Executive Summary

Tensions in the Middle East escalated as Iran’s Supreme Leader threatened a “regional war” in response to any American military action, even as conflicting diplomatic signals emerged from both Washington and Tehran. In a major bid to capture global technology investment, India unveiled a budget offering a tax holiday until 2047 for foreign data centers, while the immense energy demands of artificial intelligence are simultaneously fueling a historic gas power boom in Texas and straining the finances of major tech firms. Meanwhile, the final major nuclear arms control treaty between the United States and Russia is set to expire this week with no extension agreement in place, threatening to usher in an unregulated era of strategic competition.

AI & Technology

India Offers Tax Holiday Until 2047 to Lure Global AI Data Centers

India’s Finance Minister, Nirmala Sitharaman, announced sweeping tax incentives in the annual budget on Sunday, offering foreign cloud providers a tax holiday through 2047 on revenues from services sold outside the country, provided the workloads are processed in Indian data centers. The aggressive fiscal measure is explicitly designed to capture accelerating global investment in artificial intelligence infrastructure and position New Delhi as a critical hub for international compute capacity. While sales to domestic Indian customers would still be subject to local taxation, the proposal includes a 15 percent cost-plus safe harbor for data center operators serving related foreign entities, further sweetening the deal for multinational corporations.

The move comes as major American technology firms are already scaling up their presence in the country. Google committed $15 billion in October to expand its AI hub and data centers, while Microsoft announced plans to invest $17.5 billion by 2029. Amazon has also pledged an additional $35 billion by 2030, bringing its total planned investment to approximately $75 billion. The new tax structure appears aimed at solidifying and accelerating these planned expansions, leveraging India’s large engineering talent pool and a new regulatory framework that unifies various IT services under a single category with a common 15.5% safe harbor margin.

Beyond data centers, the budget signaled a broader industrial strategy with the launch of India Semiconductor Mission 2.0, allocated Rs. 1,000 crores for its first fiscal year to focus on domestic intellectual property design and supply chain fortification. Critics, however, note that while the incentives are substantial, India continues to grapple with infrastructure constraints, including reported power shortages and water stress, which could complicate the rapid build-out of energy-intensive data centers. The success of the strategy will depend on whether the fiscal benefits outweigh the operational challenges of scaling physical infrastructure.

AI Demand Fuels Texas Power Surge and Strains Oracle’s Finances

The voracious energy appetite of artificial intelligence is driving an enormous expansion of fossil fuel infrastructure in the United States, exemplified by Texas regulators approving a 7.65 gigawatt gas power project for Pacifico Energy—the largest air pollution permit ever issued in the country. According to Global Energy Monitor, nearly half of all new gas power projects in Texas, totaling 40 gigawatts, are slated to directly feed data centers. This rush is creating significant environmental monitoring challenges, with the Environmental Integrity Project noting it is struggling to track the proliferation of these colossal ventures.

Concurrently, the financial strain of underwriting this AI infrastructure is becoming acute for major technology partners. Oracle is reportedly considering layoffs of up to 30,000 employees to manage the immense capital expenditure tied to its $156 billion commitment to Sam Altman’s OpenAI. The company has reportedly burned through $58 billion in debt for data centers in Texas and Wisconsin, leading to a sharp decline in its stock value since September 2025 and increased borrowing costs from wary American banks.

The scale of energy required for AI is driving an unprecedented fossil fuel expansion in Texas, where 58 gigawatts of gas power generation capacity entered development during 2025 alone, a pipeline second only to China. In a separate development signaling a search for long-term energy solutions, General Fusion is preparing for an initial public offering, which would make it the first publicly traded pure-play nuclear fusion company. The move suggests growing investor appetite for alternative, high-risk energy sources, perhaps as a hedge against the immediate, carbon-intensive build-out currently underway.

