia

On September 18, the national emergency declared in E.O. 14046 of September 17, 2021, “Imposing Sanctions on Certain Persons with Respect to the Humanitarian and Human Rights Crisis in Ethiopia,” expired. Following the expiration of the national emergency, OFAC removed 11 Ethiopia-related designations. The designated parties had originally been identified in connection with alleged violence and human rights abuses in Ethiopia and the Horn of Africa region.

Alongside the expiration of the E.O. 14046, OFAC has deleted all Frequently Asked Questions (“FAQs”) related to the program from its website.

OFAC Amends General License for Transactions Involving Petróleos de Venezuela, S.A.

On September 14, OFAC issued Venezuela-related General License (“GL”) 52C, “Authorizing Certain Transactions Involving Petróleos de Venezuela, S.A.,” which replaces and supersedes GL 52B. In general, GL 52C authorizes transactions otherwise prohibited by E.O. 13884 or E.O. 13850 involving Venezuela’s state-owned oil company, Petróleos de Venezuela, S.A. (“PdVSA”), or any entity in which PdVSA owns, directly or indirectly, a 50 percent or greater interest (the “PdVSA Entities”), by an established US entity, subject to certain restrictions. We examined the initial version of the GL in detail in our March 23 update.

The amended GL authorizes transactions ordinarily incident and necessary to the execution and signing of contracts, agreements, and other transaction documents by certain individuals blocked under the Venezuela Sanctions Regulations acting in their official capacities on behalf of PdVSA or PdVSA Entities to effectuate a transaction authorized under the GL.

In addition, the amended GL excludes from the scope of the GL “[a]ny transaction to affect or alter the governance of PDV Holding, Inc., Citgo Holding, Inc., or CITGO Petroleum Corporation.” The amendment comes as the current supervision of Citgo is reportedly set to step down and pave the way for Venezuelan Interim President Delcy Rodriguez’s government to play a greater role.

Relatedly, OFAC also extended the delay of the PdVSA bond-related authorization. On September 14, OFAC issued GL 5Z, which authorizes certain transactions related to, the provision of financing for, and other dealings in the PdVSA 2020 8.5% Bond that are otherwise prohibited by E.O. 13835, as amended, on or after November 5, 2026. GL 5Z is the most recent extension in a long-running delay in the effective date of GL 5’s authorization.

OFAC Extends General License Related to Lukoil

On September 18, OFAC issued Russia-related GL 131J, “Authorizing Certain Transactions for the Negotiation of and Entry into Contingent Contracts for the Sale of Lukoil International GmbH and Related Maintenance Activities.” Broadly, GL 131 authorizes certain transactions related to the negotiation of and entry into contracts with PJSC Lukoil or any of its affiliates for the sale, disposition, or transfer of Lukoil International GmbH or any of its majority-owned entities, subject to certain restrictions. The license replaces and supersedes GL 131I, extending the authorization period from September 19, 2026, to October 22, 2026. We previously covered the earlier versions of GL 131 on November 17, 2025, May 4, 2026, June 1, 2026, and June 29, 2026.

UK Developments

House of Commons Library Publishes Briefing on Proposed UK West Bank Sanctions

The House of Commons Library has published a research briefing providing further detail on the UK Government’s proposed sanctions measures targeting Israeli settlements in the occupied West Bank, announced on September 8, 2026. The proposed new regime will prohibit imports of goods from settlements in the Occupied Palestinian Territories and restrict services supporting settlement expansion, including construction, infrastructure, financing and real estate services, subject to religious exemptions. Significantly, the import prohibition is expected to operate geographically rather than by reference to designated persons, with importers required to demonstrate through postcode declarations that goods do not originate from settlements. HMRC, OTSI and OFSI will monitor compliance, and the UK Government expects the necessary legislation to be introduced within six to nine months. Separately, amendments to the Global Human Rights sanctions regime are expected within weeks to facilitate faster action against settlement expansion, while the Government has also stated that it will refuse applications for arms and other export licences where the exports would materially contribute to the occupation.

