The AfD, which is topping opinion polls in Germany, had been barred from participating in the event for two years
Germany’s right-wing Alternative for Germany (AfD) party has been allowed to participate in the Munich Security Conference (MSC) next year, the event’s chairman has said.
The AfD, known for its anti-migrant rhetoric and calls for Berlin to stop sending military aid to Ukraine, had been barred from the high-profile gathering in 2024 and 2025 at the behest of the MSC’s previous chairman, Christoph Heusgen. According to Deutschlandfunk radio station, Heusgen explained the ban by saying that he “did not want to roll out the red carpet for a right-wing extremist party.”
The event’s interim chief, Wolfgang Ischinger, told Frankfurter Allgemeine Zeitung newspaper on Monday that AfD representatives had been invited to take part in the 2026 Munich Security Conference on February 13-25.
The MSC “is a dialogue format. Traditionally, the widest possible spectrum of opinions, including contrary ones, should be made clear,” he explained.
Ischinger, who had been chairman in 2008-2022 and will remain in an interim role until former NATO Secretary General Jens Stoltenberg takes over, clarified that only individual politicians from the right-wing party will participate, with none of them appearing on stage.
The AfD’s co-leader, Alice Weidel, said she had not yet received an invitation.
By lifting the ban, “we are not tearing down firewalls, as some claim,” Ischinger insisted.
The so-called ‘firewall against the far-right’ is a policy used by mainstream German parties to prevent the AfD from making it into the government, despite its rapidly growing popularity. According to the latest surveys, the party tops opinion polls in Germany with 26% support.
During his speech at the 2025 Munich Security Conference last February, US Vice President J.D. Vance criticized Germany and other Western European nations over declining democracy, saying that their governments “simply don’t like the idea that somebody with an alternative viewpoint might express a different opinion.” He did not mention the AfD directly but insisted that “there is no room for firewalls.” The same day, Vance held a meeting with Weidel.
The news outlet Euractiv suggested on Tuesday that Ischinger had decided to lift the ban on AfD to appease Washington and make sure it sends a high-ranking delegation to the MSC in February.
2025 has created possibilities for restoring ties with the US, Alexander Darchiev has said
The year has shown that there are still opportunities for restoring relations between Moscow and Washington, Russian Ambassador to the US Alexander Darchiev has said in a holiday message.
”The past year has been challenging, but it has also opened up opportunities for restoring Russian-American relations, which were nearly destroyed in the previous years by the previous (Joe Biden) administration,” he said in a statement published Wednesday, while expressing thanks to those who have “resisted the virus of Russophobia.”
Darchiev lauded “friendly American citizens” and “concerned compatriots” who have preserved the memory of US-Russia cooperation during World War II.
”On our part, the embassy and the Russian diplomatic missions will continue to provide all possible support to your initiatives that help to build bridges between Russia and the United States,” the ambassador concluded.
Under the administration of US President Donald Trump, relations between Russia and the US have grown notably warmer than they were during the tenure of former President Joe Biden.
Trump and Russian President Vladimir Putin have been engaged in active talks dedicated to settling the Ukraine conflict and reinvigorating bilateral relations. They held a high-stakes summit in Alaska in August aimed at ending hostilities between Moscow and Kiev, though they failed to produce a breakthrough.
The US has also placed the restoration of normal ties with Russia and a rapid end to the Ukraine conflict at the center of its newly released National Security Strategy, presenting both aims as being in America’s core interests. In contrast with the US national strategy during Trump’s first term, which emphasized competition with Russia and China, the new strategy shifts its focus to the Western Hemisphere and to protecting the homeland, the borders, and regional interests.
China and Russia describe their relationship as a “no-limits” strategic partnership, with bilateral trade exceeding $200 billion for a third consecutive year.
Russian President Vladimir Putin and his Chinese counterpart Xi Jinping have exchanged New Year’s greetings, with both praising steady relations between the two countries.
