CWA # 2304
The World This Week
The US-Russia Diesel Deal
Emergency in Pakistan's Khyber Pakhtunkhwa I The IMF's World Economic Outlook 2026 Report Takeaways
The World This Week #375, Vol 8, No. 37, 18 October 2026
|
NIAS Global Politics Team
18 October 2026
|
The US-Russia Diesel Deal:
Shifting alliances and Economic benefits
Advik Sunanda Mohan
What happened?
On 09 October, President Donald Trump informed he had made a deal with Russian President Vladimir Putin on Russia supplying diesel to the US. He informed that Russia would immediately supply over 300,000 tons of diesel, followed by 500,000 tons in November and 01 million tons afterwards. He also stated Russia would deliver an additional 03 million tons in a short period. Sanctions relief and the announcement of an “energy ceasefire” between Russia and Ukraine were amongst the other provisions. The deal was described by Trump as helping bring down diesel prices in the US and the rest of the world. He also thanked Putin for the deal, sending oil to the US. On the same day, Ukraine’s President Volodymyr Zelensky described the move as “a weak decision by strong partners.” Putin issued a statement that Russia had “confirmed its willingness to supply oil and petroleum products to the US market and global markets at large.”
On 12 October, a bipartisan group of seven US senators released a statement, requesting the Trump administration to change its decision on the deal.
On 15 October, President Zelensky stated that Ukraine would resume its attacks on energy infrastructure, effectively ending the energy ceasefire
What is the background?
1. The high diesel prices and overall crisis
Since the beginning of the US-Iran war in February this year, diesel prices have steadily increased. In September, they reached a record of 6.52 dollars per gallon. The war with Iran and the effective closure of the Strait of Hormuz since March have made it more difficult to transport oil. Additionally, disruptions along the Red Sea shipping routes, the bombing of oil facilities in Saudi Arabia and the targeting of refineries in Russia and Ukraine have played a role in sharply reducing diesel supply. Higher transportation costs have contributed towards the prices increasing and inconveniencing consumers. Several groups that rely on diesel for their day-to-day activities, including truckers and farmers have been particularly disadvantaged. After the war began, US crude oil exports reached a record of 5.6 million barrels per day, and the country briefly became the world’s largest oil exporter. The US exports were primarily to Asian countries like South Korea, India and Japan. However, this also meant that the oil refineries are producing at near maximum capacity. This made it difficult for them to continue meeting the demand.
2. The pressure of the midterms
According to several opinion polls, Trump’s Republican Party will lose its majority in the House of Representatives in the US midterm elections scheduled for 03 November. The party could lose the Senate as well, with polls showing Republicans could lose in strongholds such as Texas and Kansas. Trump’s own approval rating has shrunk to 32 per cent. According to polling from the Pew Research Centre, the economy was the most important issue for 84 per cent of registered voters. A CNN poll in September showed that only 26 per cent approved of Trump’s handling of the Iran war. The continuing conflict and the failure to alleviate the economic crisis appear to have disadvantaged Republicans before the crucial elections.
3. The targeting of energy and oil infrastructure by Ukraine and Russia
Both Russia and Ukraine have carried out regular attacks on energy and oil infrastructure before. Russian airstrikes have shut down the Ukrainian power grid several times over the course of the conflict, damaging civilian facilities and causing power cuts. Russia has targeted with drones and missiles the oil and gas facilities present in Ukraine. For instance, the Kremenchuk Oil Refinery has been regularly targeted. Similarly, Ukraine has carried out long-range drone strikes on oil processing plants which supply energy in Russia. The growing Ukrainian airstrikes prompted Russia to scale up its oil imports, with Belarus and Turkey amongst the countries relied upon. Moscow also reached an agreement with the Kondensat oil refinery in Kazakhstan to process Russian oil outside the country; owing to the continuing strikes on refineries.
4. Trump’s desire for talks with Russia and Zelensky’s assertiveness
Since the beginning of his second term, Trump has shown an inclination towards making a peace deal with Russia. The president has often blamed Ukraine and Zelenskyy in particular for prolonging the conflict. Even before the diesel deal, Trump’s stance towards Russia had sparked concern. Zelenskyy has taken the assertive stance of fighting for Ukraine’s continued independence and remained consistent in his position against Russia. This has helped him garner support from several EU states and Canada, creating a divide with the US.
What does it mean?