OFSI Clarifies Asset Freeze Exception for Interest and Earnings on Frozen Accounts

OFSI has published FAQ 203 clarifying the scope of the asset-freeze exception permitting relevant institutions to credit frozen accounts with interest or other earnings. OFSI explains that regulation 58(3) of the Russia Regulations, and equivalent provisions under other sanctions regimes, only permits interest or other earnings to be credited to the same frozen account on which they accrued. The exception therefore does not permit a relevant institution to transfer those amounts to a separate frozen account held for the same designated person, including where that separate account has been nominated to receive the interest or earnings. Relevant institutions should consider whether an OFSI licence is required before making such payments. The clarification is intended to promote consistent application of the asset-freeze framework and reduce the risk of circumvention, and firms should ensure that their processes for administering frozen accounts distinguish between permitted credits to the originating account and transfers requiring separate licensing.

EU Developments

EU Member States Delay Renewal of Russia Asset Freeze Sanctions Regime

Following a failure to reach unanimous agreement on the renewal of the EU’s Russia asset freeze sanctions regime, EU ambassadors in Coreper agreed to postpone the expiry of the measures by seven days, until September 22. The temporary extension is intended to provide additional time for Member States to consider proposals concerning the regime’s renewal, which requires the unanimous approval of all 27 Member States. The restrictive measures apply to over 3,000 individuals and entities and were initially due to expire on September 15.

The delay follows disagreements among Member States regarding the continued designation of certain listed individuals, as reported in our September 14 Sanctions Update. In particular, Slovakia has sought changes to the sanctions list as a condition for supporting the renewal, while France has reportedly called for the delisting of Russian businessman Alisher Usmanov.

Discussions are expected to continue ahead of the revised expiry date of September 22.

European Commission Updates the EU Dual-Use Export Control List

On September 14, the European Commission adopted a Delegated Regulation updating the EU dual-use export control list set out in Annex I to Regulation (EU) 2021/821. The update incorporates amendments agreed by participating states in 2025 under the Australia Group, the Nuclear Suppliers Group and the Wassenaar Arrangement. It also reflects additional commitments accepted by all EU Member States within the framework of the Wassenaar Arrangement to subject further items to export controls.

The updated EU export control list provides for the addition of new dual-use items, including semiconductor manufacturing and testing equipment and materials, advanced computing integrated circuits and electronic assemblies, ceramic matrix composites reinforced with mullite, rotary encoders based on inductive sensing technology, additive manufacturing equipment for energetic materials, chemical vapor deposition equipment used to produce silicon carbide fibers, and technology for the development of axial compressors of gas turbine engines. The amendments also modify specific control parameters and update certain technical definitions and descriptions.

The Delegated Regulation has been transmitted to the European Parliament and the EU Council for scrutiny. If neither of the co-legislators objects to the Delegated Regulation within the two-month scrutiny period, the Delegated Regulation will be published in the EU Official Journal and enter into force following the publication.

EU Council Amends Sanctions Listings Targeting ISIL (Da’esh) and Al-Qaeda

The EU Council recently amended the entries of two individuals designated under the autonomous restrictive measures regime targeting ISIL (Da’esh) and Al-Qaeda, following an update at the UN level. Changes to Council Regulation (EC) 881/2002 reflect the September 4 decision of the UN Security Council Sanctions Committee to update the identifying information of Sanaullah Ghafari, leader of the Islamic State in Iraq and the Levant-Khorasan (ISIL‑K), and Abubakar Swalleh, an ISIL facilitator.

General Court Judgment Upholds the Designation of Polina Gagarina under EU Russia Asset Freeze Sanctions and Annuls 2025 Sanctions Relistings

The General Court of the European Union delivered its judgment in Case T‑460/24 concerning an action brought by the Russian singer Polina Gagarina seeking annulment of the 2024 and 2025 Council acts that included and maintained her name on the EU Russia asset freeze sanctions list.

The Court upheld the initial June 2024 listing and the September 2024 renewal of Ms. Gagarina’s designation. It held that the Council had established, to the requisite legal standard, that Ms. Gagarina satisfied the criterion set out in Article 3(1)(a) of Council Regulation (EU) 269/2014, which targets individuals supporting actions or policies which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine. The Court found that Ms. Gagarina had regularly participated in State propaganda events that legitimized Russia’s war of aggression against Ukraine and celebrated the illegal annexation of Ukrainian territory.

At the same time, the Court annulled the March 2025 and September 2025 renewals of Ms. Gagarina’s listing. The Court found that the Council had not provided sufficiently specific, precise and consistent evidence to establish that Ms. Gagarina continued to satisfy the Article 3(1)(a) criterion at the time of the 2025 renewals.

