UAE Joins US-Led 'Pax Silica' AI Alliance

Federal Reserve Chair Jerome Powell recently took the unusual step of recording a video statement to protest the Trump administration's latest actions against the central bank, a move that drew a letter of support from his global peers. Despite these high-level alarms, investors have remained remarkably calm.

Treasury markets were little changed, and stock indexes climbed to record highs to start the week. This quiet market response suggests a broad confidence that, despite the political noise, the Federal Reserve's core decision-making remains insulated from interference.

Markets Shrug Off Political Pressure

The most telling indicator of market sentiment might be inflation expectations. If investors truly believed President Donald Trump could successfully pressure the Fed into cutting interest rates against its better judgment, they would anticipate higher inflation.

However, a key bond market gauge shows long-term inflation expectations holding steady around 2.35%, a level largely unchanged since Trump's election victory in November 2024.

Fed watchers attribute this market stability to the institution's structure. Rate decisions require a majority vote from the 12-member Federal Open Market Committee (FOMC). While Trump is set to appoint a new chair, he lacks the votes to command a majority on the committee before his term ends.

The Supreme Court Case That Could Change Everything

This stability, however, could be fragile. A pivotal moment is approaching on January 21, when the Supreme Court is scheduled to hear oral arguments in Trump's effort to fire Fed board member Lisa Cook.

According to Bloomberg litigation analyst Elliott Stein, Cook has a 60% chance of winning her case to remain in her post. "The high court has indicated the Fed is distinct from other agencies and so far has let her stay in her role while the case advances, signaling a higher bar for removing a Fed governor," Stein noted.

But a loss for Cook could be a game-changer. Macro strategists at Wells Fargo, led by Michael Schumacher, warned that a successful ouster could be "the proverbial straw that broke the camel's back."

The primary concern is that a victory for the administration would set a precedent. The White House could then seek to remove other Fed board members by citing similar justifications, such as the alleged misrepresentations in mortgage application documents used in Cook's case. This would grant the executive branch significant power to reshape the Fed's board and build a compliant majority.

Potential Triggers for a Market Reaction

Beyond the Supreme Court, another potential flashpoint is an indictment of Powell himself. Jeanine Pirro, the federal attorney who issued subpoenas to the Fed, recently noted that Powell is currently the only official to have publicly used the word "indictment."

Analysts Steven Englander and John Davies of Standard Chartered argue that even a "marginally credible" indictment could finally provoke a strong investor reaction. "The dollar could come under more extended pressure," they wrote, explaining that the Fed's credibility would plummet if its governors could be removed at will, leading to expectations of easier monetary policy.

Economic Impact of Trump's Credit Card Cap Proposal

Separately, the administration's proposal to cap credit card interest rates at 10% is also under scrutiny. While seemingly a pro-consumer move, economists at Morgan Stanley, including Heather Berger, predict it would ultimately harm consumer spending.

The team calculates that lower rates could free up approximately $100 billion in consumer income. However, they expect this benefit "would be more than offset by the negative effects," primarily a reduction in credit availability.

Faced with lower profits, credit card companies would likely tighten lending standards, shrink credit lines, and issue fewer new cards. The most impacted would be consumers with the lowest credit scores, who might resort to more expensive options like buy-now, pay-later services or be forced to cut spending altogether. The Morgan Stanley team concluded that the policy would not only depress overall outlays but also "only worsen the K-shape narrative" of economic inequality.

Indian Oil Corporation (IOC), the country's largest state-run refiner, is expanding its crude oil sources by purchasing its first-ever cargo from Ecuador. This strategic move is part of a broader effort to find alternatives to Russian supplies amid mounting international pressure.

According to trade sources, IOC has secured 2 million barrels of medium-heavy sour Oriente crude from the South American nation. The cargo, purchased via a tender, is scheduled for delivery at the end of March.

Navigating Sanctions and Supply Gaps

The push for diversification comes as IOC and other Indian refiners navigate a global market reshaped by U.S. sanctions targeting major Russian producers like Rosneft and Lukoil. In response, Indian firms are actively searching for competitively priced crude from new suppliers around the world.

