US credit rating downgraded, $1T in Gulf state investments in the US, Kurdistan Workers’ Party disbanded | Global Risks Weekly Roundup #20/2025

Moody’s downgraded the US credit rating, Gulf states agreed to more than $1T in US investments and joint enterprises during a visit by Trump to the Middle East...

Executive summary

Moody’s downgraded the US credit rating as the US budget deficit grows and US borrowing costs rise. House Republicans are advancing a budget that would increase the deficit further. Meanwhile, China is reducing its holdings of US Treasuries and its dependencies on foreign components in its supply chains as it seeks to de-risk its economy from the US and the West.

Google announced a new coding agent, AlphaEvolve, that has creative problem-solving abilities. Gulf states agreed to more than $1T in US investments and joint enterprises during a visit by Trump to the Middle East, including joint AI ventures. Forecasters estimated a 28% chance (range, 25-30%) that the US will pass a 10-year ban on states regulating AI by the end of 2025.

Negotiations between the US and Iran continue. Iran has signaled willingness to limit uranium enrichment and allow inspections in exchange for sanctions being lifted. Forecasters estimated that there is a 46% chance (range, 40%-50%) that the US and Iran will sign an agreement about Iran’s nuclear program by the end of August.

The ceasefire between India and Pakistan is holding. The Kurdistan Workers’ Party (PKK) in Turkey has officially disbanded. Israel has launched a new, major offensive in Gaza. Putin did not attend the first direct ceasefire talks with Ukraine since early in the war.

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Economy

Moody's downgraded the US credit rating from a perfect Aaa to Aa1, one notch lower, because of the country’s large deficits and interest costs. Moody’s was the last of the three main credit rating agencies to downgrade the US credit rating. On Monday, Treasury yields rose, and stocks and the dollar fell, following the news.

The Yale Budget Lab estimates that the average effective tariff rate on US imports is 17.8%, the highest since 1934. A month ago, before tariffs were lowered on Chinese goods, the group estimated that the effective tariff rate was 28%, the highest since 1901.

After restricting exports of rare earth metals in early April, China has started to allow some shipments of rare earths. However, if more shipments aren’t allowed soon, many manufacturers will find themselves in a pickle. In late April, the FT reported that government officials and business leaders estimated that inventories would last between three and six months and that businesses would try to find alternative sources to stockpile; while at least some large companies have secured such stockpiles or stable supplies, most are sweating bullets, because there just aren’t enough alternative sources to go around. “What I’m witnessing on the ground is that there is really incompetence; they underestimated what the impact would be and what you would need to prepare at the working level,” relays the FT.

Chinese companies are seeking to source increasing percentages of components domestically, in a move to reduce the dependency of its supply chains on foreign parts.

China fell from the second-largest foreign holder of US Treasuries to the third-largest, after Japanese and UK investors, as the country continues to de-risk from US assets.

Source: US Department of the Treasury, via FT

Shale production in the US is expected to decline, despite Trump’s goal of increasing drilling. Crude oil prices remained just over $60/barrel last week, too low to support an increase in exploration and drilling. The energy sector is in the midst of a protracted decline. This is good news for the environment.

​​Geopolitics

United States

The Supreme Court has temporarily blocked the Trump Administration from using the Alien Enemies Act to deport Venezuelans.

House Republicans are working on next year’s budget. Last week, House Republicans released a budget that included at least $880B in cuts, largely to Medicaid (health insurance for the poor), towards the cost of $4.5T in tax breaks that would disproportionately benefit those with the highest incomes. The Congressional Budget Office estimates that 10.3M people would lose their health insurance with the proposed cuts and that 7.6M people in the US would go uninsured. However, on Friday, House Republicans failed to pass the bill through the House Budget Committee, largely because some conservative members want deeper cuts to Medicaid and reductions in green-energy tax breaks. A number of Senate Republicans have also said that they would not vote for the House Republican package as it stands or that they have concerns; Republican Senator Josh Hawley of Missouri, opposes the Medicaid cuts, calling them “morally wrong and politically suicidal.”