Asia-Pacific Developments

Russia Warns Japan’s Military Expansion and Sanctions Stance Threaten Bilateral Ties

On September 16, 2026, Russia’s Foreign Ministry reportedly said Deputy Foreign Minister Andrey Rudenko told Japanese Ambassador Akira Muto that Tokyo’s expanding military cooperation with the United States and other Western partners, including the deployment of medium-range missiles, threatens Russian national security and stability in Northeast Asia. Moscow said it could take compensatory defense measures if these activities continue. Russian officials also linked the security dispute to Japan’s sanctions and support for Ukraine. Kremlin spokesperson Dmitry Peskov described Tokyo’s position as “extremely unfriendly,” saying its participation in anti-Russia sanctions limits prospects for “reciprocal concessions.” Since Japan joined Western sanctions in 2022, Russia has suspended peace-treaty talks, ended visa-free island visits and withdrawn from discussions on joint economic activities.

China and Russia Veto Renewal of UN Iran Sanctions Monitoring Panel

On September 17, 2026, China and Russia vetoed a proposed extension of the UN Iran sanctions-monitoring panel, arguing that the “snapback” mechanism was never validly invoked and that Resolution 2231 (2015) expired on October 18, 2025, ending the Council’s consideration of Iran’s nuclear file. Russia said Berlin, London, and Paris lacked the right and justification to restore sanctions, while China urged equal-footing negotiations, safeguards by the International Atomic Energy Agency and a diplomatic settlement. The US-sponsored resolution received 11 votes in favor, with Pakistan and Somalia abstaining, but failed because of the two permanent-member vetoes. The United States, European members and several other Council members maintain that sanctions were reimposed in September 2025 and warn that the failure to renew the Panel of Experts creates an independent-monitoring gap that could weaken enforcement and obscure sanctions evasion.

India and China Signal Resistance to US Sanctioning Russia and Iran Act of 2026

India and China separately responded to the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026. On September 17, 2026, India reportedly said it would protect its trade and economic interests while safeguarding energy security through diversified supplies, as its status as Russia’s largest buyer of seaborne crude could expose it to potential US tariffs. On September 19, 2026, China rejected unilateral sanctions lacking UN authorization or an international-law basis, opposed secondary measures against third countries and reserved the right to take necessary action to protect its sovereignty, development interests and companies. Both governments called for dialogue and stable trade relations, while Beijing also emphasized the security of global industrial and supply chains.

Australia Declines to Join UK-Led Trade Sanctions Initiative against West Bank Settlements

Australia reportedly opted not to join a UK-led statement by 12 governments considering or committing to restrictions on trade with Israeli businesses in West Bank settlements, despite having participated in related diplomatic discussions. Australia’s Department of Foreign Affairs and Trade said, “blanket import bans present practical challenges, including how to ensure they do not inadvertently harm Palestinian businesses, workers and livelihoods.” Australia said it is instead “pursuing further targeted measures, in coordination with international partners, to deter illegal settlements and settler violence.” Australia previously joined the UK, Canada, France, and Norway in June in coordinated sanctions against Israeli networks accused of “financing, enabling and carrying out violence in the Israeli-occupied West Bank.”

Listen to the news:

Global

The energy supply disruptions in the Middle East are creating opportunities for increased uptake in the use of marine biodiesel. The Middle East conflict has driven up the cost of diesel, making biodiesel prices competitive, priced at $985 a ton today compared to marine gasoil at $1,528 per ton. While the market drivers may lead to stabilization of diesel prices during 2026, EU carbon emission rules for shipping create a secondary push that may accelerate the shipping industry’s adoption of biofuels to comply with the EU’s Renewable Energy Directive III. Sales of marine biodiesel blends in Rotterdam, a global leader in biofuel production, rose sharply year on year in Q2 2026 and more than doubled from the previous three months.

Maritime transport emits about 3% to 4% of all carbon dioxide emissions in the EU. Companies must buy and use special permits for carbon emissions, covering 100% of emissions for trips starting and ending at an EU port and 50% of emissions for trips between an EU port and an external port. The EU Emissions Trading System came into force in 2025 with a phased implementation. Effective 2027, maritime companies will be required to pay for 100% of all reported emissions.

The shipping industry remains skeptical that it will meet the global targets of the International Maritime Organization’s Net-Zero Framework. The Trump Administration strongly opposes the IMO Net-Zero Framework. The EU is delaying many of its climate-change related programs. However, policies that align with sound market signals have a greater likelihood of proceeding on schedule. Vessels capable of running on methanol, ammonia or ethanol are already entering the fleet.