Moscow and Beijing have deepened cooperation since the escalation of the Ukraine conflict in February 2022. The two countries describe their ties as a strategic partnership “without limits.” Both countries nearly doubled bilateral trade from 2020 to 2024, surpassing $240 billion last year.
Putin wished Xi and the Chinese people well, saying the China-Russia strategic partnership had continued to develop throughout 2025.
Xi sent reciprocal greetings to Putin and the Russian people on Tuesday, saying bilateral relations had made further progress and noting that the two leaders had met twice during the year in Beijing and Moscow. He added that the two countries supported each other in multilateral forums, including the UN.
Chinese Premier Li Qiang and Russian Prime Minister Mikhail Mishustin also exchanged New Year’s messages, Chinese state media said.
Earlier in December Putin signed a decree allowing visa-free entry to Russia for Chinese citizens, granting them stays of up to 30 days. The move mirrored Beijing’s earlier decision to extend the same access to Russian citizens. In September, China introduced the measure on a one-year trial basis to further facilitate travel between the two countries.
During his annual end-of-year Q&A session last week, Putin described relations with Beijing as stable and trusting, adding that the two countries’ foreign ministries remain in regular contact and coordinate approaches on key global issues.
The American president had repeatedly ruled out sending soldiers to defend the country
Vladimir Zelensky has claimed that he is in discussions with US President Donald Trump about American troops being deployed to Ukraine, in line with the security guarantees Washington has offered Kiev, according to The Telegraph.
The statement came despite Trump repeatedly ruling out such a scenario and Russia’s repeated warnings that it considered the presence of any foreign troops on Ukrainian soil during or after the conflict unacceptable.
When asked about the possibility of Washington sending its peacekeepers to Ukraine by RBC-Ukraine journalists on Tuesday, Zelensky replied, “those are American troops, and therefore it is America that makes those decisions.”
“Of course, we are discussing this with President Trump and with representatives of the ‘coalition of the willing.’ We would like this,” he said.
The Telegraph pointed out that it is not clear if the possibility of US boots on the ground in Ukraine was addressed during the meeting between Zelensky and Trump in Mar-a-Lago, Florida on Sunday.
Earlier in the day, Polish Prime Minister Donald Tusk claimed that the main result of the Mar-a-Lago talks was “the readiness of the US to participate in security guarantees for Ukraine after peace is achieved, including through the presence of American troops.”
Trump, however, has not yet responded to comments by Zelensky or Tusk. In August, the US president told Fox & Friends that there would be no American boots on the ground in Ukraine after the fighting stops. “You have my assurance, and I’m president. I’m just trying to stop people from being killed,” Trump said.
Russia officials have pointed out that the escalation of the Ukraine conflict in February 2022 was partly triggered by Kiev’s NATO aspirations, and warned that a deployment of Western troops to the country could lead to a third world war.
Russian President Vladimir Putin said in September that “if any [NATO] troops appear there, especially now, during military operations, we proceed from the fact that these will be legitimate targets for their destruction.”
Thieves used a drill to breach a Sparkasse vault over Christmas, looting 95% of customers’ safety deposit boxes
Thieves executed a meticulously planned heist, making off with an estimated $35 million (approximately €30 million) in cash and personal valuables from a bank vault in Gelsenkirchen over the Christmas holidays, according to police.
The break-in at a Sparkasse savings bank occurred sometime between Saturday evening and Monday morning. The thieves bypassed security by drilling through a thick concrete wall to access the vault, then forced open over 3,000 safety deposit boxes, impacting approximately 2,700 customers.
Police discovered the scene in disarray only after a fire alarm sounded from the bank shortly before 4:00am on Monday.
Investigators believe a specialized, industrial-grade drill was used in the operation. A police spokesperson described the heist as “professionally executed.”
