Dragoman Digest

‍Saudi Arabia, Türkiye and Pakistan formalise alternative Middle East security architecture

The trilateral defence pact represents a hedge against US unpredictability

In early August, Saudi Arabia, Türkiye and Pakistan signed the Mecca Joint Defence Pact. The pact brings together a leading Arab nation, Saudi Arabia, NATO member Türkiye and nuclear-armed Pakistan under a mutual security clause, which broadly resembles NATO’s Article 5. At its core, the pact is a response to growing concerns over US reliability and deterrence. Despite being welcomed by President Trump for its perceived burden sharing, the agreement marks a shift away from sole reliance on the US and the former regional ‘hub and spokes’ structure under which militaries in the region coordinated via US Central Command (CENTCOM). For Saudi, the pact formalises its aspiration to be the convenor of the Sunni bloc, and cements its status as a regional power.

There are, however, questions around how the countries will implement the pact. As well as contending with Iran’s blockade of the Strait of Hormuz, Saudi is facing renewed conflict with Yemen’s Houthis and deepening fraternal tensions with the UAE. As with NATO’s Article 5, the mutual defence clause under the pact is only activated when requested by the country under attack. Saudi is unlikely to invoke the mutual defence clause for events that can be handled unilaterally. This includes recent Houthi strikes on domestic oil infrastructure and the escalating fighting within Yemen. Pakistan would also feel that its role as a mediator in the Iran conflict is too valuable to readily sacrifice.  Pakistan has previously refused Saudi requests to be involved in Yemen.

One possible test case for enhanced military cooperation under the Mecca Pact could be Israeli adventurism in Syria, which has alarmed both Ankara and Riyadh. Both nations have strong reasons of their own to oppose Israel’s strikes on Syria and to support Syrian sovereignty. However, years of strained bilateral relations between Saudi and Türkiye mean that military cooperation will need to be handled carefully.

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US draws line in the sand on membership of its AI supply chain initiative

An overtly anti-China posture risks offsiding key members without more tangible benefits

Last week, the US issued a letter to 35 countries affiliated with its ‘Pax Silica’ initiative warning against joining China’s competing World Artificial Intelligence Cooperation Organization (WAICO). Pax Silica is an economic security grouping spanning the ‘physical backbone’ of AI, from critical minerals and energy to advanced manufacturing and data centres. The letter was reportedly prompted by Kazakhstan’s accession to both initiatives across June and July, but also comes as the US’s AI lead is increasingly challenged by China. In April, several months before the release of China’s most competitive model to date, the Stanford AI Index assessed that “the US-China AI model performance gap has effectively closed”.

The US has previously avoided framing Pax Silica as an explicitly anti-Chinese initiative, and risks alienating a significant portion of Pax Silica’s signatories with the letter. Countries including Chile, Qatar, the UAE and Singapore have sought close economic ties with China, including on AI. The economic and political benefits of Pax Silica membership may not be enough to convince members to definitively choose a side on AI. All of Pax Silica’s current initiatives are early stage, including a vaguely defined ‘Economic Security Zone’ in the Philippines, and a US$250 million fund for critical minerals.

One of Washington’s central objectives for Pax Silica is to win greater access to critical minerals resources across Central Asia, the Middle East, and Latin America. However, there appears to be a potential dissonance between the objectives of the US and other signatories. Upon joining Pax Silica in June, Kazakhstan’s Deputy Prime Minister Khaslan Madiyev noted the country’s desire to “move beyond the role of a raw materials supplier” and advance its ambitions to be a regional AI hub. The corresponding US press release made no mention of processing, instead referencing Kazakhstan’s “significant reserves of minerals… including rare earth elements”.

Chile targets revitalisation of embattled state miner Codelco

Chile’s strategic bet on copper price rises will require short-term pain

Chile’s state miner Codelco, the world’s largest copper producer, has long struggled to meet its quotas despite growing demand for the metal. In 2025, production at the miner fell to the lowest in nearly three decades, marking a 19% decline since 2021. Codelco’s finances also remain strained, with the miner amassing over US$20 billion in debt, fuelled by devastating floods and large-scale mine expansions. Successive Chilean governments have generally only acted to compound this decline by collecting around 70% of Codelco’s profits to fund repeated fiscal deficits.

Chile’s new government, however, is seeking to restore Codelco’s financial health and long-term prospects. President José AntonioKast, who campaigned on a pro-mining and economic austerity platform, has allowed Codelco to retain and reinvest all of last year’s US$2.42 billion in profits. This is the first time that a Chilean government has granted this provision since 1976.

The notable concession is slated to provide essential financial relief for the miner as it targets its continued expansion. More broadly, the move hints at Chile’s own wager on copper.  The global economy is facing a 10 million tonne copper shortfall by 2040 without major investment.  Global demand is soaring due to copper’s usage in clean energy and AI-related infrastructure. With Chile harbouring the largest copper reserves in the world, any significant price rise will deliver wide-reaching economic benefit – even if Kast’s decision will delay his  aim of reducing the budget deficit. Experts have warned that Codelco will need to improve its effective use of capital if Kast’s bet is to pay off.

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Malaysia’s AI boom faces sustainability questions

The rapid build out faces mounting pressure from local opposition and potential US export controls

Amid the global AI race, Malaysia has quietly become a major player. Malaysia has capitalised on its strengths in lower-end chip manufacturing and emerged as a regional destination of choice for the data centre buildout. In the second quarter of this year, Malaysia’s economy grew by 6% year-on-year, up from 5.4% the previous quarter. Growth was powered by a 7.5% rise in manufacturing and a 6.6% expansion in construction, both driven by AI-related investment. Despite lacking marquee semiconductor companies like Taiwan’s TSMC and South Korea’s Samsung, Malaysia has captured significant market share in back-end processes including packaging, testing and assembling. The chip industry now represents 40% of Malaysia’s exports, with Malaysia being the world’s sixth biggest exporter of semiconductors. Foreign direct investment also rose 41% year-on-year to US$16 billion. Since 2024, Microsoft and ByteDance have both made multi-billion-dollar data centre investments. 

Yet, there are signs that Malaysia’s data centre build out may be facing headwinds. The epicentre of Malaysia’s data centre is in the southern state of Johor, where local protests are intensifying over concerns surrounding data centres’ demands on water and energy resources. Johor, which has the advantage of proximity to Singapore, now accounts for 76 of Malaysia's 187 operational and planned data centres.

US export controls may prove more problematic. Under pressure from the US, Kuala Lumpur has already begun tightening monitoring of semiconductor exports, responding to concerns in Washington that Malaysia serves as a hub for chip smuggling into China. More worryingly, there are signs that the US is moving to crack down on a glaring loophole in export control laws which allows Chinese companies to access cutting-edge Nvidia chips in data centres outside China. ByteDance is among several Chinese companies training AI models using data centres in Malaysia and elsewhere in Southeast Asia. Restrictions on the ability of data centre tenants in Malaysia to access the most advanced chips would deprive the country of a key selling point for investors.

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