Read More: Financial Times [paywall], European Commission, gCaptain.com

Europe

Internal pressure increases against German Chancellor Friedrich Merz after yesterday’s regional elections. In the eastern German state of Mecklenburg-Western Pomerania, Friedrich Merz’s center-right Christian Democratic Union (CDU) is projected to receive only 4.9% of the votes, failing to surpass the 5% hurdle to enter the regional parliament. This is the single worst result in the party’s history and will likely be attributed to Merz’s personal unpopularity. Like in Saxony-Anhalt, the populist-right Alternative for Germany (AfD) was the election winner, securing 38.3% of the vote. However, the center-left Social Democrats (SPD) will likely be able to form a government alongside the Greens, the postcommunist The Left, and the populist-left Alliance Sahra Wagenknecht (BSW). In Berlin, the ruling CDU lost to The Left, which secured 25.6% of the vote. The result signals that voters want something different than the established center parties: altogether, the CDU, SPD, and the Greens lost 19.7% from Berlin’s 2023 election.

Merz signaled that he will continue the government’s reform agenda. Merz acknowledged that the result was a “disaster” but argued that the difficulty of passing his reforms only make them more urgent. Among those reforms are raising the retirement age to 67 and cutting taxes for the middle class. Calls for Merz to step aside within the CDU may increase in the coming days, but the only feasible way to change chancellors is if Merz decides to step down himself.

Read More: AP, Tagesschau [in German] Stepwise Risk Outlook

Middle East

Competing signals out of the Iran war: on the one hand, both the US and Iran hinted at new escalation. Over the weekend, President Trump threatened that the Islamic Republic would be wiped out if it did not capitulate on nuclear negotiations, building on threats from last week. Iranian media cited intelligence that a new escalation was coming, threatening significant retaliation.

On the other hand, negotiations appeared to be increasingly on the table. Qatari sources told media that both sides had signaled openness to new talks, while President Trump said that he was open to meeting with Iranian President Pezeshkian during the upcoming UN General Assembly. Both sides need a deal as much as ever, with military assets dwindling and economic disruption continuing despite the partial reopening of the Strait of Hormuz.

Read More: Reuters [paywall], Middle East Eye, Fox News

Asia-Pacific

Myanmar last week released US citizen Adam Castillo after three months in detention, reportedly following efforts by the Trump administration. Castillo was arrested at the airport in Yangon, Myanmar’s commercial hub, in June, where he founded and has run his security risk management firm AGS Myanmar since 2013. He was reportedly detained over an alleged breach of trust involving a lobbying contract intended to improve US-Myanmar trade relations and promote rare-earth exports. Castillo, a former Marine who led the American Chamber of Commerce in Myanmar from 2023 to 2025, denies misconduct.

US officials traveled to Myanmar to secure Castillo’s release, marking Washington’s most significant engagement with Myanmar since the 2021 coup. While the delegation’s stated purpose was limited to Castillo’s case, the visit comes as Myanmar’s military-backed government seeks greater international legitimacy following elections, which are widely recognized as illegitimate, earlier this year. Washington has reportedly explored access to Myanmar’s critical minerals, which could provide the junta a potential avenue for broader engagement. One proposal involves Washington brokering peace between the government and the Kachin Independence Army (KIA), which controls the territory containing major rare-earth deposits. Castillo reportedly pitched this proposal to the US government last year.

Read More: ABC News, The Irrawaddy, NPR, Reuters [paywall], Stepwise

Americas

US President Donald Trump will meet interim Venezuelan President Delcy Rodriguez on Tuesday in New York. The meeting will take place on the sidelines of the UN General Assembly leaders’ reception and will be the first face-to-face meeting between Trump and Rodriguez. It will also be the first meeting between sitting leaders of the US and Venezuela since Barack Obama and Nicolas Maduro met in Panama in 2015. Rodriguez arrived in the US on Monday to represent Venezuela at the UN. She was formerly the vice president of Nicolas Maduro, who is currently awaiting trial in New York on federal drug-trafficking charges.

Rodriguez seeks to use the occasion to strengthen the legitimacy of the interim government. Venezuela’s Communications Ministry released a statement highlighting her appearance as an example of Venezuela rejoining the international diplomatic community. This comes as the UK made the decision to upgrade diplomatic ties and appoint an ambassador to Caracas. As opposition leader Maria Corina Machado remains in exile in Panama, critics of Rodriguez have raised concerns that the longer the status quo remains in place, the less likely a democratic transition will become.