While IOC has committed to full compliance with U.S. sanctions, it has previously sought to secure non-sanctioned Russian oil. In October, the company reportedly bought five cargoes of Russian crude from non-sanctioned entities for delivery in December. However, the limited availability of such supplies appears insufficient to meet the refiner's needs, prompting the turn toward suppliers as distant as Ecuador.

This pivot is not an isolated event. In December, IOC also purchased its first crude cargo from Colombia through an optional supply agreement with the state oil firm Ecopetrol. These deals signal a clear trend of Indian refiners looking toward the Americas and West Africa to replace Russian volumes.

Geopolitics and the US Trade Deal

India's energy procurement strategy is closely linked to its diplomatic and economic objectives, particularly its pursuit of a trade deal with the United States. Since Russia's invasion of Ukraine in February 2022, India is estimated to have imported $168 billion worth of Russian crude oil.

The Trump Administration has identified India's significant purchases as a key source of funding for Russia's war efforts, complicating trade negotiations. To address these concerns, New Delhi is now requiring domestic refiners to provide timely and accurate weekly data on their imports of both Russian and U.S. crude.

Sources familiar with the matter indicate that the Indian government plans to use this data in its discussions with the U.S. administration, aiming to demonstrate its shifting import patterns as it works to finalize a trade agreement.

ASIAN nations face a stark choice. The US AI Action Plan, with its explicit goal to "counter Chinese influence in international governance bodies", frames the issue in binary terms: in the race for AI dominance, you are either with us or against us.

Infrastructure as control

AI requires infrastructure and know-how: data centres, energy, and technological expertise to develop, deploy, and upkeep. The heart of AI is not just data, but advanced semiconductor chips. The emphasis on semiconductor export controls in the US AI Action Plan means developing nations cannot access cutting-edge chips without Washington's approval. China offers alternatives — at the cost of explicitly aligning yourself with Beijing. Countries adopting either system inherit not just technology, but the social values encoded within algorithmic decision-making.

Countries across Asia face a choice: whose technology will define their digital destiny?

Technical infrastructure quickly becomes governmental infrastructure. Chinese smart city systems carry embedded assumptions that state surveillance is a public good. US platforms embed the belief that market competition drives innovation. Both overlook other national approaches like Singapore's "Smart Nation" which balances state guidance with market efficiency, or Japan's "Society 5.0" that prioritises social cohesion.

The binary trap

This forced choice isn't theoretical — it's embedded in the technological and institutional architecture itself, creating pressure points where neutrality becomes impossible.

US export controls, tightened since October 2022, don't just restrict China's access to advanced chips, they create compliance webs that ensnare Southeast Asian companies. Any firm using US-origin semiconductor technology faces the same restrictions when dealing with Chinese partners in advanced AI projects.

This creates cascading choices: access to cutting-edge US AI capabilities requires demonstrating alignment with US strategic priorities. Meanwhile, China's Digital Silk Road offers alternative pathways. However, accepting Chinese infrastructure means operating within Beijing's governance frameworks and potentially alienating the West. The middle ground of "neutral cooperation" with both sides becomes technologically unfeasible.

The governance standards trap

The contest for dominance in international AI governance standards sets another trap. Current Western standards are founded on assumptions of individual rights. The Chinese approach emphasises state coordination. Choosing which AI system will power a nation's digital future also means aligning with the institutional structures, cultural values, and economic principles embedded in those systems. Neither framework reflects Asean's diversity, values like Thai kreng jai (considerate reluctance), Indonesian gotong royong (community cooperation), Filipino kapamilya (family-orientation), or Malaysian unity ideals.

Some countries have begun charting their own path. Malaysia's "National Guidelines for AI Governance and Ethics" incorporate the Rukun Negara, embedding principles such as Belief in God, Loyalty to King and Country, and Courtesy and Morality. Japan's "Social Principles of Human-Centric AI" ground its "Society 5.0" vision in social cohesion rather than pure market or state control.

A third way: The Asean AI collaborative

But choosing between the US and China isn't inevitable. On top of current efforts by Asean to build an AI Safety Network, I think an alternative is an Asean AI collaborative framework that preserves cultural diversity while building technological sovereignty.

The approach begins by recognising different AI readiness stages among the Asean 6 countries: Singapore leads the region, Malaysia and Thailand have intermediate frameworks, and Indonesia, the Philippines and Vietnam are building foundational capacity. Rather than forcing identical frameworks, tiered cooperation allows countries to contribute according to capabilities while benefiting from regional coordination.