First, the growing divide between Ukraine and the US. After Zelensky criticised the diesel deal, Trump called for his removal; and reacted angrily to his decision to restart strikes. With Zelensky and Trump holding opposing viewpoints, there could be growing antagonism. The US has played a key role in Ukrainian security, but a stance more openly in favour of Russia could change the conflict dynamics.
Second, the political and economic ramifications. The amount of oil promised under the deal may not be enough to meet American consumer demands, continuing the economic strains. Additionally, Trump’s deal has sparked criticism across the American political spectrum, including from his Republican party. Due to the traditional antipathy towards Russia and support for Ukraine amongst the American population, the deal could end up having negative political effects for Trump.
Third, the thaw with Russia. For Moscow, the agreement is a significant step away from the sanctions imposed on it by the US after the war. It could be the first move towards closer ties with Washington, and a greater acceptance of its objectives in Ukraine.
Advik Sunanda Mohan is a postgraduate student from SciencesPo, Paris. He is currently interning at the National Institute of Advanced Studies (NIAS), Bengaluru.
Emergency in Pakistan's Khyber Pakhtunkhwa:
Tensions with the federal government, PTI's confrontation, and Disagreements over counterterrorism strategy
Akshath Kaimal
What happened?
On 11 October, Dawn reported that President Asif Ali Zardari imposed emergency and governor’s rule in Khyber Pakhtunkhwa (KP), invoking Articles 232 and 234 of Pakistan’s Constitution. Governor Faisal Karim Kundi was made the leader of the province. The Pakistan Tehreek-e-Insaf (PTI) and the opposition alliance TTAP condemned the decision as unconstitutional and politically motivated.
On 12 October, federal authorities confirmed that KP Chief Minister Sohail Afridi and several provincial leaders had been taken into preventive custody. Meanwhile, security was tightened in Peshawar and Islamabad amid fears of demonstrations linked to PTI’s march.
On 14 October, lawyers in KP boycotted all court proceedings in protest of the move. The Pakistan Bar Council (PBC) condemned the “unconstitutional proclamation of emergency and governor’s rule” in KP.
On 15 October, a joint sitting of Parliament approved the emergency and governor’s rule in KP. The federal government alleged links between the PTI and terror outfits, while the TTAP ended negotiations with the government.
On 16 October, the Peshawar High Court (PHC) fixed 20 October for a preliminary hearing of a petition filed by the PTI chairman challenging the emergency rule in KP.
What is the background?
1. The tensions between KP and the federal government
Relations between KP and the federal government have long been shaped by disagreements over security policy, provincial autonomy and resource allocation. Military operations in Swat and the former Federally Administered Tribal Areas (FATA) caused widespread displacement, while the 2018 merger of the Federally Administered Tribal Areas (FATA) with KP promised stronger constitutional protections and civilian governance. However, the integration of the former tribal districts has brought additional responsibilities without a settled funding arrangement, leaving disputes over federal grants and the province’s share of resources unresolved. The province received PKR 73 billion against a budget allocation of PKR 203 billion during the first ten months of the financial year, worsening the budget shortfall. These tensions also affect local communities, which continue to raise concerns about displacement, delayed compensation, public services and limited consultation over security operations. But Islamabad continues to retain considerable influence over security policy, while provincial institutions bear much of the administrative and social cost. The merger expanded KP’s administrative responsibilities, but disagreements over funding and security authority remain unresolved.
2. PTI’s confrontation with the federation over provincial autonomy, security policy and Imran Khan’s imprisonment
The 18th Constitutional Amendment strengthened provincial autonomy, but national security and defence remain predominantly federal responsibilities. This division has become increasingly contentious since PTI lost power nationally in 2022 while retaining control of KP after the 2024 elections. The dispute extends beyond Imran Khan’s imprisonment to disagreements over counterterrorism operations, provincial decision-making and funding. Islamabad argues that the provincial government has not cooperated adequately with national security institutions. The PTI, on the other hand, maintains that federal intervention undermines its electoral mandate and sidelines provincial authority. The confrontation intensified as Chief Minister Sohail Afridi led a protest march demanding Khan’s release, and negotiations between PTI and the federal government broke down in October 2026. After the federation-imposed emergency and governor’s rule, parliament subsequently endorsed the measures on 15 October. The move has been heavily criticised by the PTI and opposition TTAP. The timing has sharpened questions about whether security concerns and political conflict can be separated.
