Regional Summary
The Retreat Into Resilience Across the Middle East and South Asia this week, the most revealing development is that powers that recently pushed outward are now pulling back to strengthen their economies and hedge their bets, even as they insist they are still rising. From the Gulf to the subcontinent, governments are trading grand offensive strategies for defensive depth — restructuring sovereign wealth, stockpiling reserves, courting every side of every dispute — and calling this retreat progress. Saudi Arabia’s NEOM debacle is the most honest admission of the trend. The Line, that 170-kilometre monument to architectural hubris, was cut to 1.5 miles — a cut so deep it amounts to cancellation. The Public Investment Fund (PIF) took an $8 billion write-down, and new NEOM contracts have collapsed from $16.2 billion in 2023 to under $900 million in early 2025. Yet the PIF itself swelled to $930 billion, and Riyadh secured State Department approval for $9 billion in Patriot missiles. Mohammed bin Salman, the crown prince, is not abandoning transformation; he is quietly conceding that transformation looks less like futuristic cities and more like strengthening the books. The kingdom’s Iran diplomacy follows the same logic: privately encouraging American hawkishness while publicly pledging neutrality to Tehran, a posture that keeps options open and cuts exposure but cannot survive an actual war. The UAE follows suit. Abu Dhabi said it would not let its territory be used for strikes on Iran, completed its withdrawal from Yemen after a decade of costly engagement, and consolidated $263 billion in sovereign assets under a single holding company tied to the crown prince’s succession. Each move narrows the country’s commitments while deepening its domestic financial power. The launch of a “fully sovereign” AI reasoning system, developed with American-authorised chips, captures the contradiction: the UAE is retreating from military exposure abroad precisely so it can build technological and economic leverage at home. That its once-tight relationship with Riyadh has deteriorated into open media warfare only reinforces the logic of pulling inward; when your principal ally becomes a rival, hedging is the only safe play. India follows the same logic on a different scale. The free trade agreement with the European Union — eliminating tariffs on nearly 97% of goods — is less about opening markets than buying insurance. Narendra Modi, the prime minister, framed it explicitly as a hedge against “turmoil” caused by other powers, which is diplomatic shorthand for American unpredictability and Chinese coercion. The record defence budget, up 15% and linked by officials to lessons from Operation Sindoor, and the Reserve Bank’s gold-buying spree that pushed reserves to record highs, indicate that New Delhi is spending to make itself harder to hurt rather than to project power further. Even the Adani Group’s decision to accept Securities and Exchange Commission legal service while simultaneously signing aircraft-manufacturing deals with Embraer reflects the same instinct — absorb the blow, spread the risk, keep moving. Turkey alone seems to buck the trend, thrusting itself forward as mediator between Washington and Tehran with a confidence bordering on presumption. Yet even Recep Tayyip Erdoğan’s diplomatic promiscuity is a form of defensive positioning. Ankara’s value to both sides depends on its refusal to commit to either; the moment it picks a camp, it loses its leverage. Meanwhile, record central-bank reserves and rising exports provide the cushion that makes such acrobatics possible. The persecution of Istanbul’s mayor — now triggering an international accreditation investigation — reveals how domestic political warfare can quietly erode the institutional credibility that underpins the whole edifice. These are governments that have concluded the world is becoming too dangerous for bold bets, and are converting ambition into resilience — hoarding reserves, diversifying alliances, scaling back commitments, and hoping that financial mass alone will see them through whatever comes next. It is a rational response to genuine uncertainty. But resilience without direction is just expensive stasis, and no sovereign wealth fund, however large, substitutes for a strategy.Country Summaries
United Arab Emirates
The UAE declared it will not allow its territory to be used for military action against Iran, even as tensions with Saudi Arabia deteriorated into open diplomatic warfare.
The neutrality declaration came as the UAE Ministry of Foreign Affairs issued an official statement barring use of the country’s airspace, territory, or waters for hostile military actions against Iran. The statement emphasized dialogue and de-escalation as US military deployments to the region increase, affirming that diplomatic means are most effective for addressing current crises. The positioning reflects the UAE’s multi-alignment strategy under unprecedented strain as regional polarisation eliminates traditional hedging space.