Singapore's SEA-LION project offers the next step forward: open-source language models pre-trained for Southeast Asia, capturing regional diversity that Western and Chinese systems neglect. This paves the path for Asean nations to build their own sovereign AI models, and along with them, their national AI governance frameworks.

Building digital sovereignty

Four practical steps can make the vision of the Asean AI collaborative a reality:

Establish an Asian AI infrastructure consortium: Pool resources for shared cloud infrastructure and regional AI training, following models like the Asian Development Bank.

Create culturally-adaptive governance frameworks: Embed Asian philosophical and ethical principles from the ground up: community impact assessments, relationship-based accountability, collective consultation processes.

Establish protections against algorithmic colonialism: An Asian AI Bill of Rights guaranteeing cultural preservation, economic self-determination, and technological choice.

Build regional capacity through culturally-grounded education: AI governance starting with Asian traditions — Confucian harmony, Buddhist mindfulness, Islamic justice — rather than Western individual rights.

The US AI Action Plan frames the future as a choice between American individualism and Chinese collectivism. Asean need not choose either. Digital sovereignty means building systems that reflect our values.

Nigel Hee is the managing director of OpenNexus Consulting, a boutique regional government relations and research consultancy.

Source: Theedgemarkets

Japanese Prime Minister Sanae Takaichi is set to dissolve parliament next week to trigger a snap general election, a top party official confirmed Wednesday. The move is a high-stakes gamble to secure a public mandate for her controversial spending plans and hardline stance on China.

Takaichi, Japan's first female prime minister, is aiming to capitalize on a surge in public support since she took office in October. Two lawmakers from the ruling party, speaking anonymously, indicated that the election is being considered for February 8.

Prime Minister Sanae Takaichi addresses parliament. Her call for a snap election seeks to solidify public support for her government's economic and national security agenda.

Seeking a Fresh Mandate for a New Coalition

Shunichi Suzuki, secretary general of the Liberal Democratic Party (LDP), stated that the government needs to "seek a fresh mandate" from voters. He explained that a key reason for the election is to validate the LDP's new governing coalition.

Last year, Takaichi broke a long-standing alliance with the more liberal Komeito party, forming a new partnership with the right-wing Japan Innovation Party, known as Ishin.

"The previous election was under the LDP–Komeito government," Suzuki noted after meeting with the prime minister. "The public has not yet rendered a verdict on the change in our coalition partner." Takaichi is expected to formally announce her plans next Monday.

Economic Policy on the Ballot

The election will serve as a direct referendum on Takaichi's economic and security platform. Her agenda includes a significant boost in government spending to stimulate growth and increased defense outlays under a revised national security strategy.

These fiscal expansion plans have already sent ripples through financial markets. Reports last week that Takaichi was mulling an early election prompted a selloff in the Japanese yen and government bonds, as investors grew concerned about how one of the world's most indebted nations would finance the new spending.

The timing of the election may also disrupt the passage of the 2026 budget before the fiscal year concludes in March. According to the Yomiuri newspaper, the government is considering a temporary spending measure to bridge the gap.

A High-Stakes Signal to Beijing

The snap election comes as tensions between Japan and China have escalated to their worst point in over a decade. The dispute ignited last year when Takaichi described a potential Chinese attack on Taiwan as an "existential threat" to Japan.

Beijing has repeatedly demanded she retract the statement, but Takaichi has refused. In response, China has implemented countermeasures, including advising its citizens against traveling to Japan and curbing exports of dual-use products.

Analysts believe the election's outcome will have significant geopolitical implications. "The election would presumably be won on her handling of the economy," said Jeremy Chan, a senior analyst at the political risk consultancy Eurasia Group.

"The upside for Takaichi of a convincing victory, though, is that it would also signal to Beijing that she is here to stay and China's suite of coercive tactics are not going to succeed in driving her from office," Chan added.

Lebanon has announced a high-stakes international conference in Paris on March 5, aimed at strengthening its military forces as they work to disarm the militant group Hezbollah.

The decision follows a meeting between Lebanese President Joseph Aoun and key international envoys, including representatives from France, Saudi Arabia, the United States, Egypt, and Qatar. French President Emmanuel Macron is scheduled to open the summit, which will focus on providing support for both the Lebanese army and its internal security forces.