3. Disagreements over military strategy and counterterrorism
The deterioration in KP’s security situation has become central to the justification for emergency rule, but responsibility for it remains contested. Federal ministers accuse the PTI-led administration of failing to strengthen counterterrorism infrastructure, including forensic laboratories, surveillance systems and the Counter Terrorism Department (CTD). Reported CTD staffing and equipment shortages point to capacity constraints within provincial security institutions. However, the federal government’s claims that the provincial administration deliberately enabled militancy have not been independently verified. Meanwhile, the Centre for Research and Security Studies (CRSS) recorded 556 violence-linked fatalities in KP during the third quarter of 2026, up from 475 in the previous quarter. This rise occurred under a PTI-led government, although it does not by itself prove that provincial policies caused the increase. The crisis reflects both the province’s governance challenges and unresolved disagreements with Islamabad over operational control, resources and counterterrorism strategy.
4. Cross-border terrorism, the TTP and disagreement over the Afghan policy
The return of the Afghan Taliban to power in August 2021 reshaped Pakistan’s security environment, particularly in KP, where the Tehreek-e-Taliban Pakistan (TTP) has intensified its campaign against the Pakistani state. Islamabad accuses the Taliban of allowing the TTP to operate from Afghan territory, but Kabul denies this claim. The breakdown of the TTP’s ceasefire with Pakistan in November 2022 further contributed to escalating violence. The Afghan issue has also become central to the emergency proclamation. Federal officials argue that counterterrorism requires a unified national approach and accuse KP’s leadership of pursuing engagement with the Taliban without adequate coordination with Islamabad. Yet foreign policy and border security largely fall under federal authority, complicating attempts to assign responsibility to the province alone. The emergency therefore highlights the disagreements over negotiations, military operations and relations with Kabul. Whether federal and provincial institutions can coordinate effectively remains a key challenge.
What does it mean?
First, the timing of the proclamation raises concerns over its legality. Condemnation from the legal fraternity, including the Pakistan Bar Council (PBC) and Lahore High Court Bar Association (LHCBA), raises concerns over the timing and legality of the emergency proclamation. If the PHC rules in favour of the PTI in the ongoing plea, it could undermine the federal government’s attempt to take control of the province.
Second, the proclamation is unlikely to stem violence in the province. Disagreements over the security policy have resulted in a chaotic counterterrorism strategy in the province, leading to increased fatalities. Despite the federal government taking control of the province, violence is unlikely to be curbed, as the move has not addressed the core structural issues causing the attacks.
Akshath Kaimal is a Research Assistant at the National Institute of Advanced Studies (NIAS), Bengaluru, and is part of the NIAS Pakistan Reader team.
The IMF's World Economic Outlook 2026:
Five takeaways on Energy security, Investment in AI, and the Limits of resilience
Samraksha Mukund
On 13 October, the International Monetary Fund (IMF) released its World Economic Outlook report: “Resilience Under Strain, Urgent Choices,” revising its prior growth projections. The document contextualised the global economy to three “exceptional sequence of events” such as the COVID-19 pandemic, and the wars in Ukraine and the Middle East, each leading to a sharp rise in the prices of energy and other commodities. The central thesis is this: despite displaying unusual strength, the global economy “could soon test the limits of resilience.”
The following are five major takeaways from the World Economic Outlook Report 2026.
1. The economic slowdown was offset by supply flexibility and diversification
The report points to two sources of resilience; the first being diversification of markets, supply chains, and trade routes, including action by private actors. During the pandemic, for instance, fiscal response included household and corporate cash cushions.
Similarly, during the war in the Middle East, although oil prices almost doubled early on, they later settled at levels only 20 to 40 per cent higher than those before the conflict. The closure of the Strait of Hormuz disrupted 20 million barrels of oil per day. This was offset by rerouted Gulf supplies, a 02 million-barrel per day rise in non-Gulf output, 04 million barrels released from inventories, and a 23 per cent drop in China’s crude imports from March to June 2026. Without this, the oil prices were estimated to be at USD 100 per barrel, much higher compared the actual figure of USD 85 per barrel. Geopolitical risks like the US-China tariff shocks were adjusted by redirecting trade to alternative destinations. The 2025 recall of initially announced tariff rates saw private-sector adaptability drive a pickup in AI-related technology investment.