States Push AI Deregulation as Pentagon Clashes With Developer Over Lethal Use

A legislative movement to shield artificial intelligence from regulation is gaining traction in statehouses, running counter to efforts in nearly 40 other states to limit its use. Montana recently passed a “right-to-compute” law, based on model legislation from the American Legislative Exchange Council (ALEC), that protects AI and computational systems from certain forms of oversight. Proponents frame these protections as analogous to First Amendment rights, arguing that computing power itself should not be subject to undue regulation. The push has drawn opposition from figures including former President Donald Trump, who has attempted to forbid such state-level deregulation, while critics warn the broad definition risks regulatory paralysis against potential harms.

Simultaneously, the Department of Defense is reportedly engaged in a significant contractual dispute with the AI developer Anthropic over ethical guardrails embedded in its technology. The disagreement, which has stalled a contract potentially worth $200 million, centers on Anthropic’s reluctance to allow its AI to be used for lethal autonomous targeting or domestic surveillance without strict human oversight. Pentagon officials counter that commercial systems must be deployable for military purposes as long as they adhere to U.S. law, reflecting a broader push under the Trump administration to establish the military as an “AI-first” fighting force.

Defense Secretary Pete Hegseth has publicly stated he will not utilize models that prevent the military from “fighting wars,” drawing a sharp contrast with Anthropic C.E.O. Dario Amodei’s repeated warnings about unconstrained AI deployment. While Anthropic confirmed it is in “productive discussions” with the Department of War regarding national security missions, the impasse highlights a fundamental tension between commercial ethics and military operational requirements. The divergence between state-level efforts to deregulate AI’s foundational infrastructure and federal military efforts to secure unrestricted access to advanced models suggests a fractured regulatory environment is solidifying.

Geopolitics & Security

Iran Threatens Regional War Amid U.S. Buildup and Conflicting Diplomatic Signals

Iran’s Supreme Leader, Ayatollah Ali Khamenei, issued a direct warning to the United States on Sunday, stating that any military attack on the Islamic Republic would immediately escalate into a “regional war.” The threat, delivered as the USS Abraham Lincoln carrier strike group patrolled the Arabian Sea, directly challenges the significant American military posture in the region. Ayatollah Khamenei accused the Trump administration of seeking to seize Iranian oil and natural gas, while framing recent deadly anti-government protests—which state media claim resulted in 3,117 deaths—as a foreign-instigated coup attempt.

This escalation in rhetoric follows retaliatory moves by Tehran, including Iranian lawmakers designating the armies of European Union member states as terrorist groups after the E.U. labeled the Islamic Revolutionary Guard Corps a terrorist organization. Yet, amid the military posturing, there were contradictory signals regarding diplomacy. President Trump claimed Iran was engaged in “serious discussions,” a sentiment echoed by Iran’s top security official, Ali Larijani, who suggested a negotiation framework was progressing. It is unclear whether these diplomatic overtures are genuine or tactical maneuvers intended to manage the crisis. An Iranian official also denied an earlier state media report that the IRGC planned live-fire exercises in the Strait of Hormuz, a potential de-escalatory signal.

The context for the warning is significant, as it solidifies the government’s narrative linking internal dissent to foreign adversaries, justifying the severe suppression of protests that began in late December. For Washington, Ayatollah Khamenei’s explicit threat raises the stakes considerably as the Trump administration weighs its response. The core question remains whether the hardline rhetoric from Tehran is a genuine precursor to conflict or a necessary performance for domestic consumption following the brutal crackdown on unrest.

U.S. and Russia Face Expiration of Last Major Nuclear Arms Treaty

The New START treaty, the final remaining major arms control pact placing verifiable limits on American and Russian strategic nuclear arsenals, is set to expire on Thursday with no agreement on its extension. While Russian President Vladimir Putin suggested a one-year extension in September, a proposal President Trump initially called a “good idea,” Moscow has reportedly received no “substantive reaction” from Washington. The lapse would end mandatory on-site inspections and data exchanges, threatening to usher in an unregulated phase of strategic competition between the world’s two largest nuclear powers for the first time in decades.

The administration’s apparent inaction on the treaty comes as it juggles other high-stakes geopolitical fronts. Elbridge Colby, the Undersecretary of Defense for Policy, concluded a trip to South Korea and Japan this week, signaling a potential restructuring of the 28,500 U.S. troops on the Korean peninsula to focus deterrence efforts outward toward China and the “first island chain.” This pivot suggests a formal acknowledgment that the military posture designed for Pyongyang must now be adapted to address Beijing’s growing maritime assertiveness.