Geopolitical Pressure Fuels Disarmament Drive

This international push comes as Lebanon operates under significant pressure from the United States and amid fears of expanded Israeli military action. The Lebanese government has committed to disarming the Iran-backed Hezbollah, which was significantly weakened after more than a year of conflict with Israel that concluded in late 2024.

The conference aims to address the Lebanese army's critical needs, including funding, modern equipment, and technical expertise, which were discussed in preliminary talks with international envoys last month. As part of these discussions, Lebanon's army chief agreed to formally document the military's progress in neutralizing Hezbollah's capabilities.

Army Reports Initial Success South of Litani River

The Lebanese army has already made tangible progress on the ground. Last week, military officials confirmed the completion of the first phase of their disarmament plan, securing the area south of the Litani river, which lies approximately 30 kilometers from the Israeli border.

Despite limited resources, the army has successfully dismantled Hezbollah tunnels and other military infrastructure near the Israeli frontier, seizing caches of weapons and ammunition in recent months. A detailed plan for the second phase of disarmament, targeting areas north of the Litani, is set to be presented to the cabinet next month.

Israel and Hezbollah Remain Major Hurdles

Despite these efforts, the situation remains tense. Israel has criticized the army's progress as insufficient, accusing Hezbollah of rearming. Meanwhile, Hezbollah has publicly rejected all calls to surrender its weapons.

The security environment is further complicated by ongoing Israeli actions. Even with a ceasefire in place, Israel has continued to conduct regular strikes inside Lebanon, stating its targets are linked to Hezbollah. Furthermore, Israeli troops remain stationed in five areas of southern Lebanon that it considers strategically important.

U.S. President Donald Trump is set to announce a new administration for the war-ravaged Gaza Strip this Wednesday, advancing a phased plan for the Palestinian territory's future, according to four Palestinian sources.

Displaced Palestinians are seen in a camp in Khan Younis, southern Gaza, as plans for the territory's future administration take shape.

The move is a central part of a 20-point plan agreed to by Israel and Hamas in October. This framework outlines a transitional governance model for Gaza led by a technocratic Palestinian body, which will operate under the supervision of an international "Board of Peace" and will not include representation from Hamas.

Unveiling the New Technocratic Body

The proposed 14-member Palestinian body will be led by Ali Shaath, a former deputy minister in the Western-backed Palestinian Authority who previously managed the development of industrial zones.

According to a list of names obtained by Reuters, the committee also includes figures from the private sector and non-governmental organizations. Key members tapped by Nickolay Mladenov, the former U.N. Middle East envoy expected to represent the Board of Peace, include:

• Ayed Abu Ramadan, head of the Gaza Chamber of Commerce.

• Omar Shamali, who has worked for the Palestinian Telecommunication Group PALTEL.

Crucially, both Hamas and its rival Fatah group, led by Palestinian President Mahmoud Abbas, have endorsed the list of members, according to Egyptian and Palestinian sources. The committee members are scheduled to meet with Mladenov in Cairo on Wednesday.

Phase Two Proceeds Despite Unresolved Issues

Although both Israel and Hamas accuse each other of violating the initial agreement, President Trump is reportedly keen to proceed to the plan's second phase. This next stage involves formally establishing the Board of Peace and deploying peacekeeping forces, a detail that has yet to be finalized.

The first phase, which centered on a ceasefire and hostage release, has been undermined by several persistent problems:

• Israeli airstrikes in Gaza have killed hundreds of people.

• Hamas has refused to disarm.

• The remains of one last Israeli hostage have not been returned.

• Israel has delayed the reopening of Gaza's Rafah border crossing with Egypt.

Disarmament Remains a Key Hurdle in Cairo Talks

Hamas leaders and other Palestinian factions are currently in Cairo for discussions on the second phase of the plan. Egyptian sources indicate that the talks are now focused on the critical issue of Hamas's disarmament.

Hamas has consistently stated it will not lay down its weapons until a Palestinian state is established. This position creates a significant roadblock, as further Israeli withdrawals from within Gaza are directly tied to the group's disarmament.

Israeli officials did not provide an immediate response when asked for comment on the developments.