The Trump administration has legalized the sale of forced reset triggers, which are devices that allow a standard semiautomatic weapon to fire like a machine gun. In addition, a provision tucked into the House budget bill would end a $200 fee enacted in 1934 to buy and register a firearm silencer.

FEMA has not completed its disaster-response planning for hurricane season, which runs from June 1 to November 30.

Two US airports, in Newark, NJ and Denver, CO, experienced air traffic control problems due to radar outages and understaffing.

Europe

Last week, Putin risked annoying Trump when he called for talks in Istanbul but then didn’t attend, instead sending a low-level delegation. In contrast, Zelensky went to Turkey and agreed to negotiate without preconditions. This may benefit Zelensky if he, together with European leaders, is able to convince Trump that Putin lies and is the main obstacle to peace in the region. US Secretary of State Marco Rubio said there would probably be no progress before Trump has a face-to-face meeting with Putin. European leaders condemned Putin’s actions and are finalizing a new, 17th sanctions package.

German police have arrested three men over an alleged Russian parcel bomb plot.

Macron is open to deploying French nuclear weapons in Europe.

Estonia tried to detain a vessel in Russia’s shadow fleet but did not succeed, and a Russian SU-35 fighter arrived to escort the vessel. In some sense, Estonia may have been legally in the right, as “the ship was positioned just south of the neutral waters boundary — within Estonia’s territorial waters”. But Estonia lacked the muscle to enforce its boundary.

Pro-EU, pro-NATO and pro-Ukraine moderate Nicuşor Dan won the Romanian presidential elections. Dan defeated far-right anti-EU/NATO/Ukraine revanchist candidate George Simion by a margin of 7.2%. The president of Romania has limited domestic power but commands the armed forces and helps to set foreign policy. Romania is the closest NATO country to the frontlines of the war in Ukraine and provides logistical support. If Simion had won, there would have been an uninterrupted chain of Russia-leaning countries from the Black Sea to the border of Poland, including Orban’s Hungary and Fico’s Slovakia.

UK PM Keir Starmer said that he plans to reduce net immigration to the UK by introducing new immigration rules. He plans to ban recruitment of care workers from other countries, raise the qualification requirements for skilled worker visas, and raise the costs that employers pay to sponsor workers to come to the UK. Last year, net migration to the UK was 728k; net migration peaked at 906k in June 2023.

Asia

The ceasefire between India and Pakistan is holding. Pakistan has offered to discuss specific terms of a critical water treaty between the two countries about which India has raised concerns.

Indian PM Modi has outlined a harder stance against terrorists: that any terrorist attack on India will be met with a strong and decisive response; that India will not tolerate “nuclear blackmail” and will respond with precise strikes; and that there will be no distinction between terrorist groups and their sponsors.

Baloch rebels claim that they have conducted 71 attacks on Pakistani forces in 51 locations, as part of its ongoing Operation Herof.

The IAEA says that there was no radiation leak from any Pakistani nuclear facility, despite reports claiming that Indian airstrikes had damaged a nuclear stockpile.

Middle East

More than 30 US business leaders joined Trump on his visit last week to the Middle East. Trump secured a $600B investment deal with Saudi Arabia that includes a $142B arms package for the country. The agreed amount is in line with an announcement by Saudi Arabia in January that the country planned to invest approximately $600B in the US.

At least four US F-15 planes have deployed to Diego Garcia, joining four B-52s. While B-52s can carry the largest bunker-buster bombs, they are not stealth planes, and as such, represent less of a direct threat of airstrikes to either Iran or Yemen than did the B-2 Spirit stealth bombers that recently left Diego Garcia.

Iran

A member of the Iranian Ayatollah’s inner circle said that Iran is willing to enrich uranium only to levels needed for civilian use and to allow international inspections of its facilities, in exchange for the lifting of all sanctions. Such a deal would be broadly similar to the JCPOA, which the first Trump administration withdrew from. Trump said that a deal with Iran is close and that one had “sort of” been agreed.