2. The investment boom in Artificial Intelligence and the “positive demand shock” has added on to resilience
The second source of resilience was said to be investment in artificial intelligence systems. AI addresses short-term growth via exports, investment and capital deepening, while long-term growth is projected through productivity gains. In an operational capacity, experiments show gains in areas including writing, coding, customer service, consulting, advertising and healthcare. On the substantive front, investment in this sector has continued to rise, providing an impetus for global trade activity. Between 2023 and 2025, trade in AI-related goods grew 29 per cent, over triple the 8.3 per cent growth rate of overall global trade during the same period, acting as a major pillar for international commerce. A steep drop in AI investment could lead to a sharp fall in asset prices, cutting global GDP by 1.1 per cent by 2028.
3. The global “economic split” has reinforced asymmetries with the same crisis creating different outcomes
Countries differ in terms of capabilities and exposure to crises, subsequently shaping their experiences of dependence. For instance, AI gains are concentrated in a few economies. Taiwan and Korea account for 62 per cent of net trade in AI-related computing hardware while the US and China together accounted for 75 per cent of their net imports in 2025 while accounting for 57 per cent of new data centers built since 2024. The surge in technology-driven business investment despite potential moderation is expected to keep attracting capital to the United States and sustain large trade surpluses in several production and hardware-based Asian economies. Export-driven asymmetries are projected to remain elevated in 2027, with further increases in trade surpluses in China and other Asian exporters and weaker balances in the United States and the euro area. With this, energy-importing economies with little connection to the technology value chain face “the most difficult configuration”: higher import costs and exchange rate pressures, weaker real incomes, more constrained fiscal space, and fewer offsetting demand impulses.
4. Economies that have diversified show significantly higher resilience
Emerging markets and developing economies face a temporary growth slowdown, with projected growth falling from 4.5 percent in 2025 to 3.7 per cent in 2026 before recovering to 4.4 per cent in 2027. The Middle East faces the sharpest reversal. MENA growth is being projected at 3.8 per cent in 2026, followed by an 8.0 per cent rebound in 2027, reflecting disruptions to energy production and transport and subsequent normalization. Asia, with reduced dependence on the Middle East, retained stronger growth momentum. India and China’s projected growth in 2026 were 7.0 and 4.5 perc ent supported by resilient domestic demand in India and production capability respectively. Higher commodity prices can support exporters, while energy importers face higher costs. Gulf exporters additionally depend on the normalization of maritime trade.
5. The contemporary world economy is “resilient, but uneasy”
A prolonged stalemate or further escalation in Ukraine and the Middle East could keep energy and food prices elevated and volatile, revive inflationary pressures, worsen fiscal and external balances, eventually weighing on growth. Further, disruptions to energy infrastructure, cyberattacks, or extreme weather events could act as multipliers. As the Commodity Special Feature suggests, price increases driven by physical supply disruptions have greater and more persistent macroeconomic effects than those driven by geopolitical risks. These could further intensify inflationary pressures and fiscal vulnerabilities. Meanwhile, cost of living continues to rise despite moderate core inflation, and public debt is on the high with historically large deficits in several major economies. Countries have resorted to a variety of measures to protect households and firms from the fallout in commodity markets, oftentimes not following principles for designing such measures to be targeted, temporary, and nondistortionary.
Samraksha Mukund is an undergraduate student at the Department of International Studies, Political Science, and History at CHRIST (Deemed to be University). She is currently an intern at the National Institute of Advanced Studies (NIAS), Bengaluru.
TWTW Newsmakers
Namrata L Ghanghatkar, Priyanka Makhijani and Urja R Kudalkar
China’s Three-Body Computing Constellation:
Eight new satellites lift orbital AI network to 20, as space computing tests advance
On 15 October Satnews and other major sources reported that the country launched eight more satellites for its Three-Body Computing Constellation. This takes the orbital AI network to 20 satellites. A Zhuque-2E Y4 rocket, developed by commercial firm LandSpace, lifted off at 1940 hrs Beijing time on 14 October from the Dongfeng commercial space innovation pilot zone. It placed 10 satellites into their planned orbits, including two laser-communication test satellites. The eight computing satellites form the second group of ADAspace’s “Star Compute” project, run with Zhejiang Lab. They carry high-performance computing payloads, inter-satellite and satellite-to-ground laser links, and low-light cameras. SatNews said the dawn-dusk orbiters use 10,000-watt liquid-cooling loops with deployable radiator panels to shed computing heat in space. ADAspace plans to build an orbital AI network of 2,800 computing satellites. The first 12 launched in May 2025. China in Space said the constellation has already shown it can task ground robots from orbit and sustain laser links for several days with near-constant uptime. CGTN noted that space-based computing remains an emerging field. Its wider use will depend on how reliably the technologies perform in orbit.