That strain is evident in the UAE’s relationship with Saudi Arabia, where public diplomatic tensions over Yemen, Red Sea policies, and broader regional strategies have reached a breaking point. Saudi officials denied rumours about refusing entry to UAE National Security Adviser Sheikh Tahnoun bin Zayed, but analysis describes this as a structural rupture rather than a tactical dispute. Saudi media launched campaigns targeting UAE leadership and its political project, marking a shift from private rivalry to open confrontation.
The pressure has forced strategic retrenchment. The UAE announced completion of its mission in Yemen on December 30, formally ending a decade-long military engagement that included liberation operations, counter-terrorism missions, and more than $8 billion in humanitarian assistance. The withdrawal represents an acknowledgment of proxy warfare limitations against stronger regional opponents and marks a shift toward defensive posture and reduced overseas commitments.
Even as it pulls back militarily, the UAE is consolidating economic power. The government announced a major restructuring of Abu Dhabi’s sovereign wealth architecture, consolidating the $263 billion ADQ sovereign fund into the newly formed L’IMAD Holding Company under Crown Prince Sheikh Khaled bin Mohamed bin Zayed Al Nahyan. The consolidation creates an investment powerhouse managing hundreds of billions in state assets while accelerating succession planning. Simultaneously, G42, Cerebras Systems and Mohamed bin Zayed University of Artificial Intelligence (MBZUAI) announced K2 Think V2, described as the UAE’s fully sovereign, next-generation reasoning system. The launch coincided with US authorisation of chip exports to G42, demonstrating technological sovereignty development within Western alliance frameworks.
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- Abu Dhabi consolidates ADQ into new L’IMAD sovereign investment vehicle — The UAE government announced a major restructuring of Abu Dhabi’s sovereign wealth architecture, consolidating the $263 billion ADQ sovereign fund into the newly formed L’IMAD Holding Company under the Crown Prince. The consolidation creates a new investment powerhouse managing hundreds of billions in state assets. (reuters.com)
- Mubadala leads multiple major investment rounds including Property Finder — Abu Dhabi’s Mubadala Investment Company led a $170 million funding round for Dubai real estate platform Property Finder, alongside separate investments including a $36.5 million round in US nutrition company L-Nutra and the launch of a $550 million co-investment fund. (bloomberg.com)
- ADNOC announces major business expansion with $20+ billion gas investment — Abu Dhabi National Oil Company (ADNOC) Gas announced plans to invest more than $20 billion to increase gas processing capacity by almost 30% by 2029. Separately, ADNOC Global Trading leased fuel oil storage in Singapore for the first time, and signed a 27-year utilities agreement with Abu Dhabi National Energy Company (TAQA) for the Ta’ziz industrial chemicals zone. (reuters.com)
- UAE President attends multiple military and police graduation ceremonies — President Sheikh Mohamed bin Zayed attended graduation ceremonies for the 50th cohort of cadet officers at Zayed II Military College in Al Ain, while the Crown Prince attended a separate Police College graduation ceremony for the 37th cohort of cadet officers. (mediaoffice.abudhabi)
- UAE President confers honour on Chinese Ambassador and meets Italian President — The President conferred the First-Class Order of Zayed II on Chinese Ambassador Zhang Yiming in recognition of his contributions to UAE-China strategic relations. Separately, the President held talks with Italian President Sergio Mattarella in Abu Dhabi. (mofa.gov.ae)
- Central Bank of UAE maintains interest rates at 3.65% — The Central Bank of the UAE decided to hold the base rate applicable to the Overnight Deposit Facility steady at 3.65%, following the US Federal Reserve’s decision to maintain rates unchanged. This was the first interest rate decision of 2026. (enterpriseam.com)
- GCC launches joint military exercise including UAE participation — Qatar launched the ‘Arabian Gulf Security 4’ joint military exercise involving UAE security forces, Gulf Cooperation Council (GCC) countries, and US special units. The exercise runs until February 4 and includes 114 teams from 48 countries implementing over 70 field scenarios. (khaleejtimes.com)
- US-UAE Economic Policy Dialogue and bilateral trade discussions — The United States and UAE held their eleventh Economic Policy Dialogue in Abu Dhabi on January 15, with high-level officials from both countries discussing economic cooperation and bilateral trade relations. (state.gov)
Notes
Notes
Abdullah bin Zayed conducts diplomatic outreach with multiple foreign officials
January 26 - February 01, 2026
Other
India
India concluded the largest trade agreement in its history this week, locking in a partnership with Europe that Prime Minister Narendra Modi explicitly framed as providing “stability to world order” amid global turmoil.