The focus on countering China and managing the crisis with Iran appears to have consumed diplomatic bandwidth, leaving the critical nuclear architecture with Russia vulnerable to inertia. If the treaty expires without an extension, both the United States and Russia will cease the mutual verification measures that have provided predictability and stability for more than a decade, potentially leading to a new, unconstrained arms competition.

Ukraine’s Energy Grid Under Siege as Civilian Casualties Mount

Russia has intensified its campaign against Ukraine’s energy infrastructure this winter, leading to widespread rolling blackouts across major cities amid sub-freezing temperatures. On Sunday, a Russian drone struck a company shuttle bus near Ternivka in the Dnipropetrovsk region, killing at least 12 mine workers as they were finishing their shift, according to Ukrainian officials and DTEK, the country’s largest private energy company. The attack was condemned by Deputy Prime Minister Denys Shmyhal as a “cynical and targeted” strike on energy sector personnel. Additional strikes killed two people in Dnipro and wounded at least nine at a maternity hospital in Zaporizhzhia.

The attacks occurred as a temporary, U.S.-brokered pause on Russian strikes against Kyiv was set to expire. President Volodymyr Zelenskyy accused Russia of using the attacks to disrupt logistics and connectivity, compounding hardship for civilians in cities like Kyiv, where nearly 700 apartment buildings reportedly remain without heat. This sustained targeting of civilian infrastructure occurs as a new study from the Geneva Academy of International Humanitarian Law and Human Rights suggests that international law is at a “critical breaking point,” with violations occurring on a “huge scale and with rampant impunity.”

These events complicate the diplomatic track, as Ukraine prepares for a second round of U.S.-backed trilateral peace talks scheduled for Wednesday and Thursday in Abu Dhabi. The first round in late January yielded no progress, with Moscow maintaining demands for territorial concessions that Kyiv refuses to meet. The deliberate targeting of energy workers suggests Russia is prioritizing economic disruption, even as talks are scheduled to resume.

Pakistan Kills 145 Militants After Coordinated Baloch Attacks

Pakistani security forces reported killing 145 alleged militants in Balochistan province over 40 hours following a massive, coordinated series of attacks launched Saturday by the Balochistan Liberation Army. The initial assaults resulted in the deaths of at least 31 civilians and 17 security personnel across multiple cities, including Quetta, marking what analysts described as an unprecedented level of simultaneous militant activity. Provincial Chief Minister Sarfraz Bugti stated that the bodies of the 145 killed fighters were in custody, some identified as Afghan nationals, and accused Afghanistan of harboring B.L.A. leadership.

The scale of the government’s response, termed Operation Trashi-I by some reports, appears to be the largest counter-insurgency action in the region in decades, according to Mr. Bugti. The B.L.A. claimed responsibility for the initial wave, asserting they killed 84 security personnel and took 18 officials hostage, claims which Pakistani officials have not confirmed. The attacks targeted security installations, banks, and infrastructure, suggesting a high degree of planning in the resource-rich region where Pakistan is attempting to secure foreign investment.

While the immediate security crackdown has been severe, with public gatherings and face coverings banned in parts of the province, the government’s narrative immediately focused on external backing. Both Mr. Bugti and Interior Minister Mohsin Naqvi blamed India for supporting the B.L.A., allegations that New Delhi has denied. The intensity of the fighting and the high casualty figures suggest a significant escalation in the decades-old Baloch separatist insurgency.

U.S. Pressures Cuba as It Engages New Venezuelan Leadership

The Trump administration is simultaneously escalating economic threats against Cuba while engaging in diplomatic outreach, following the removal of Nicolás Maduro in Venezuela, which has severed Havana’s primary oil lifeline. President Trump confirmed on Sunday that Washington is in talks with “the highest people in Cuba” to strike a deal, days after threatening tariffs on any nation selling oil to the island. This pressure campaign comes as Cuba faces a severe humanitarian crisis marked by near-daily blackouts lasting over 12 hours, prompting Mexico’s President Claudia Sheinbaum to announce the shipment of humanitarian aid.