Read More: Reuters [paywall], Miami Herald, AP

Africa

The US International Development Finance Corporation approved a $414 million debt facility to support development of a uranium mine in northern Niger. Canadian company Global Atomic Corporation is securing financing from the DFC to advance the Dasa project, the highest-grade uranium deposit in Africa. The decision comes as Russia has significantly expanded ties with Nigerien military junta leader Abdourahamane Tiani, particularly after helping thwart a coup attempt in late August. Russia’s security cooperation and expanding role in regime protection have enabled Moscow to gain outsized influence over the country’s mining sector.

The agreement could allow the US to counter Russia’s growing influence over global uranium supply chains, but worsening political tensions and insecurity pose significant risks to businesses. The coup attempt exposed substantial dissatisfaction with Tiani among military units that play a key role in combating jihadist violence. In addition, rebel activity has intensified. The Patriotic Liberation Front and allied groups have reportedly mobilized hundreds of fighters and threatened to resume attacks against the junta for the first time since 2024. In the past, Nigerien rebels repeatedly targeted the Benin-Niger oil pipeline and gold mines in the eastern and northern parts of the country. Amid increasing jihadist attacks, the security environment could become even more fragmented as militia activity grows, and key government economic assets may become targets.

Read More: Al Jazeera, Critical Threats, Stepwise Risk Outlook, Stepwise Risk Outlook

Geoeconomics

The US is expected to delay announcing new tariffs targeting alleged industrial overcapacity until after the September 24 Trump–Xi summit. Officials have been considering a 7.5% tariff on Chinese goods, although the final rate and announcement date remain unsettled. That proposal would bring tariffs introduced on China during Trump’s second term to roughly 20%, excluding duties retained from earlier administrations. The measures stem from a Section 301 investigation into government policies that Washington says sustain excessive manufacturing capacity and displace US production. USTR is examining subsidies, preferential lending, state-owned enterprises and policies that support production while suppressing domestic demand, citing industries including automobiles, batteries, semiconductors, solar panels and steel.

The investigation extends tariff uncertainty to several countries that businesses have used to diversify production away from China. Launched in March, it covers 16 economies, including the EU, Japan, South Korea, India, Mexico and Vietnam. Alongside the separate forced-labor investigation, it forms part of Washington’s effort to replace emergency tariffs struck down by the Supreme Court in February with duties under other statutory authorities. The breadth of the investigation means shifting sourcing from China to another manufacturing hub could still leave companies exposed to additional tariffs, depending on the eventual findings and measures.

Read More: Bloomberg [paywall], USTR, Atlantic Council

Disruptive Technology

President Trump hints at an “AI Force” to monitor the development of AI and prevent catastrophic risks. The details and powers of such a force remain unknown. President Trump will likely seek to leverage tools already at his disposal, putting such a force under the White House’s Office of Science and Technology Policy or the Commerce Department, which leads the pre-release voluntary model screening program. The AI Force could also be an informal expansion of a team under a new AI czar to replace David Sacks, who transitioned from that informal role in March to co-chair the President’s science advisory council alongside Michael Kratsios, and interface directly with frontier AI labs and other industry stakeholders.

President Trump has reiterated his concerns with “pacing” AI development. Leading AI labs came to a consensus last week after Dario Amodei, the head of Anthropic, called for slowing down capability development and embedding third-party evaluators in AI labs. Those calls come as AI labs increasingly disclose misalignment incidents where AI models escape testing environments and hack external actors. Nonetheless, President Trump remains concerned about overregulation conceding a qualitative edge to China. The announcement of an AI Force is unlikely to signal a full pivot in policy objectives.

Read More: Politico, Deutsche Welle, Financial Times [paywall]

Energy

Beijing is pushing Iran to reduce conflict fallout on regional energy infrastructure. China has reportedly asked Iran to limit strikes by the Houthis in Yemen on Saudi Arabia’s energy infrastructure. Beijing was acting on a request from Riyadh, according to reporting, and oil prices ticked down slightly on the back of the news. Oil prices have been moving upwards in recent weeks, boosted by fears of escalation in the Middle East and by events such as a strike on an east-west pipeline in Saudi Arabia that Riyadh has used to reroute its energy exports away from the Strait of Hormuz.

