With peace apparently taking hold in the Middle East, at least for now, it was reported this morning that the world oil price has fallen back down to the level it stood before the war.

That’s good news for the global economy. Admittedly, that good news may not quite extend to Donald Trump. With Congressional elections in just over four months, the US President is anxious that politically sensitive petrol prices return to where they were when he started his ill-fated war. But while they’re coming down, they aren’t mirroring the fall in crude. Oil prices have, indeed, almost halved since their wartime peak, but US pump prices have slid more gently, from an average of $4.50 at the height of the war to just below $4 now. No wonder Trump is grumbling at oil companies for price gouging.

But the slow fall isn’t due to gouging. It will take a while for pump prices to fall all the way back because refineries had depleted their stockpiles of oil during the war. In fact, as they refill them, and as other stockpiles are replenished — including the strategic reserves that governments emptied to keep prices from spiralling out of control — world oil prices may well bounce back up in the coming weeks. They may settle in a range somewhere between recent peaks and lows and stay there for the rest of the year. Add in the advent of the summer driving season in the US, and surging electricity demand in Europe as the continent grapples with its heatwave, and full relief from the war’s effects may take a while.

We shouldn’t lament that. In fact, were prices to keep falling, the good news could in time turn bad. At the moment, the resumption of supply as tankers leave the Persian Gulf is the main driver of falling prices. But if they fell much more, that could point to weakening demand in the world economy. Further warning signs of such risks might be found in other corners of the market, where we could find symptoms of stress, such as bonds rallying strongly, which could suggest worries of an impending recession.

So, paradoxically, the positive scenario would be for oil prices to rise a bit and pump prices to come down only gradually. That would indicate a market finding its way back to a balance between supply and demand at healthy levels of activity. It would also be a symptom of growing confidence that peace will hold in the Middle East. In short, we want good news, but not too much of it.

The flipside to this favourable outlook would be two potential negative scenarios. One would be that peace talks break down and traffic into the Strait doesn’t resume, sending prices back up. The other is that peace takes hold, but the damage done by the energy shock turns out to be more long-lasting than initially thought, with the oil price falling further.

Ultimately, a definitive end to the energy crisis depends on the long-term course of talks between the US and Iran, a ceasefire in Lebanon, and the reopening of the Strait of Hormuz. As they bargain with the Trump administration, the Iranian negotiators will know how desperately the President wants the war to end. We can therefore expect them to press their advantage in talks.

Good news for the economy may ultimately require bad news for America’s standing in the world and image as a superpower. That may just be the price of hubris.

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John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall: Rome, America and the Future of the West (with Peter Heather, Penguin, 2023) and Twilight of the Money Gods: Economics as a Religion (Simon & Schuster, 2017).

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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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