The context for this dual approach is the U.S. military operation that deposed Mr. Maduro on January 3, which immediately halted crucial Venezuelan oil exports to Cuba. In contrast to the pressure on Havana, the United States has reopened a diplomatic mission in Caracas, with envoy Laura Dogu arriving to work on a “roadmap on matters of bilateral interest” with the post-Maduro Venezuelan leadership. This suggests a bifurcated strategy toward the former allies, leveraging the collapse of the Venezuela-Cuba energy axis to force political concessions from Havana.

While Mr. Trump expressed confidence that Cuba would capitulate and seek a deal, offering vague promises of being “kind,” the specific concessions sought remain unexplained, though he mentioned facilitating the return of exiles. Critics, including Russia’s Foreign Ministry, have accused Washington of “economic suffocation.” The immediate focus remains on whether Mexico will sustain its oil supplies despite U.S. threats, and what terms, if any, the Cuban government might accept to alleviate its deepening crisis.

Economy & Markets

India’s Budget Hikes Defense and Infrastructure Spending, Rattles Markets

Finance Minister Nirmala Sitharaman presented a Union Budget for 2026-27 on Sunday that boosts capital expenditure to a record Rs 12.2 lakh crore ($146 billion) and increases defense outlay by 15 percent to Rs 7.85 lakh crore ($94 billion). The fiscal roadmap is heavily weighted toward infrastructure-led growth and national security modernization, while also narrowing the fiscal deficit target to 4.3% of G.D.P. Prime Minister Narendra Modi framed the budget as an ambitious plan to elevate India to the world’s third-largest economy, with a focus on strategic sectors like semiconductors and rare earths.

Despite the positive headline spending, Indian equity markets reacted negatively, with benchmark indices crashing over 2 percent on Budget Day. The primary catalyst was a sharp hike in the Securities Transaction Tax on derivatives, with the tax on futures doubling to 0.05 percent. The move sparked aggressive selling, particularly impacting brokerage and exchange stocks. Simultaneously, the precious metals market saw a sharp correction, with gold and silver futures falling approximately 6 percent, driven by profit-taking and a stronger U.S. dollar, as the budget offered no relief on high import duties.

The budget also restructures rural aid, introducing a new employment guarantee act that caps the central government’s contribution at 60 percent, a move away from the previous structure. This drew immediate criticism from opposition figures like West Bengal Chief Minister Mamata Banerjee, who dismissed the budget as having “Nothing for common man.” Environmental experts also criticized a reduction in funding for pollution control, arguing it lacked a targeted approach for the severely polluted northern regions.

China Pushes Yuan Use as West Forges Critical Minerals Alliance

Beijing has signaled an intensified push for the renminbi to achieve global reserve currency status, with President Xi Jinping explicitly outlining the need for globally competitive financial institutions to support this ambition. This strategic financial maneuvering is occurring alongside tangible, albeit localized, adoption: Zambia has begun accepting yuan for mining taxes and royalties, cycling the currency back to Beijing to service debt. While experts suggest the move is a pragmatic response to acute U.S. dollar shortages, it establishes a precedent for other resource-rich, indebted African nations.

Concurrently, Western and allied nations are accelerating efforts to de-risk supply chains from Chinese dominance. A high-level summit in Washington involving the United States, the European Union, Japan, and Australia sought to forge a critical minerals alliance. Following the summit, Australia announced plans to establish a A$1.2 billion strategic reserve of elements like antimony and gallium. It is unclear, however, if the alliance will succeed, as the U.S. has reportedly decided against offering minimum price guarantees for these materials, a key incentive for private investment.

These events suggest a world increasingly bifurcated between China’s efforts to reshape the monetary order and the West’s concerted push to secure physical supply chains. The success of the yuan’s internationalization hinges on Beijing building the necessary financial infrastructure Mr. Xi described, while the effectiveness of the critical minerals alliance will be tested by the speed at which non-China supply chains can be scaled up and made economically viable.