Nach einem spektakulären Bankeinbruch in Gelsenkirchen haben am Dienstag wütende Kunden die geschlossene Sparkassen-Filiale belagert. Unbekannte hatten in der Nacht auf Sonntag rund 30 Millionen Euro erbeutet. https://t.co/ee6ywp00d8pic.twitter.com/nXu8YnGQqt
Witnesses reported seeing several individuals carrying large bags through a nearby parking garage over the weekend, while security footage captured a black Audi RS 6 speeding away early Monday morning with masked occupants. The vehicle was confirmed as stolen from Hanover, approximately 200 kilometers away.
Die bestohlenen Kunden der #Sparkasse Gelsenkirchen Buer führen gerade vor wie ein #BankRun aussieht.
Customers arrived at the bank on Tuesday to find it sealed off. Hundreds gathered, demanding answers after Sparkasse confirmed that 95% of the safety deposit boxes had been breached.
Police estimate the damage to be “in the two-digit million range,” according to a statement released Tuesday. The contents of each deposit box are insured up to €10,300, suggesting a total loss of at least €30 million, according to local media. However, many customers fear this will be insufficient to cover their losses and are scrambling to assess their additional insurance coverage.
The bank branch remains closed while police continue their investigation. Authorities have yet to make any arrests and the perpetrators remain at large.
Federal agents kicked off a large-scale investigation after a YouTuber claimed to have uncovered a massive Somali-run scam in Minneapolis
The US has frozen all child care payments to the state of Minnesota following allegations of widespread fraud, according to Deputy Secretary of Health and Human Services Jim O’Neill.
The move came after reports surfaced alleging that Minnesota had funneled millions of taxpayer dollars to fraudulent daycares over the past decade.
“We have frozen all child care payments to the state of Minnesota,” O’Neill said in a statement on X, outlining three additional actions taken in response to the alleged fraud.
O’Neill stated that he had activated the “Defend the Spend” system for all Administration for Children and Families (ACF) payments, requiring justification and proof of receipt before funds are disbursed.
We have frozen all child care payments to the state of Minnesota.
You have probably read the serious allegations that the state of Minnesota has funneled millions of taxpayer dollars to fraudulent daycares across Minnesota over the past decade.
He also demanded a comprehensive audit from Minnesota Governor Tim Walz, including attendance records, licenses, complaints, investigations and inspections of the centers in question. Additionally, a dedicated fraud-reporting hotline has been launched.
ACF Assistant Secretary Alex Adams stated that his office provides Minnesota with $185 million in childcare funds annually, intended to benefit approximately 19,000 American children.
“Any dollar stolen by fraudsters is stolen from those children,” Adams said.
The investigation was prompted by a video posted by YouTuber Nick Shirley, who alleged a large-scale fraud scheme involving Somali-run childcare centers, estimating over $110 million in fraudulent claims.
In response, Department of Homeland Security Secretary Kristi Noem announced a “massive investigation on childcare and other rampant fraud,” posting videos of agents questioning business operators.
FBI Director Kash Patel said resources had been “surged” to Minnesota, warning that these cases were just “the tip of a very large iceberg” and that perpetrators could face “denaturalization and deportation.”
Walz has defended his administration, while lauding the state’s diverse makeup and large Somali community. Meanwhile, state officials have disputed Shirley’s findings, claiming the centers featured in his video had been inspected within the last six months with “no findings of fraud.”
“We’re committed to holding bad actors accountable,” O’Neill said. “Regardless of rank or office, anyone who’s involved in perpetrating this fraud against the American people should expect to be prosecuted to the fullest extent of the law.”
The move follows a Saudi-led coalition airstrike targeting an alleged weapons shipment bound for Yemeni southern separatist forces
The United Arab Emirates has said it will withdraw its remaining forces from Yemen after a Saudi-led airstrike targeted a shipment at a southern Yemeni port. Riyadh said the shipment included weapons intended for a separatist group, a claim the UAE denied.