The landmark free trade agreement with the European Union eliminates tariffs on 96.6% of traded goods, creating a free trade zone of 2 billion people and saving European companies €4 billion annually in duties. Mr Modi called it the “mother of all deals” and India’s largest free trade agreement (FTA) in history. The agreement covers 99.5% of trade value and is expected to double bilateral trade by 2032. Beyond economics, Mr Modi positioned the partnership as a hedge against global instability, with India and the EU cooperating to provide stability as other powers create “turmoil.”
Even as it deepens partnerships abroad, India is building capabilities based on hard-won combat experience. The Union Budget allocated a record Rs 7.85 lakh crore for defence, a 15% increase that the Defence Ministry explicitly linked to lessons from Operation Sindoor. Capital expenditure jumped 22% to Rs 2.19 lakh crore for aircraft, submarines, and critical hardware. Officials called it a “quantum jump” to address the current geopolitical scenario, moving from routine modernisation to conflict-informed capability building.
India is also demonstrating economic resilience despite external pressure. The Reserve Bank of India’s (RBI) foreign exchange reserves hit record levels, rising over $14 billion primarily through gold purchases as the central bank diversifies from US dollar holdings. The rupee hit record lows, but RBI intervention prevented a breach of the 92-per-dollar level. Meanwhile, Gautam Adani and his nephew agreed to receive a US Securities and Exchange Commission (SEC) legal notice, allowing a civil fraud case to proceed, yet the Adani Group simultaneously announced new partnerships with Embraer for aircraft manufacturing and increased domestic debt financing, showing corporate adaptation to international legal challenges.
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- Republic Day celebrations showcase military modernisation and cultural heritage — Mr Modi wore distinctive maroon Rajasthani turban at 77th Republic Day celebrations. Armed forces displayed Operation Sindoor capabilities and new hypersonic missiles. President approved gallantry awards for 70 personnel including Group Captain Shubhanshu Shukla receiving Ashoka Chakra. (hindustantimes.com)
Notes
Notes
Opposition attacks Modi over Jeffrey Epstein files reference to 2017 Israel visit
January 31 - February 01, 2026
India and EU conclude historic free trade agreement dubbed 'mother of all deals'
January 27-30, 2026
India hikes defense budget 15% to Rs 7.85 lakh crore following Operation Sindoor
January 26 - February 01, 2026
Amit Shah conducts multi-state political tour targeting infiltration and opposition
January 25 - February 01, 2026
Adani Group faces SEC fraud case proceedings while expanding business partnerships
January 25-31, 2026
Other
Turkey
Turkey is positioning itself as an indispensable broker between the United States and Iran, exploiting its unique geopolitical position to shape the region’s most dangerous confrontation.
President Recep Tayyip Erdoğan held separate phone calls with President Donald Trump and Iranian President Masoud Pezeşkiyan this week, while Foreign Minister Hakan Fidan met with Iranian Foreign Minister Abbas Arakçi in Istanbul. Turkey explicitly offered to facilitate dialogue between Washington and Tehran to reduce regional tensions. Mr Fidan stated Turkey opposes any US military intervention in Iran and called for resumed nuclear negotiations. The diplomatic initiative demonstrates Turkey’s strategic promiscuity — simultaneously deepening its alliance with Washington while maintaining channels to Tehran that neither power can access elsewhere.
Even as Turkey projects power abroad, the systematic persecution of Istanbul Mayor Ekrem İmamoğlu is generating unintended costs. The Association to Advance Collegiate Schools of Business began investigating Istanbul University’s decision to cancel Mr İmamoğlu’s 33-year-old diploma, potentially threatening the university’s global accreditation. The investigation was prompted by complaints that the university violated academic and scientific standards in the cancellation decision. The episode demonstrates how President Erdoğan’s institutional weaponisation produces consequences beyond intended political targets.
The economic foundation for this activism remains solid. Central bank reserves reached a record $215.6bn while Finance Minister Mehmet Şimşek reported that exports rose 4.4% to $273.4bn and tourism revenues increased 6.8% to $65.2bn, both exceeding government targets. Turkish intelligence also demonstrated its continued capacity by dismantling an Iranian espionage network that had been gathering sensitive military information and conducting reconnaissance of İncirlik Air Base. Turkish intelligence and police arrested six people in raids against the network, which operated under the code name ‘Güvercin’ and was directed by Iranian intelligence officers.
