MIDEAST: Escalation In Yemen Raises Stakes Between Saudi & UAE
The political situation in Yemen continues to deteriorate, running the risk of further heightened tensions between two of the Gulf's most powerful countries: Saudi Arabia and the UAE. On 2 January, the Saudi Foreign Ministry called for "a comprehensive conference in Riyadh to bring together all southern factions to discuss just solutions to the southern cause" on 7 January [today]. This came after the UAE-backed Southern Transitional Council, led by Aidarous al-Zubaidi, declared a new constitution and a two-year transition that would presage an independence referendum.
- In the event, the STC sent a delegation but al-Zubaidi remained in southern Yemen. After this, as well as reports the STC were making moves to take over the port city of Aden, the internationally-recognised Yemeni gov't, headed by the Saudi-backed Presidential Leadership Council (PLC), dismissed al-Zubaidi from the Council. He has since been referred to the attorney general for “high treason”. Saudi Arabia subsequently carried out up to 15 airstrikes on the al-Dahle province aimed at halting the STC. This follows operations over the weekend that saw the Yemeni gov't reclaim the Hadramout governorate from the STC.
- While the conflict is largely self-contained in Yemen, the broader political implications in the Middle East could prove more destabilising. The UAE and Saudi Arabia have two of the largest militaries in the region. While direct confrontation is extremely unlikely, a sustained proxy power struggle between the two (already evidenced in Sudan) risks cooperation. CNN reports "Saudi Arabia is now leveling against the UAE the very accusation that Riyadh and Abu Dhabi once made of Iran: that backing non-state actors in the region threatens security – a reversal unfolding as Tehran’s influence weakens and competition for power intensifies."
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SECURITY: US-Greenland Joint Statement Shows Little Sign Of Previous Rancour
The US-Greenland joint committee has issued a statement following a meeting earlier today in the Greenlandic capital, Nuuk. The two sides claim to have "reaffirmed our commitment to a strong and forward-looking relationship based on mutual respect and grounded in shared interests and practical cooperation. We discussed priorities for continued collaboration on areas of mutual interest. The United States and Greenland look forward to building on this momentum in the year ahead and strengthening the ties that support a secure and prosperous Arctic region."
- Compared to the 2024 statement, conducted under the Biden administration, the 2025 statement is noticeably briefer and more vague, with nothing in the way of concrete areas of cooperation that were identified 14 months ago. The last meeting took place before incumbent US President Donald Trump's aggressive demands in early 2025, demanding Denmark transfer sovereignty of Greenland to the US on national security grounds, sparking a significant deterioration in Danish-US relations and condemnation from Denmark's European allies.
- Nevertheless, the fact that the statement talks of cooperation and shared interests marks a notable calming of rhetoric from when the issue of Greenland's sovereignty threatened to boil over at the start of the year.
- A trilateral meeting of the 'permanent committee' involving the US, Greenland, and Denmark is also set to take place, with the new US ambassador to Denmark, Paypal co-founder Kenneth Howery and Greenland's Foreign Minister Vivian Motzfeldt taking part (Denmark has not confirmed who will participate from its side yet).
OPTIONS: Larger FX Option Pipeline
- EUR/USD: Dec10 $1.1580-81(E1.7bln), $1.1800(E1.7bln); Dec11 $1.1595-00(E3.1bln), $1.1610(E3.4bln), $1.1800(E1.7bln); Dec12 $1.1550(E1.3bln)
- USD/JPY: Dec11 Y154.95-00($1.1bln), Y156.00($1.8bln); Dec12 Y155.00($1.0bln)
- GBP/USD: Dec12 $1.3240-55(Gbp1.1bln)
- AUD/USD: Dec11 $0.6550(A$1.6bln)
- USD/CNY: Dec10 Cny7.1088($1.2bln)
US TSY OPTIONS: Mar'26 10Y Vol Buyer
- +6,000 TYH6 112 straddles, 2-00 vs. 112-07.5/0.06%