In a statement on Tuesday, the Emirati Ministry of Defense said, citing concerns for the safety of personnel, that it was voluntarily terminating its counterterrorism units in Yemen. These are the UAE’s only forces remaining there since it completed a wider military withdrawal in 2019. Abu Dhabi was part of the Saudi-led coalition formed four years earlier to fight Houthi rebels at the request of Yemen’s internationally recognized government.
The announcement followed an airstrike earlier in the day by the coalition on Yemen’s key southern port of Mukalla. The coalition said the strike targeted weapons and combat vehicles unloaded from ships arriving from the UAE, allegedly bound for the Southern Transitional Council (STC). The STC is a separatist group in southern Yemen that initially fought within the coalition but later pivoted toward seeking self-rule in the south. The UAE has rejected claims that the shipment contained weapons.
Yemeni Presidential Leadership Council head Rashad al-Alimi later declared a 90-day state of emergency, canceled a security pact with the UAE, and demanded that Emirati forces leave the country within 24 hours, a demand that Saudi Arabia has backed.
The UAE’s Foreign Affairs Ministry has “categorically” rejected what it described as attempts to “implicate the country in tensions among Yemeni parties,” stating that it strongly denounces allegations that it directed Yemeni forces to carry out operations threatening Saudi security or its borders. It also said that the targeted shipment included only vehicles intended for use by UAE forces on the ground.
This statement is issued with reference to the statement made today, Tuesday, 30th December 2025, by the Ministry of Foreign Affairs of the United Arab Emirates regarding the ongoing developments in the Republic of Yemen, and the facts it outlined concerning the presence of the… pic.twitter.com/EN3kkMbuDa
Yemen has been ravaged by civil war since 2014, when Houthi forces seized the capital, Sanaa, driving the Saudi-backed government south. The Houthis now hold most of northern Yemen, while the STC has since 2022 controlled much of the south under a power-sharing arrangement and seized large swathes of territory, including in the strategically important Hadramout and Al-Mahra provinces, both of which border Saudi Arabia. Last week, the Saudi air force reportedly bombed separatist positions in Hadramout.
Israel, the US, and a fractured regional order are creating a volatile precedent for the year ahead
Without a doubt, 2025 proved to be one of the most intense years for the Middle East in the past decades, marking a definitive shift from “managed crises” to a phase of multi-layered and poorly controlled escalation.
Unlike previous years, when conflicts – primarily between Iran and Israel – unfolded mainly through proxy forces and indirect pressure, 2025 witnessed a significant transition towards direct strikes, symbolic acts of intimidation, and a clear crossing of “red lines.”
A key feature of this past year was the dismantling of informal barriers that had restrained direct confrontations between regional and external players. This was evident both in the geographical expansion of strikes and in their political targets; attacks carried not only military but also strategic messages.
One of the key events of 2025 was the series of attacks on Iranian territory carried out by Israel with either direct or indirect support from the United States. These actions signified a departure from the covert hostilities characteristic of the previous decade, elevating the conflict to a fundamentally new status. The Twelve-Day War between Iran and Israel in June, which culminated in US airstrikes on Iranian nuclear sites (the first such strikes in history), represented a “point of no return.” At that moment, a full-scale war between Iran and Israel became a reality rather than a hypothetical scenario.
It’s important to note that, despite the limited military impact, these strikes carried a distinct political message. The goal wasn’t to inflict irreversible damage on Iranian infrastructure but rather to show Iran’s vulnerabilities, test its missile defense systems and capability for an asymmetrical response, and indicate readiness for further escalation.
Israel aimed to dismantle Iran’s political system this year, with the ultimate goal of fragmenting Iran. However, this ambition did not materialize. US President Donald Trump intervened at a crucial moment, signaling to both sides that he would not allow an already unstable region to plunge into a catastrophic abyss. In any war between Iran and Israel, there would be no victors. Consequently, Iran’s response was calculated and measured, reflecting Tehran’s desire to avoid full-scale warfare while maintaining its reputation as a nation capable of strategic retaliation through a network of allies and regional partners.