(“China’s Zhuque-2E rocket launches 10 satellites into space,” Xinhua, 14 October 2026; “China launches eight satellites for space-based computing,” CGTN, 14 October 2026; “LandSpace Launches Zhuque-2E Carrying Eight ADAspace Orbital Data Center Satellites,” Satnews, 15 October 2026; “Three-Body Computing Constellation Expands with LandSpace Launch [Zhuque-2E Y4],” China in Space, 14 October 2026)
China's Global Governance Initiative push:
Beijing advances reform agenda through CICA and Xiongan forum
On 15 October, Reuters and other major news sources reported that China advanced its Global Governance Initiative, Beijing's diplomatic push for multilateralism and a reformed, more equitable global governance system, introduced by President Xi Jinping last year. At the Seventh Summit of the Conference on Interaction and Confidence Building Measures in Asia in Baku, Foreign Minister Wang Yi, as Xi's special representative, put forward four proposals: jointly safeguarding peace and stability, promoting prosperity, encouraging mutual learning among civilisations and improving global governance by reinvigorating the United Nations and strengthening capacity in digital governance, disaster response and public health. Foreign minister Wang said Asia rejects Cold War mentality and bloc confrontation. The summit adopted the Baku Declaration, covering international order, AI risks and energy security, and admitted Laos as a member. Analyst Liu Zongyi said China's four global initiatives could guide CICA's transformation into a formal international organisation. China sees the current system as deficient, with the UN Charter not effectively observed and the Global South underrepresented. Next week, the Chinese People's Institute of Foreign Affairs will host the Global Governance Forum in Xiongan from 23 to 25 October, themed on rebuilding trust and confidence, drawing around 180 foreign guests.
("China targets practical action from global governance forum next week," Reuters, 16 October 2026; "Chinese FM attends 7th CICA summit," Xinhua, 16 October 2026; "Chinese FM puts forward four proposals on boosting CICA cooperation," CGTN, 16 October 2026; "7th CICA Summit concludes, Baku Declaration adopted," Global Times, 15 October 2026)
European Union summit exposes policy divisions:
Leaders back Ukraine amid budget, migration and trade disputes.
On 16 October, Euronews and major news sources reported that European Union leaders concluded their Brussels summit without an agreement on the bloc’s long-term budget. Ukrainian President Volodymyr Zelenskyy requested an additional EUR 70 billion in financial and military assistance for 2027. EU leaders reaffirmed support for Kyiv and pledged to maintain sanctions against Russia. They also criticised US President Donald Trump’s diesel agreement with Russian President Vladimir Putin. Trump called Ukraine’s strikes on Russian oil refineries a “disgrace”, while Zelenskyy argued that the agreement financially benefited Moscow. Budget negotiations remained divided between countries seeking to limit national contributions and those defending spending on regional development. European Council President António Costa is expected to present a revised compromise in the coming weeks. Migration also remained contentious. Italy, Denmark and Poland pushed for stronger language against irregular migration, including concerns over Spain’s plan to regularise 600,000 undocumented migrants. Italy and Spain agreed to align their temporary border controls while seeking replacement measures. On trade, leaders urged the European Commission to develop stronger safeguards, including quotas and tariffs, to protect European chemical and machinery industries from Chinese competition. Discussions on energy prices exposed divisions over reforming the emissions trading system, with several countries seeking relief from high electricity costs while Nordic countries defended the system.
("Budget, Ukraine, migration: Five takeaways from the EU leaders’ summit," Euronews, 16 October 2026;"Zelenskiy blasts Trump's diesel deal and calls Russian peace moves a 'parody'," Reuters, 16 October 2026; "21 things we learned at the EU leaders’ summit," politico, 16 October 2026, "Costa angers EU leaders as splits mar summit," Politico, 16 October 2026)
Namrata L Ghanghatkar, Priyanka Makhijani, Urja R Kudalkar are postgraduate students at the Department of Public Policy, Ramaiah University of Applied Sciences. They are currently Research interns at the National Institute of Advanced Studies (NIAS).