Abu Dhabi Royal Invests $500 Million in Trump-Linked Crypto Venture

A crypto venture linked to Donald Trump, World Liberty Financial, secured a $500 million investment from investors backed by Sheikh Tahnoon bin Zayed al-Nahyan, the U.A.E.’s national security adviser, just before the presidential inauguration. The deal reportedly secured the Abu Dhabi royal entity a 49 percent equity stake in the company, which was established in late 2024 by Mr. Trump’s sons and the sons of Steve Witkoff, who is listed as the former president’s Middle East envoy.

A spokesperson for the company, David Wachsman, confirmed the investment but vehemently denied any connection to subsequent discussions regarding the transfer of advanced U.S. artificial intelligence chips to the U.A.E. The denial comes amid reports that Donald Trump and Sheikh Mohamed bin Zayed al-Nahyan previously announced plans for a massive A.I. data center campus in Abu Dhabi, a project that would require vast quantities of high-end American semiconductors.

The transaction immediately raises questions about the intersection of sovereign wealth, family business interests, and potential future U.S. policy decisions. Sheikh Tahnoon oversees a significant portion of Abu Dhabi’s non-oil assets, making the investment a direct infusion of Gulf capital into a politically sensitive American enterprise. Critics are likely to view the timing and scale of the investment—nearly half a billion dollars for a minority stake in a newly formed entity—as evidence of foreign entities seeking influence ahead of a potential second Trump administration.

Science & Innovation

Artemis II Prepares for Critical Fuel Test for First Moon Mission in 50 Years

NASA is intensifying preparations for the Artemis II mission, which aims to send four astronauts on a 10-day flight around the Moon, potentially taking them farther into space than any humans have gone before. A critical prelaunch test, a “wet dress rehearsal” involving the loading of over 700,000 gallons of propellant into the Space Launch System rocket, was delayed from its initial weekend schedule due to freezing temperatures at Kennedy Space Center. The test is a final, detailed countdown simulation designed to catch unforeseen issues before the actual launch.

The mission, the first crewed flight to the Moon in over 50 years, will carry astronauts Reid Wiseman, Victor Glover, Jeremy Hansen, and Christina Koch. Its trajectory is designed to push their Orion capsule approximately 4,700 miles beyond the far side of the Moon, surpassing the record set by the Apollo 13 crew. Lead flight director Jeff Radigan acknowledged the immense pressure, noting a 40-minute window during the flight where the crew cannot contact Earth.

The mission has drawn significant media attention, with coverage framing the flight not just as a technical achievement but as a historical return to deep space exploration that echoes the legacy of the Apollo program. The successful execution of this complex mission is vital for validating the hardware required for subsequent lunar landing attempts and future Mars endeavors. Attention will now pivot to the completion of the delayed fuel test and the subsequent confirmation of a firm launch date, targeted no earlier than next Sunday.

Developments to Watch

• Geopolitics: The expiration of the New START treaty on Thursday and any last-minute statements from Washington or Moscow regarding an extension. The outcome of the U.S.-Russia-Ukraine trilateral talks scheduled for Wednesday and Thursday in Abu Dhabi, particularly regarding any extension of the energy infrastructure ceasefire. The posture of U.S. and Iranian naval forces in the Persian Gulf following recent threats and diplomatic signals.
• Technology & Economy: Announcements of new data center groundbreakings in India by major cloud providers following the new tax holiday. The outcome of the House Rules Committee vote on the short-term U.S. government funding bill, which will determine the length of the partial shutdown. The daily passenger throughput at the Rafah crossing to gauge the sustainability of its reopening.
• Science & Innovation: NASA’s confirmation of a firm launch date for the Artemis II mission following the completion of its delayed “wet dress rehearsal.” The outcome of the Charity Commission’s regulatory compliance case against the U.K. charity William Blake House.

Social Signals

The social discourse among tech and finance leaders is intensely polarized, dominated by the release of Epstein-related documents which have become fodder for a partisan blame game. Beneath the political firestorm, however, substantive debates are unfolding around the rapid, convergent evolution of AI agents and a growing backlash against the degradation of online content quality. A sense of unease about the state of both politics and the information ecosystem pervades the commentary.