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- Hakan Fidan conducts diplomatic outreach with France, Hamas, and Saudi Arabia — Mr Fidan met with Foreign Minister Jean-Noel Barrot of France in Ankara, received a Hamas delegation led by Halil Hayye, and held phone talks with his Saudi counterpart on Syria and Gaza developments. (bursahakimiyet.com.tr)
- Multiple mayors defect from opposition parties to join Justice and Development Party — Several mayors from the New Welfare Party switched to the Justice and Development Party (AKP), with six mayors in Konya joining the governing party, leaving the New Welfare Party with no municipal control in the province. (odatv.com)
- Justice and Development Party provides humanitarian aid to Kobani through Syrian government corridors — AKP spokesperson announced Turkey sent 11 trucks of humanitarian aid to Kobani through corridors opened by the Syrian government, stating they would not abandon Kurdish brothers in difficult conditions. (t24.com.tr)
- Ministry warns against fake investment advice using Finance Minister’s name — The Treasury and Finance Ministry warned about fraudulent social media posts and videos using Mr Şimşek’s name to promote fake investment advice. (turkiyegazetesi.com.tr)
- Nationalist Movement Party leader Bahçeli discusses Syria developments and early election speculation — Devlet Bahçeli said Syria developments are positive for Turkey’s policies and territorial integrity. He also addressed early election rumours and made comments about his previous handshake with the Peoples’ Equality and Democracy Party. (sabah.com.tr)
- Republican People’s Party leader rallies party around İmamoğlu while facing internal criticism — Republican People’s Party (CHP) leader Özgür Özel continued defending imprisoned Mr İmamoğlu, stating he will win Turkey after winning Istanbul. However, reports emerged of growing discontent within CHP ranks about Mr Özel’s defence of Mr İmamoğlu. (birgun.net)
- İmamoğlu sends message from prison to housing project opening — Imprisoned Mr İmamoğlu sent a letter to a housing project handover ceremony, vowing to rebuild a fair and free life and not allow a handful of privileged people to continue. (evrensel.net)
- European Council calls for release of imprisoned Turkish politicians — The Parliamentary Assembly of the Council of Europe called for the immediate release of imprisoned Istanbul Mayor Mr İmamoğlu, Osman Kavala, Selahattin Demirtaş and Figen Yüksekdağ. (halktv.com.tr)
- Grand National Assembly committee tensions emerge over Foreign Ministry briefings — Reports surfaced of tensions in the Grand National Assembly’s Foreign Affairs Committee, with Chairman Fuat Oktay allegedly criticising Mr Fidan’s staff for inadequate preparation, though Mr Oktay denied the reports. (cumhuriyet.com.tr)
- Israeli woman arrested in Turkey for anti-Palestinian rhetoric and denouncing Erdoğan — An Israeli woman was arrested in Istanbul and held for 10 days on charges related to anti-Palestinian rhetoric and denouncing Mr Erdoğan, with the Foreign Ministry confirming awareness of the detention. (jpost.com)
Notes
Notes
İmamoğlu diploma cancellation faces international scrutiny as AACSB launches investigation
January 30, 2026
Hakan Fidan conducts broader diplomatic outreach with France, Hamas, and Saudi Arabia
January 26-31, 2026
Israeli woman arrested in Turkey for anti-Palestinian rhetoric and denouncing Erdoğan
February 01, 2026
Other
Saudi Arabia
Saudi Arabia is abandoning the fantastical ambitions of Vision 2030 for fiscal reality. NEOM’s flagship megaproject faced a dramatic scaling back this week, with The Line reduced from 170 kilometres to just 1.5 miles—a 97% cut. The Mukaab cube-shaped skyscraper was suspended entirely while the project reassesses financing. Most tellingly, the Public Investment Fund (PIF) took an $8 billion write-down, and new contracts collapsed from $16.2 billion in 2023 to under $900 million in the first quarter of 2025.
Even as Crown Prince Mohammed bin Salman reins in his megaprojects, the kingdom’s sovereign wealth machine continues growing. The PIF reached $930 billion in assets under management, making it one of the world’s five largest sovereign funds, while approaching wealthy Saudi families for increased domestic investment. The contrast is stark: grandiose construction projects are being shelved, but the financial apparatus for economic transformation remains robust.