China has played a key role in managing the impacts of the global energy crisis. Since the outbreak of the US war with Iran, Beijing has markedly dropped its imports of crude oil, helping to cushion global shortages. China maintains a very large strategic reserve of oil, which it has built up in recent years. However, it is unclear how Chinese oil imports will develop going forward. While crude imports to China fell over 40% year on year in June, in July and August China’s oil imports rebounded with a 22% increase from June to July.

Read More: Reuters [paywall], Wall Street Journal [paywall], Oilprice.com

Transnational Crime & Corruption

Malaysia’s king pardoned the country’s former prime minister accused of being involved in the 1MDB scandal. Najib Razak, Malaysian prime minister from 2009 to 2018, was convicted of graft in 2020, including for transferring money from the country’s 1MDB sovereign wealth fund to his personal bank account. Najib was initially sentenced to 12 years in prison and fined about $51 million. But a former Malaysian king halved the sentence to six years in 2024 and reduced the fine to about $12.2 million. As part of this new pardon, Najib will serve out the rest of his sentence under house arrest and pay the $12.2 million fine.

Senior Malaysian politicians have criticized the pardon. Anthony Loke, minister of transport and Secretary General of the Democratic Action Party, resigned from Prime Minister Anwar Ibrahim’s cabinet in protest. Anwar has promised to consider snap parliamentary elections if divides in his government deepen over the pardon.

Read More: New York Times [paywall], South China Morning Post [paywall], Reuters [paywall]

Defense

The US has cleared a new fighter jet sale to Saudi Arabia. The US Department of State recently allowed the potential sale of Lockheed Martin’s F-35 Lightning II fighter jets to Saudi Arabia. The deal would be worth approximately $24.3 billion, and it would still need congressional approval. Saudi Arabia had begun asking for the jets over a year ago, and the sale would be a significant change in policy for the US regarding the overall military balance in the Middle East between Israel and other major regional players.

Türkiye is also interested in helping Riyadh meet its military needs. Turkish foreign minister Hakan Fidan recently said that Ankara would be ready to support Saudi Arabia in its ongoing conflict with Yemen’s Houthis as part of the trilateral defense agreement between Saudi Arabia, Türkiye, and Pakistan. In particular, Fidan offered support in areas like technical issues where Türkiye would be well positioned to assist Riyadh. The US has resisted calls by Saudi Arabia to assist it against the Houthis. The trilateral defense agreement commits all members to treating an attack on any member of the group as an attack on all the members.

Read More: Reuters [paywall], Defense News, Atlantic Council

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances. 

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s The Analysts' Brief examines the upcoming Trump-Xi meeting.

The Analysts’ Brief: The Upcoming Trump-Xi Meeting

By Zayna Dembinski, Thomas Goldstein, Anni Coonan, and Carter Spahn

^{“Welcome ceremony of Trump by Xi Jinping (3)” by The White House is marked with PDM 1.0.}

With less than a week before President Xi Jinping is scheduled to arrive in Washington for talks with President Donald Trump, expectations for a major breakthrough remain low. The September 24 summit comes as the November 10 expiration approaches for the one-year trade truce that eased tariffs and paused several trade and export-control measures. Meanwhile, tensions over AI and the ongoing war in Iran add new points of friction to an already fragile relationship. The meeting will test whether Washington and Beijing can extend the relative stability of the past year, or whether mounting economic and geopolitical tensions will begin to unravel it.

In today’s full analysis:

Zayna Dembinski, Asia Pacific analyst: Beijing is unlikely to leave next week’s summit with firm assurances of more predictable US policy

Carter Spahn, geoeconomics analyst: The summit could expand trade while preserving the strategic barriers reshaping US–China commerce

Thomas Goldstein, tech analyst: Thorny disagreements over tech issues continue to steer bilateral competition

Anni Coonan, Middle East analyst: The Iran war looms over the summit as China remains one of the last remaining economic levers on the Iranian regime

Read the Full Brief Here

Or listen to the full brief here:

Listen to the news:

Global

The 81^st session of the UN General Assembly General Debate starts on Monday, convening world leaders to discuss global cooperation at a time of deep strain in the international order. Khalilur Rahman of Bangladesh will preside over the session, under the theme of “Restoring trust, managing transformation: A United Nations that delivers for all.” In addition to statements by world leaders outlining their positions and priorities, key events will include climate change, development, pandemic prevention, global racial justice and the total elimination of nuclear weapons. The UN, founded as part of the post-World War international security architecture, is widely viewed as an organization in crisis and in need of reform, unable to meaningfully manage today’s security challenges.