The Epstein Files Fuel a Partisan Blame Game

The release of documents related to Jeffrey Epstein has ignited a firestorm, with high-profile figures using the news to attack opponents, defend their own reputations, and call for action. Elon Musk is leading a vocal campaign for legal consequences, repeatedly stating that the silence of others implicated in the files is tantamount to guilt. He has positioned himself as a central figure in the fight for transparency, while also defending himself against what he calls inevitable smears.

“There need to be prosecutions”
— @elonmusk

Other tech figures with past, peripheral connections to Epstein are taking a more explanatory and defensive posture. Angel investor Jason Calacanis detailed his limited interactions with Epstein at conferences two decades ago, speculating that Epstein was likely a spy attempting to compromise influential people. Calacanis sought to draw a line between casual acquaintance and complicity, while also noting the failure to prosecute post-conviction is the “real smoking gun.” The issue is being heavily politicized, with AI luminary Yann LeCun amplifying content that links the Epstein affair directly to Donald Trump and Russian interests, illustrating how the unsealed documents have become a weapon in a broader ideological conflict.

AI’s “Crab-Like” Evolution Towards Real-World Agents

A distinct narrative is emerging around “carcinization”—the evolutionary theory that disparate species tend to evolve into a crab-like form—as a metaphor for AI development. Scale AI CEO Alexandr Wang applied the theory to the emergence of new AI platforms, noting that “nature always wants another crab.” This theme of convergent evolution toward practical, embodied agents is echoed by others in the field. AI researcher Hardmaru observed that the path to AGI appears to involve agents learning directly in the real world.

“It turns out the path to AGI involves a swarm of locally-hosted crustaceans. 🦞”
— @hardmaru

This focus on tangible application is reflected in new product launches and commentary. Social Capital’s Chamath Palihapitiya announced his “Software Factory,” an AI-powered system for enterprises to rewrite legacy code, while Shopify CEO Tobi Lütke praised the UI of a new “self-correcting agent.” The sheer speed of this convergent progress was highlighted by developer Pieter Levels, whose review of xAI’s new video model noted it went from a “joke” to a top-tier model in just six months, demonstrating how quickly the field is advancing toward a shared, highly capable form.

A Search for Signal in the Noise of AI-Generated “Slop”

A strong counter-current to the AI hype is a growing concern over the declining quality of online information. OpenAI founding member Andrej Karpathy captured this sentiment in a widely-shared post advocating for a return to RSS feeds to escape the “slop intended to provoke” on modern social platforms. He argues that any platform with engagement-based incentives will inevitably “converge to the same black hole.”

“Finding myself going back to RSS/Atom feeds a lot more recently. There’s a lot more higher quality longform and a lot less slop intended to provoke.”
— @karpathy

This search for quality is prompting new thinking on incentive structures. Ethereum co-founder Vitalik Buterin published a detailed proposal for a new model of “creator coins,” arguing that previous crypto-based attempts failed because they incentivized attention over substance. He contrasts this with Substack’s success, which he attributes to a hands-on, curated approach. Buterin’s proposed solution involves small, curated DAOs of high-quality creators who would collectively vet and elevate new talent. The problem is made more acute by the proliferation of low-quality AI, with Pieter Levels noting he now blocks nearly 200 AI reply bots per month and warning that “social media is going to be 99% AI by next year” at this rate.

Crypto Leaders Navigate Regulation and Market Philosophy

A key debate within the crypto space centers on the industry’s relationship with regulators and its core economic philosophy. Coinbase CEO Brian Armstrong is actively shaping this narrative, arguing for a “positive sum” view of capitalism where a vibrant, competitive market benefits everyone. He frames his advocacy for certain regulatory frameworks—which may not be in Coinbase’s direct short-term interest—as a principled stand for consumer liberty against competitors who are “trying to use the government to block their competition.” This position was highlighted by Y Combinator co-founder Paul Graham, who shared analysis praising Armstrong for prioritizing the health of the market ecosystem over narrow corporate profit.