Syria

Trump met Syria’s interim President Ahmed al-Sharaa in Saudi Arabia and announced that he would lift sanctions on the country. This move should allow Syria to re-enter the Swift banking system, increase the confidence of other countries in increasing ties with Syria, and encourage the government of Syria to abide by international norms in their treatment of minorities. There are ongoing concerns about militia group reprisals in Syria against religious minorities, including Alawites, Druze, Christians and others.

Israel and Syria are in negotiations to normalize relations.

Gaza

Israel launched a new ground offensive in Gaza, Operation Gideon’s Chariots, “aimed at defeating Hamas and securing the freedom of remaining hostages in Gaza.” The current attacks are reported to have killed 150 and wounded 450 people in a day. Israel appears to be losing some measure of US support; Trump did not visit Israel in his visit to the Middle East last week and said on Friday that, "a lot of people were starving" in Gaza.

The United States is also considering a plan to permanently displace 1 million Palestinians from Gaza and transfer them to Libya. Along with the direct humanitarian and legal implications of such a plan, it could increase the number of Mediterranean crossings into Europe of people seeking asylum.

The leaders of seven EU countries issued a joint statement on the “man-made humanitarian catastrophe that is taking place before our eyes in Gaza.”

Gaza is likely to fall into famine if Israel doesn’t lift its blockade and let aid through.

Turkey

The Kurdistan Workers Party (PKK), a militant group that has led a Kurish insurgency against the Turkish government for more than four decades, has said that it will disband and cease military operations immediately. The group was founded in 1974 and originally sought to create an independent Kurdish state; Kurdish groups in Turkey, Syria, Iraq and Iran have long sought more rights, regional autonomy and sometimes independence. Over 40,000 people, primarily Kurds, died in the conflict between the PKK and the Turkish government. The PKK’s founder and leader, Abdullah Ocalan, was captured by Turkey in 1999 and sentenced to life in prison for treason; he has been in prison ever since. The PKK had been designated a terrorist group by Turkey, the US, the EU and others. The dissolution of the PKK will likely lead to greater stability in Turkey over the coming years - at least until a new Kurdish group emerges.

Africa

The Nigerian state of Borno, with 6M people, banned the sale of petrol in order to reduce the mobility of jihadist militants.

A West African Al Qaeda affiliate group claimed that it killed 200 soldiers in an attack on a military base in Burkina Faso.

AI and Technology

Google announced a coding agent for designing advanced algorithms, AlphaEvolve

AlphaEvolve pairs the creative problem-solving capabilities of our Gemini models with automated evaluators that verify answers, and uses an evolutionary framework to improve upon the most promising ideas.

AlphaEvolve has been used to assist in hardware design, among other endeavors:

AlphaEvolve proposed a Verilog rewrite that removed unnecessary bits in a key, highly optimized arithmetic circuit for matrix multiplication. Crucially, the proposal must pass robust verification methods to confirm that the modified circuit maintains functional correctness. This proposal was integrated into an upcoming Tensor Processing Unit (TPU), Google’s custom AI accelerator. By suggesting modifications in the standard language of chip designers, AlphaEvolve promotes a collaborative approach between AI and hardware engineers to accelerate the design of future specialized chips.

We tracked down the location of OpenAI’s Stargate 1 datacenter and got a satellite image. It looks as follows (football field at the top right for reference):

and here is a timelapse of its construction since mid 2024 via Europe’s Copernicus program:

OpenAI plans to help develop a large new datacenter in the UAE, that it is reported may eventually be one of the largest in the world. Meanwhile, the UAE’s G42 tech firm agreed to partner with an Italian AI company to build a major AI supercomputer in Italy.

OpenAI launched Codex, a software engineering agent that OpenAI says can work on many tasks in parallel.

House Republicans have included a 10-year ban on US states regulating AI in a budget reconciliation bill.

New research finds OpenAI’s o3 will hack at chess to win far more than any other AI model, and succeeds much more.