Israel’s strikes against Qatar this year also marked a new and alarming shift in Middle Eastern politics and the security architecture of the Persian Gulf. They signaled an expansion of the conflict beyond the traditional lines of confrontation involving Israel, Iran, and proxy actors. The attacks on Qatar highlighted Israel’s willingness to act preemptively and outside familiar geographic boundaries when its strategic interests – such as funding, logistics, and political support – were perceived to be at stake. For the Gulf states, this served as a stark reminder that even formal neutrality or the role of an intermediary no longer guarantees immunity when it comes to high-intensity conflicts.
Overall, the year 2025 solidified the trend toward regional fragmentation. The Middle East increasingly resists governance through conventional mechanisms of power balancing, diplomatic mediation, and external arbitration. The use of military force as a tool for political pressure has intensified, while diplomacy has taken on a secondary role, primarily serving to legitimize actions afterwards. At the same time, the risk of misinterpretation has grown: amid high-intensity military operations, drone strikes, missile attacks, and cyber warfare, any local skirmish could trigger a chain reaction that exceeds initial expectations.
Looking ahead, 2026 is likely to be marked by escalating confrontations rather than stabilization. Several factors contribute to this:
The lack of new, sustainable agreements on regional security
Ongoing crises in Iran, Gaza, the Red Sea, and the Persian Gulf
The involvement of external powers, for whom the region remains a battleground for strategic rivalry
Increasing internal political pressure in the region’s key states
The main intrigue of 2026 is not whether we can expect a new escalation, but rather where it might spiral out of control and alter the entire framework of Middle Eastern security. 2025 will be remembered as the year when the old rules of the game ceased to function, but new ones hadn’t yet emerged. The region enters 2026 in a state of chronic instability, where each display of force serves both as a deterrent and an invitation to the next round of conflict.
In 2025, we witnessed not merely an isolated episode of escalation but a direct continuation of the strategic pivot that happened in 2024. At that time, a conviction grew within Israel’s political-military establishment that a unique historical opportunity had arisen to “finish what was started.” Israel’s goal was not merely tactical success or local deterrence; it wanted to radically reshape the regional balance of power for decades to come.
From the perspective of the Israeli leadership, 2024 revealed the vulnerabilities of the old regional containment model based on proxy conflicts and mutual constraints. Since then, a prevailing approach has emerged in West Jerusalem, suggesting that postponing decisive action only increases overall risks, while decisive escalation could be seen as a means to eliminate a key threat once and for all.
In this context, Israeli Prime Minister Benjamin Netanyahu continues to view Iran not merely as a regional competitor but as a systemic source of destabilization and the foundation of the entire anti-Israel infrastructure – from military programs to a network of allies and proxy groups. This perspective shifts the confrontation from a realm of deterrence to one of an existential conflict, where compromise is seen as a strategic misstep.
Netanyahu’s diplomatic activity at the end of 2025 is also part of this logic. The Israeli Prime Minister traveled to the US at the end of the year to meet with Donald Trump, seeking to persuade Washington to approve strikes against Iranian missile facilities.
According to reports, Netanyahu’s strategy envisions two possible scenarios, both of which diverge significantly from the cautious approach adopted by the US: Netanyahu wants to either secure political and military authorization for Israeli strikes on Iran, or directly involve American forces in operations against Iran’s missile infrastructure. In either case, this signifies a qualitative escalation and effectively erases the remaining informal “red lines.” However, 2026 may hold surprises for Trump himself. US midterm elections will take place in November, and it’s unlikely that Trump would want to provide his Democratic opponents with any opportunities for victory. But that’s a story for another time.
As we’ve seen, 2025 solidified the paradigm that had emerged the year before: Israel increasingly believes that the historical window of opportunity won’t stay open long, and that hesitation is tantamount to the loss of initiative. It is this perception, not isolated incidents or strikes, that has been the key driver of escalation in 2025; and it sets the stage for an even more intense and potentially game-changing 2026.