The Trump Administration has little interest in the official UN agenda and will focus on advancing American national and economic security priorities, both during UN sessions and on the margins. The US delegation will likely focus on implementing the Board of Peace initiative on bringing stability and reconstruction to Gaza, galvanizing support for economic isolation of Iran to compel Tehran to stop blocking freedom of navigation through the Strait of Hormuz, and lobbying for Washington’s preferred candidate to replace UN Secretary-General Guterres, who appears to be Rafael Grossi, the current head of the IAEA. President Trump’s bilateral meeting with Chinese President Xi is the highest-stakes meeting on Trump’s agenda.

Read More: United Nations, Foundation for Defense of Democracies, International Crisis Group

Europe

Romanian President Nicușor Dan nominated Siegfried Mureșan as Prime Minister in a third attempt to form a government in five months. Mureșan comes from the center-right National Liberals and is currently a Member of the European Parliament and the vice-president of the umbrella center-right European People’s Party. He has ten days to form a cabinet but faces a steep and narrow prospect of winning support from the Social Democrats (PSD), which withdrew from a coalition with the National Liberals, centrist Save Romania Union, and the Hungarian ethnic rights party after disputing the coalition’s tough austerity agenda. The latter three parties have consensus with Mureșan’s leadership, but without PSD’s support, they must attempt to form a minority government with support of other parties. The only other party with enough seats to back the government, the ultranationalist Alliance for the Unity of Romanians, would prefer to exploit the political instability to pressure snap elections, which have never occurred in Romania’s post-Communist history.

Read More: Associated Press, Euractiv, Politico

Middle East

JP Morgan analysts said they would stop attempting to model an Iran endgame after President Trump blew past their analytical redlines. JP Morgan’s global commodities had been operating under the assumption that the occurrence of one or several economic redlines – including oil above $100, gas near $5 a gallon, and 10-year Treasury yields above 5% - would force the US into an agreement to open the Strait. With all economic red lines now crossed, the off-ramp for the war is less clear, not more, and the conflict is escalating further.

Meanwhile, President Trump said he is once again considering a restart to major military escalation. A month-long push to shift to economic escalation with the announcement of Operation Economic Outcast has largely failed, with Iranian strikes and the reignition of the conflict in Yemen forcing a more active kinetic conflict. The US may see a new hot war as the only way to force concessions from Iran. But it is not clear how much more active conflict the US can sustain, with US stocks of missile interceptors dwindling and the cost of the Iran war reportedly at $3 billion a month.

Read More: CNBC, Axios, Wall Street Journal [paywall], Reuters [paywall]

Asia-Pacific

Longstanding US intelligence concerns over Chinese access to Saudi military and telecommunications infrastructure are resurfacing as Washington moves the F-35 sale to Riyadh into its final review stage. The concerns center on whether China could gain access to sensitive F-35 technology through its military and security ties with Saudi Arabia. The State Department on Thursday approved the potential $24.3 billion sale of up to 48 F-35s and 49 engines, triggering a 30-day congressional review. A detailed Pentagon intelligence assessment issued months ago and reviewed by the New York Times examines Chinese military access to Saudi bases and Riyadh’s use of Chinese telecommunications equipment. Similar concerns were raised in a DIA assessment last year.

The sale highlights Washington’s challenge of limited, but deepening, Chinese security ties with Middle Eastern countries. While the US remains the region’s primary security partner, with Riyadh still the largest buyer of American defense equipment, Beijing continues to expand its foothold in a region it considers economically vital. China has used arms sales to deepen security ties with the region, including selling Saudi Arabia ballistic missiles since the late 1980s and helping Riyadh develop domestic missile production capabilities and improve missile operations. The precedent of the UAE, where concerns over Abu Dhabi’s ties to China contributed to the suspension of F-35 talks in 2021, underscores the potential complications for Washington as it expands advanced defense cooperation with Gulf partners.

Read More: US State Department, New York Times [paywall], New York Times [paywall], The Washington Institute for Near East Policy, Breaking Defense

Americas

Venezuelan authorities arrested former Mayor Javier Oropeza, a prominent opposition leader, on Thursday. Oropeza’s arrest came just two days after he had returned from exile, drawing international condemnation, including from within the US. Rep. Carlos Gimenez (R-FL) publicly criticized the Delcy Rodriguez government’s decision to detain Oropeza, which he described as “unjust.” Oropeza was released just hours later, on Thursday night, after Dinorah Figuera also demanded his release. Figuera is leading the opposition in ongoing talks with Venezuela’s interim president Delcy Rodriguez.