On Iran, Saudi Arabia is executing a sophisticated triangulation strategy. Defence Minister Prince Khalid bin Salman reportedly told US officials that failing to follow through on threats against Iran would strengthen Tehran’s regime, while the crown prince separately assured Iranian President Masoud Pezeshkian that Saudi Arabia will not allow its territory or airspace to be used for military actions against Iran. The kingdom is actively manipulating both relationships—privately encouraging US action while publicly maintaining neutrality.
The week also brought State Department approval for a potential $9 billion foreign military sale of 730 Patriot Advanced Capability-3 missiles and related equipment to enhance Saudi integrated air and missile defence capabilities. And in London, the High Court ruled Saudi Arabia responsible for Pegasus spyware infection and a 2018 physical attack on satirist Ghanem al-Masarir, ordering £3,025,663 in compensation for what the judge called effectively criminal conduct.
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- Saudi Arabia drastically scales back NEOM megaproject, pivots toward data centers — Saudi Arabia is significantly downsizing its flagship NEOM megaproject after years of cost overruns and delays. The Line will be reduced from 170km to a much smaller development, and the project may pivot to becoming a data center hub rather than a futuristic city. The 2029 Asian Winter Games at Trojena have been postponed indefinitely. (ft.com)
- Saudi Defense Minister tells US officials not striking Iran would ‘embolden’ regime — Defence Minister Prince Khalid bin Salman, during his Washington visit, reportedly told US officials that failing to follow through on threats against Iran would strengthen Tehran’s regime. This marks a shift from earlier Saudi public positions urging caution against escalation. (axios.com)
- US approves $9 billion Patriot missile sale to Saudi Arabia — The US State Department approved a potential $9 billion foreign military sale of Patriot Advanced Capability-3 missiles to Saudi Arabia. The deal includes 730 PAC-3 missiles and related equipment, part of broader US arms sales to Middle East allies. (dsca.mil)
- Saudi Crown Prince tells Iran that Kingdom won’t allow US use of airspace against Tehran — The crown prince told Iranian President Masoud Pezeshkian in a phone call that Saudi Arabia will not allow its airspace or territory to be used for military actions against Iran, as the US considers potential strikes. (reuters.com)
- Saudi Aramco issues $4 billion bond in first global debt market foray of 2026 — Saudi Aramco launched a $4 billion four-tranche bond offering with maturities ranging from three to 30 years, drawing robust investor demand in the state oil company’s first international bond issue this year. (reuters.com)
- Saudi PIF ends year-long PwC consultancy ban after hiring dispute — Saudi Arabia’s Public Investment Fund lifted its ban on new advisory contracts with PricewaterhouseCoopers (PwC) after a year-long freeze. The dispute arose when PwC tried to hire the chief internal audit officer from NEOM, prompting the PIF to restrict new consulting work. (semafor.com)
- Saudi Foreign Minister conducts diplomatic meetings with Austria and Poland — Foreign Minister Prince Faisal bin Farhan held meetings with his Austrian and Polish counterparts, reviewing bilateral relations and cooperation opportunities. He also commented on Saudi-United Arab Emirates (UAE) relations, calling them ‘critically important’ for regional stability despite differences over Yemen. (english.aawsat.com)
- OPEC+ maintains oil production levels unchanged for March — Eight OPEC+ countries agreed to keep oil production cuts in place for March, maintaining current output levels despite oil prices reaching six-month highs. The decision comes amid concerns about potential US military action against Iran affecting markets. (reuters.com)
- Analysis: Saudi-UAE divergence grows amid regional competition — Multiple analytical pieces examine the growing strategic divergence between Saudi Arabia and the UAE, with Saudi Arabia aligning more with Turkey and Qatar while the UAE strengthens ties with Israel and the US. The rift is playing out in proxy conflicts across Yemen, Sudan, and Libya. (jpost.com)
Notes
Notes
Saudi Arabia drastically scales back NEOM megaproject, pivots toward data centers
January 25-27, 2026
Saudi Defense Minister tells US officials not striking Iran would 'embolden' regime
January 29-31, 2026
Saudi Crown Prince tells Iran that Kingdom won't allow US use of airspace against Tehran
January 27-31, 2026
Saudi PIF reaches \$930 billion in assets, seeks greater domestic investment
January 28 - February 01, 2026
Other