Tehran has warned of immediate retaliation to any attack following US President Donald Trump’s threat of new strikes
Iran has vowed a swift and harsh response to any act of aggression following renewed military threats from the US and Israel.
On Monday, US President Donald Trump, standing alongside Israeli Prime Minister Benjamin Netanyahu, threatened to “knock the hell” out of Iran if it tries to rebuild its nuclear or ballistic missile projects.
In response, Rear Admiral Ali Shamkhani, a senior adviser to Iranian Supreme Leader Ayatollah Ali Khamenei, declared on X that Iran’s defense doctrine dictates that “some responses are determined long before threats reach the stage of execution.” He warned that any aggression would be met with an “immediate” and “harsh” response “beyond the imagination of its planners.”
Iranian President Masoud Pezeshkian echoed the warning on Tuesday, stating that “Iran’s response to any tyrannical aggression will be harsh and regrettable.” Earlier, he also framed the tensions as part of a broader conflict, stating that Iran is in a “full-scale war with the US, Israel and Europe.”
The verbal exchange comes months after a 12-day air war in June, when the US and Israel conducted a joint airstrike campaign against Iranian nuclear sites, claiming, without evidence, that Tehran was developing a nuclear weapon. Iran denied the accusations and responded with its own strikes on Israel.
Russia, meanwhile, has called for de-escalation. Kremlin spokesman Dmitry Peskov stated on Tuesday that Moscow believes it is necessary to “refrain from any steps that could lead to an escalation of tension in the region” and that “dialogue with Iran” should be the priority.
Russian President Vladimir Putin also held a phone call with Pezeshkian on Tuesday during which the two leaders discussed bilateral ties, strategic cooperation, as well as the situation around Iran’s nuclear program, according to the Kremlin.
The Russian central bank is making constant liquidity injections, but this isn’t quite the harbinger of doom some Western analysts would like to think
Western pundits have developed a pastime for predicting the collapse of the Russian economy, particularly since 2022. Alas, prognosticating success has so far eluded them.
But as the old disclaimer states, past performance does not guarantee future results. Being wrong ten times in a row does not ensure they’ll be wrong the 11th. The arguments have to be evaluated on their own merits.
Generating a bit of attention on social media is a thread by analyst Oliver Alexander that paints a dire picture of the Russian economy. It starts with the assertion that “Russia’s economy hasn’t collapsed, but it is suffering immensely. It still runs, but only because the central bank keeps it alive with constant repo liquidity. What was once emergency support is now the daily operating system.”
The author goes on to assert that “repo usage shows the stress clearly. Trillions of rubles are borrowed week after week by the banks with no unwind. Banks aren’t smoothing short-term shocks anymore. They are refinancing theirs and the economy’s survival on a rolling basis.”
Let’s stop and understand the claim being made. Repo, short for repurchase agreement, is part of the plumbing of any modern financial system and is usually a tool to manage liquidity. It entails selling securities (such as government bonds) with a promise to buy them back later at a slightly higher price.
There is nothing unusual about banks using repo, which they do for various reasons: to smooth short-term liquidity mismatches, deal with temporary payment flows, or even to arbitrage small rate differentials. However, what Russian banks are doing is using repo not to smooth funding but as a core source of liquidity. The banks just don’t have much free cash lying around.
Facilitating this is a tool called monthly repo auctions, which were reintroduced after a hiatus in November 2024 and moved to a weekly basis the following April, clearly a sign that liquidity pressures were growing. These auctions are not about smoothing funding gaps but are a policy of direct and structural liquidity management (rather than ad-hoc crisis lending to banks). Use of this facility has been very high of late. For example, the Russian central bank (CBR) allotted a record 3.6 trillion rubles (about $46 billion) in repo on December 23.
