Russia has confiscated assets worth $50 billion over the past three years. New research reveals the extent of these nationalisations, as Western firms have fled the market and other assets have been expropriated or seized. Reuters described it as merely one facet of the “Fortress Russia” economic model brought about by the war in Ukraine. But just how strong is that fortress? Since 2022, rumours of the demise of Russia’s economy have been greatly exaggerated. Although analysts have been eagerly — and disappointedly — searching for indicators of serious instability, wages are up, unemployment is down, and the country has proven resilient to sanctions. Despite all this, Russia’s economic model may now be reaching its limit.

There are cracks appearing in the walls of “Fortress Russia”. Last month, the country’s Minister of Economic Development Maxim Reshetnikov publicly warned of the country being “on the verge” of recession, with “current business sentiment and indicators” suggesting an economic slowdown. The numbers back him up. Russia’s economic growth slowed to 1.4% year-on-year in the first quarter of 2025, down from 4.5% growth in the previous quarter and 5.4% in the same period of 2024. The downturn has been attributed to the reallocation of resources to defence from the civilian sector and falling oil and gas prices.

Sanctions, high levels of government defence spending, and labour shortages have helped keep inflation persistently high, at more than double the Central Bank’s target of 4%. For their part, policymakers have been torn over how to reach that goal. In a bid to tame inflation, the Central Bank raised interest rates to 21% in October and lowered them to 20% last month. These eye-watering levels make it expensive for businesses to raise the capital needed to invest. While some poorer families have benefitted from a relative in the army, those financial gains have not been shared evenly throughout the country and surging food prices have been eating into the wage gains of ordinary Russians.

Former Central Bank official Alexandra Prokopenko has warned that “slowing economic growth coupled with high inflation leaves Russia close to stagflation”, making Moscow especially vulnerable to additional falls in oil prices or tighter sanctions. The recent ceasefire ending the Iran-Israel conflict rapidly brought oil prices down. Meanwhile, following Donald Trump’s irritation with Putin over his reluctance to end the Ukraine war, the US President has shown greater support for Senator Lindsey Graham’s punishing sanctions bill. He has also threatened to introduce a 10% tariff on countries doing business with the Brics alliance of which Russia is a member. Moscow is aware of its vulnerability: internal documents from February revealed budget constraints, a rise in bad corporate debt, lower oil prices and an increase in US and Opec oil output as top concerns behind the scenes. The system which has powered Putin’s military economy may soon need new forms of stimulus.

Calls for change are growing among senior figures. Last month, Economic Advisor to the Presidential Administration Maxim Oreshkin admitted that “the model that ensured growth in recent years has largely reached its limit”, and that the economy now needs to shift towards productivity and long-term competitiveness.  Meanwhile, Russian Central Bank Governor Elvira Nabiullina said that “we grew for two years at a fairly high pace because unused resources were activated. We need to understand that many of those resources have truly been exhausted.” She made those remarks at the St Petersburg International Economic Forum in June. Traditionally a platform to highlight Russia’s economic strengths, it likely left the assembled entrepreneurs feeling less than reassured. While we may not be witnessing the demise of the Russian economy, we are seeing it running up against its limits.

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Bethany Elliott is a writer specialising in Russia and Eastern Europe.

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China is trying to catch up with America on artificial intelligence. The Wall Street Journal has reported that Zhipu AI — one of China’s six “AI tiger” LLMs — has released a new model that can rival leading US systems, including Anthropic’s Mythos, in cybersecurity tasks such as pinpointing security bugs. While this marks a milestone in China’s drive to catch up with Western AI capabilities, strong performance on a single benchmark does not mean it has taken the lead. Chinese models still lag behind their Western counterparts in broader capabilities, such as autonomous operation. Skepticism is therefore warranted before resorting to hysterical conclusions, but complacency about the geopolitical implications of China’s AI advances would be an even greater mistake.

On the infrastructure side, Chinese AI is still constrained by access to advanced chips, with American labs way ahead in computing capacity as well as investment. Analysis from earlier this year suggests that Chinese models are likely to be at least a few months behind those in the US. But they are still continuing to make progress, or that the geopolitical importance of AI will be decided only by whose LLM has ventured deeper into the technological frontier. The practical applications of AI, countries’ to capture foreign markets, and the application of AI into the real economy will matter just as much.

Here, China may hold an advantage. As with its dominance across many critical supply chains, Beijing may not need to produce the most advanced AI systems — only those that are affordable and widely deployable. In doing so, it could consolidate global influence by supplying functional, low-cost AI at scale.

Beijing seems to be pursuing exactly that path, developing an AI “open-source” strategy that offers affordable, widely available AI models for companies and individuals to use and modify as they wish. The production of the DeepSeek AI model, which matched the performance of Silicon Valley tools such as ChatGPT at a fraction of the cost for users, created goodwill among Chinese models with developers.

The four most popular models on OpenRouter, an AI hardware platform for developers, are now all Chinese. The goal for China is not only to win the frontier-model race, but to make its systems the default layer of AI adoption across industries and global markets. For most economies, the choice is increasingly between an affordable tool they can deploy now and a more robust one that may be out of reach.

And while the countries adopting Chinese models may be exposed to political pressure and cyber threats from Beijing, safer and more capable alternatives matter little if they are unaffordable. American AI companies are already under pressure to monetize products whose operating costs are rising. If Chinese open-source models become the cheap default for startups, universities, governments and businesses across the developing world, then America’s AI lead will be eroded from below.

Perhaps more concerning for America in the long run is how AI can give Chinese manufacturing even more strength, through the ongoing integration of AI as a general-purpose technology. China’s new Five-Year Plan mentioned AI more than 50 times and includes an “AI+” action plan aimed at spreading AI across the economy.

Beijing has been pioneering automation of its critical infrastructure for years, with promising recent results in increasing warplane production capacity. In that regard, China’s open-model strategy and manufacturing dominance will reinforce each other. Cheap, adaptable models accelerate deployment across the real economy while those deployments generate real-world data and use cases that can feed back into further model improvement.

The United States should not dismiss the importance of its lead in the AI race. That lead worries Beijing, not least because a more automated Chinese economy would also become more vulnerable to AI-generated cyber threats. But nor should Washington assume that China cannot catch up with American capabilities over time.

This AI competition represents part of a broader struggle over tech supply chains and geopolitical influence. Decisions over whether to adopt US or Chinese models could produce a more fragmented global reality, with different regions relying on different cloud providers, chips and security structures. The result will likely be a global economy which is divided into competing spheres, rather than one which produces a single winner.

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Miquel Vila is a political and geopolitical risk consultant focusing on industrial strategy, critical infrastructure and global supply chains.

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