Abu Dhabi, capital of the UAE, pledged to increase its energy investments in the US to $440 billion in the next decade.

Nvidia, AMD, and other US tech firms announced a number of AI deals in the Middle East.

Amazon will work with Humain, an AI company recently launched by Saudi Arabia’s ruler, to invest upwards of $5 billion in building an AI Zone in Saudi Arabia. Nvidia will send 18,000 of its latest AI chips to Humain.

Nvidia will sell downgraded H2O AI chips to China in compliance with export control rules, starting in July. However, China still buys Nvidia chips that are regulated by export control rules via subsidiaries in other countries, including Malaysia.

US AI czar David Sacks said the US could manage AI national security risks without strict export controls on allies.

Sen. Cotton introduced a bill “to prevent diversion of advanced chips to America’s adversaries and protect U.S. product integrity.” The bill calls for location tracking on AI chips.

The US and the UAE signed an “AI Acceleration Partnership”.

Sources have said the agreements will give the Gulf country expanded access to advanced artificial intelligence chips from the U.S. after previously facing restrictions over Washington's concerns that China could access the technology.

The UN met to discuss killer robots. Major countries are resisting binding rules forbidding AI-controlled autonomous weapons. UN Secretary-General Guterres called for a ban, saying, “Machines that have the power and discretion to take human lives without human control should be prohibited by international law.”

In past months, OpenAI sought to raise more billions more funds, in the process taking control of its lab away from its original nonprofit. Although the specific detail of taking nonprofit control away did not go through, other commitments and guarantees might still be broken with OpenAI’s updated restructuring plans.

Google is reportedly building an AI software engineer, and the company has been demonstrating it to employees and outside developers.

In the midst of debate over the Trump administration’s decision to fast-track Afrikaner applications for refugee status, xAI’s Grok’s system prompt was silently updated, causing the system to respond to users requests on other topics with discussion of “white genocide” in South Africa. Following public outrage, the xAI team apologized and released its prompts on a Github repository.

Meta has delayed the release of its flagship “Behemoth” AI model, because it seems to not be very good.

Microsoft is laying off around 3% of its workforce, about 6,000 employees.

D.A. Davidson analyst Gil Luria said the layoffs showed Microsoft was "very closely" managing the margin pressure created by its heightened AI investments.

"We believe that every year Microsoft invests at the current levels, it would need to reduce headcount by at least 10,000 in order to make up for the higher depreciation levels due to their capital expenditures," he said.

An Austrian advocacy group is seeking an injunction against Meta training its AI models on Europeans’ data.

Online educational firm Chegg said it will lay off 22% of its workforce, 248 employees, to cut costs as students turn to AI-based alternative services.

The IMF has raised concerns about how much energy data centers could need in the future. Worldwide, they currently consume more electricity than France, and the annual amount needed could triple to 1,500 terawatt-hours by 2030.

Biorisks

The WHO is cutting top management staff as it grapples with budget cuts resulting from the Trump administration’s withdrawal of funding.

A cluster of MERS cases was seen in Riyadh, Saudi Arabia. Six healthcare workers were infected by an initial patient who had had indirect contact with a camel. The MERS coronavirus infects camels and has caused 2,627 confirmed zoonotic infections in humans since it was first identified in 2012; short chains of human-to-human transmission, as occurred in this cluster, are occasionally seen. MERS has an extremely high case fatality rate of 35% for reported cases; however, most cases are very likely missed, and the true case fatality rate is likely much lower.

Nigeria is considering a bill to establish an agency to eradicate malaria. Whether it goes through or not will be of interest to the Effective Altruism community, because the value of malaria donations depends on whether local governments would intervene if those donations stopped.

In Brazil, a bird flu outbreak was confirmed on a commercial farm, triggering trade bans.

An infant with an inborn error of metabolism was successfully treated using CRISPR gene editing therapy.

Climate

In China, CO₂ emissions fell for the first time because of the growth of clean energy, rather than reduced power demand.