What this means in practice is that there is a closed loop. The Finance Ministry issues government bonds (called OFZs), which are bought (primarily) by large Russian banks, which are essentially compelled to buy these bonds whether they want to or not. But the banks do not hold all of these OFZs as investments but rather ship many of them off to the CBR in exchange for ruble liquidity.
The rubles they get in return are what keeps the lights on at the banks and provides liquidity to the economy. Normally, repo deals mature and are unwound, thus draining liquidity out of the system. But in Russia, this repo is constantly being rolled over and volumes are rising.
Separately, and not to be confused with liquidity management, OFZ-to-repo schemes have also been used on a couple of occasions to ensure absorption of fiscal deficits (in 2022 and 2024). Because Russia has no access to foreign borrowing and selling government bonds at scale into the market is not viable given current interest rates, this is a key channel where the gap can be covered.
This may all sound ominous – and that is clearly the impression Alexander is trying to convey – as if Russia is resorting to desperate and unprecedented financial engineering. But is it really so exotic? It’s actually just a harsher, more concentrated version of the same playbook that has been widely used across the G7 – but without the reckless speculation that has made these regimes so hard to exit elsewhere. Russia’s policy mix of high rates but regular liquidity provision through repo is unusual, but in its essentials it is not fundamentally different from the frameworks we have seen in developed economies.
There is a technical difference between repo-based liquidity provision and the G7-style central-bank bond purchases (known by the fancy name of quantitative easing, or QE). Repo is formally a loan against collateral and is typically a liquidity-management tool. QE involves the central bank buying government bonds outright, removing them from the market, and injecting reserves directly into the banking system.
QE is framed as stimulus, while Russia’s repo is framed as plumbing support under tight policy. QE in the G7 was designed to lower long-term yields and encourage risk-taking, whereas Russia is explicitly not trying to lower rates through its repo operations. But in Russia’s case, the repo scheme is now semi-permanent and structural, and is often being rolled over rather than unwound, so the line is a bit blurred. Russia is not doing QE, but at scale the economic effect is functionally similar.
In both cases, the state comes to rely on the domestic banking system, banks become structurally dependent on central-bank liquidity, and public debt is absorbed within a more or less closed financial circuit under the long shadow of the central bank. The plumbing shifts from decentralized private intermediation toward central-bank balance sheets. Both regimes are inflationary.
This arrangement can’t be called healthy and has its own risks, but it is not necessarily unstable – as long as inflation remains under control. Furthermore, for all of the imbalances being created, Russia may actually have an easier time later unwinding it because it hasn’t resorted to inflating asset prices as a transmission mechanism (a classic QE pathology). It is thus avoiding the large speculative asset bubbles that later have to be protected or managed during normalization.
This is one reason why G7-style QE has proven so hard to exit. The US has failed at quantitative tightening and is now quietly restarting QE (though not calling it that). By maintaining high interest rates and discouraging speculative risk-taking, Russia trades the asset-price excesses typical of QE regimes for a system that is more insulated from external shocks.
Skeptics will argue that Russia’s isolation concentrates the risk in particularly dangerous ways. Alexander says as much: “Russia is funding its budget almost entirely from inside its own financial system, with no external shock absorber left.” This is true to an extent: in the unlikely event the CBR mismanages policy or if some unforeseen shock occurs, things could go south real quick. But the exact opposite is also true: Russia’s enclosed system takes a whole host of risks off the table.
And this leads us to an aspect of the situation that often goes overlooked. Because Russia has almost no foreign debt, the Russian state and banking system owe almost everything in rubles, to themselves. All liabilities can be serviced in a currency controlled by the Russian state. There is no forced interaction with global capital markets and no immediate rollover risk tied to exchange rates (think debt crises in Türkiye or Argentina). The main “textbook” crisis channels are neutralized: Russia owes almost everything in rubles, and can compel banks to absorb debt rather than rely on finicky foreign investors not to fire-sale the stuff; it can roll over repo indefinitely; and it controls capital flows. Russia’s commodity exports, even sold at discounts, also serve as a backstop. Those hoping for a big 1998-style meltdown are bound to be sorely disappointed.