Despite his subsequent release, the arrest of Oropeza raises the political risks for Nobel laureate opposition leader Maria Corina Machado, who is reportedly considering a return to Venezuela. Machado is currently in Panama. According to multiple sources in the Venezuelan opposition, Machado will return to Venezuela; however, the date of her return remains uncertain. The Trump administration had previously asked her to delay her plans to return to the country after two devastating earthquakes. She has the highest approval rating of any Venezuelan political figure, although her support dropped from 72% in July to 53% in August.

Read More: Yahoo! News, NTN24 [Spanish], Voz, Reuters [paywall]

Africa

The US agreed to extend funding for the UN Support Office in Somalia (UNSOS) for one year amid growing political instability and insecurity. UNSOS, which operates on a budget of approximately $500 million, provides critical logistical support to the African Union Support and Stabilization Mission, including fuel, medical services, and transportation. Reuters reported in July that the Trump administration planned to block funding for the office due to frustration with Mogadishu’s limited progress in taking the lead on counterterrorism. Meanwhile, al Shabaab has regained territory and influence since launching an offensive in February 2025. Analysts have warned that a reduction in international support could exacerbate jihadist violence, a concern that likely contributed to Washington’s decision to temporarily maintain funding.

The one-year extension provides a narrow window for Mogadishu and the African Union to achieve measurable gains against al Shabaab. Key indicators of progress will likely include improvements in territorial control, operational effectiveness, and the Somali government’s ability to independently manage security responsibilities. Renewed US funding for UNSOS beyond this extension remains unlikely, particularly if Mogadishu fails to demonstrate tangible progress toward assuming greater responsibility for the country’s security.

Read More: Reuters [paywall], Reuters [paywall], International Crisis Group

Geoeconomics

South Korea is pushing back against US demands over how its $350 billion investment pledge will be deployed. President Lee Jae Myung said on September 18 that an agreement on implementation was close, but some proposed terms remained unacceptable to Seoul. The package, negotiated last year in exchange for US tariff relief, includes $150 billion for shipbuilding and $200 billion for other strategic investments. Projects under discussion include a $22.3 billion gas-fired power plant in Texas to supply AI data centers and semiconductor facilities, alongside up to eight nuclear reactors estimated to cost roughly $15 billion each. These proposals remain under negotiation, with financing and commercial terms still being worked out.

The disagreement concerns how much risk South Korea should bear for projects selected by Washington. Under the framework for the $200 billion strategic investment portion, President Trump selects projects after consulting Seoul, which supplies the funding and could face higher tariffs if it refuses. Cash distributions are divided equally up to specified repayment and return amounts, with additional distributions split 90% to the US and 10% to Korea. Seoul insists that investments must be “commercially reasonable,” and Lee says negotiators are still debating how Korea would recover its investment, share profits and handle projects that lose money. That creates a risk that Seoul could finance projects serving US industrial priorities without earning enough to justify its financial exposure.

Read More: Reuters [paywall], Reuters [paywall], White House, Korea Economic Institute of America

Read More of Our Posts

Contact Us

Karl Hopkins
Partner
+1 202 429 6499
khopkins@steptoe.com

Melissa B. Mahle
Senior Advisor
+1 202 261 0577
mmahle@steptoe.com

Anni Coonan
Senior Intelligence Analyst
+1 212 506 3979
acoonan@steptoe.com

Samuel Bloebaum
Senior Due Diligence Analyst
+1 602 410 6240
sbloebaum@steptoe.com

Zayna Dembinski
Analyst
+1 202 778 3567
zdembinski@steptoe.com

Thomas Goldstein
Analyst
+1 202 862 6735
tgoldstein@steptoe.com

Ian Cameron
Analyst
+1 202 327 6908
icameron@steptoe.com

Elton Smole
Analyst
+1 202 261 0556
esmole@steptoe.com

Carter Spahn
Intelligence Fellow
+1 202 261 7555
cspahn@steptoe.com

Chris Dantes
Intelligence Fellow
+1 202 327 6904
cdantes@steptoe.com

^{Legal disclaimer: This Substack is for educational and informational purposes only and does not constitute the rendering of legal counseling or other professional services. Reading, subscribing to, or communicating through this Substack does not create an attorney-client relationship. Do not send confidential information through this platform. Consult qualified legal counsel regarding your specific circumstances.}