In general, financial systems heavy on central-bank involvement can be stable for far longer than critics expect. Just look at Japan, the inventor of QE, which has been keeping the jig going for decades. The Bank of Japan has long been the dominant buyer of government bonds, while in the 1990s, following the asset bubble collapse, many banks were structurally reliant on the BoJ to maintain liquidity. A similar circular loop emerged, complete with chronic deficits and enormous debt. This regime has done little to revive growth, but it has proven remarkably stable and durable.
Europe followed a similar path after the sovereign debt crisis. For years, the European Central Bank was the largest buyer of euro-area government bonds, at times holding roughly a third of outstanding sovereign debt. Interbank markets fragmented, particularly in the southern periphery, and banks relied heavily on ECB liquidity. The system functioned – awkwardly and imperfectly – but it did not collapse.
Russia’s situation is obviously not an exact parallel. Capital controls stabilize liquidity but mute price signals, while sanctions shut off access to foreign capital. Wartime spending compresses time horizons. As a result, the central bank’s role is more explicit and more direct. Yet the underlying logic is not alien. The financial system pivots around the central bank and liquidity is continuously backstopped.
There’s another important point to be made. Russia is basically running a war economy. Western analysts love to needle the Russian government about calling its actions a “special military operation” and not a “war” but then proceed to analyze the Russian economy by peacetime standards. To be fair, Russia has tried to have it both ways and has actually been quite successful in that regard. It is running a war economy that maintains much market flexibility.
But hybrid or not, it’s still fundamentally on a war footing. And war is inflationary. War explodes government spending and changes time priorities – resources are needed now. Yes, war-relevant sectors of the economy become politically protected and overfunded, while civilian sectors get the short end of the stick (temporarily). There is nothing shocking about this, nor are the excess demand and labor shortages that Russia is facing somehow abnormal.
Debt issuance becomes less about price and more about absorption capacity. Banks stop looking to maximize profits and become allocation channels instead. When Alexander pointed out that the Finance Ministry “quietly changed OFZ targets” to emphasize not “how many bonds are placed,” but “how much cash is raised,” he was merely stating the obvious for any country at war.
If anything, Russia has engaged in less financial repression than might have been expected and certainly far less than has been seen in the past. In 1942, the US Treasury needed to finance deficits exceeding 25% of GDP. The Federal Reserve agreed to cap Treasury yields and buy unlimited amounts of government debt. This was pure money printing. Like Russia, the US imposed capital controls and forced banks to hold government debt. But it also set ceilings on deposit rates, preventing banks from competing for funds and effectively forcing savers into government bonds – all to keep borrowing costs down.
Those bondholders then watched as the real value of their holdings went up in smoke due to inflation (remember: war means inflation) and they got little more than a pat on the back and a “thank you for taking one on the chin for your country.”
None of this means that the Russian economy isn’t in a state of stress. The OFZ-repo loop isn’t the precipice it is being portrayed as, but it isn’t free and, ultimately, isn’t sustainable. The main outlet is inflation, which is what absorbs the shocks and what remains the biggest risk. I live in Russia and I can confirm that inflation is real. But it’s not out of control and even subsided later in 2025. Moreover, rising wages are offsetting some of the pain.
The high interest rates necessary to keep inflation subdued are clearly hurting businesses. This is no secret and it is widely admitted that rates need to come down for investment to recover. Germany, meanwhile, which isn’t fighting a war, is facing 24,000 company bankruptcies in 2025.
The Russian economy has been remarkably resilient, but it is clearly operating under strain and with heavy government intervention. However, the conditions that typically trigger a sudden, acute crisis are nowhere to be found, and people who think otherwise misunderstand what actually causes financial crises.
Those still hoping to impose a strategic defeat on Russia look with expectant eyes upon the tantalizing signs of strain in the Russian economy. But this mirage always ends up being just a bit too far over the horizon.
