FP’s Situation Report: Obama warns not to overstate Islamic State threat; U.S. considers arming Ukraine; Nigerian army scores a victory; and much more from around the world.

By David Francis with Sabine Muscat

Obama: Don’t overstate the Islamic State threat. The terror group moved across Syria and Iraq with ease, and Iraqi and Kurdish forces have made limited gains in turning it back. Still, President Barack Obama warned not to inflate the group’s capabilities. FP’s Kate Brannen: “The Islamic State brags about its ability to administer services and promotes itself as an alternative to the corruption and poor governance of the Syrian or Iraqi government, but reports of poverty, inflation, water shortages, and power outages are emerging from cities like Mosul in Iraq.”

More on the Islamic State below.

Failing sanctions strategy could raise the stakes in Ukraine. U.S. economic penalties against Russia aren’t stopping Russian President Vladimir Putin from meddling in Ukraine. As fighting between pro-Russian separatist and Ukrainian troops rages on, there is growing momentum from within the Obama administration to send weapons. The New York Times’ Michael R. Gordon and Eric Schmitt: “In recent months, Susan E. Rice, Mr. Obama’s national security adviser, has resisted proposals to provide lethal assistance, several officials said. But one official who is familiar with her views insisted that Ms. Rice was now prepared to reconsider the issue.”

More on Ukraine below.

Nigeria finally scores a victory against Boko Haram. For months, the Islamic terror group has faced tepid resistance from Nigeria’s army. This weekend Nigeria’s security forces successfully defended Maiduguri, the biggest city in the country’s northeast. The Associated Press’s Haruna Umar and Michelle Faul: “Terrified residents fled homes that shook during five hours of heavy artillery fire and streamed in from the outskirts of the besieged city of 2 million, already crowded with an additional 200,000 refugees from the fighting.”

More on Boko Haram below.

PRESS PACK: The beheading of the Islamic State’s Japanese hostage Kenji Goto.

FP’s Kate Brannen on the release of a video showing the beheading: “Goto says nothing in the video before he is killed. The video does not show the beheading but Goto’s head is lying on top of his body as the video ends.”

The Washington Post’s Peter Holley and Anna Fifield on Japanese Prime Minister Shinzo Abe: “Abe, who has been trying to put Japan on a more ‘normal’ footing and relax the post-World War II restrictions on the military, said he was ‘infuriated by these inhumane and despicable acts of terrorism.’”

The Guardian’s Justin McCurry and Martin Chulov: “Jordan said an exhaustive trawl for proof that its downed pilot was still alive had turned up nothing.”

The New York Times’ Rod Nordland on whether the Islamic State managed to scare Jordanians: “Analysts who study terrorist groups were skeptical, and many said the militants’ tactics had backfired badly.’”

Nikkei’s Hirofumi Matsuo: “The Middle East is a crucial supplier of oil for energy-hungry Japan. In addition to stepping up efforts to protect its own citizens, the Japanese government must do its part to stabilize the region, which is buffeted by sectarian violence.”

Welcome to Monday’s edition of the Situation Report, where we want to give a shout out to Larry B., who had the closest prediction on the Patriot’s win last night — with an especially astute prognostication that an interception would decide the game.  

Connect with me at david.francis@foreignpolicy.com and @davidcfrancis and spread the word about SitRep — your robot tiger-riding destination for global security news and Washington whatnot. Like what you see? Tell a friend. Tell your colleagues. Don’t like what you see? Tell me. Or holler with tips, reports, or anything else the world needs to know, and I’ll try to include it.

WHO’S WHERE WHEN TODAY

11:45 a.m. President Obama delivers remarks on his budget proposal for 2016 at the Department of Homeland Security. 1:00 p.m. Secretary of State John Kerry meets with Qatari Foreign Minister Khalid Al Attiyah. 2:00 p.m. The Brookings Institution hosts a panel on “Global Effects of the Oil Price Crash.” 2:00 p.m. The Atlantic Council hosts a panel on “The Ukraine Crisis: Withstand and Deter Russian Aggression.” 5:30 p.m. Senate votes on the Clay Hunt Suicide Prevention for American Veterans Act.

WHAT’S MOVING MARKETS

Writing for Foreign Policy, Matthew Brunwasser on Bechtel’s questionable dealings in Kosovo: “The 48-mile, four-lane Kosovo Highway, as it is known, was completed in November 2013 for roughly $1.3 billion.… But today, the highway is practically empty.”

Der Spiegel staff on Germany’s new nemesis Alexis Tsipras: “They view Tsipras as Europe’s nightmare. Tsipras is the anti-Merkel, and he never would have achieved this kind of political success were it not for the German chancellor.”

Reuters’s Angeliki Koutantou: “Greece’s leftist government on Sunday began its drive to persuade a skeptical Europe to accept a new debt agreement.”

BUDGET DAY! Obama delivers his 2016 spending plan to Congress today, sending number crunchers scurrying to pore through the details in a document as big as a phone book.

The Washington Post’s Greg Jaffe on Obama’s request for $561 billion for Pentagon expenditures: “There’s broad consensus in both parties that the military needs more money to modernize its forces.”

The Wall Street Journal’s Nick Timiraos and John D. McKinnon on Obama’s opening gambit on taxes: “Mr. Obama wants U.S. companies to pay a 14 percent tax on the approximately $2 trillion of overseas earnings they have accumulated.”

USA Today’s David Jackson on the death of sequestration: “The budget will call for 7 percent increases over sequestration limits for national defense and domestic programs.”

The New York Times’ Jonathan Weisman: “Should Washington worry about what may be the defining economic issue of the era — the widening gap between the rich and everyone else — or should policy makers primarily seek to address a mountain of debt that the White House hopes to control?”

ISLAMIC STATE: With Islamic State pushed back, the vast extent of the destruction in Kobani is revealed.

The New York Times’ Tim Arango: “More than 700 airstrikes from the American-led coalition pounded this city for nearly five months — more than in any other place in Syria or Iraq, where the Islamic State controls a vast territory that straddles the border between the two countries.”

The New York Times’ Eric Schmitt and David E. Sanger on cyberwar in Syria: “The Syrian conflict has been marked by a very active, if only sporadically visible, cyberbattle that has engulfed all sides, one that is less dramatic than the barrel bombs, snipers and chemical weapons — but perhaps just as effective.”

UKRAINE CONFLICT: New fighting erupts after peace talks in Belarus fail.

Bloomberg’s Daryna Krasnolutska and Kateryna Choursin: on the breakdown of peace talks in Minsk: “Fighting between government forces and rebels in the regions of Donetsk and Luhansk has intensified, deepening the worst standoff between Russia and the U.S. and Europe since the Cold War.”

AFGHANISTAN: As the international presence diminishes, tribal law returns.

The New York Times’ Azam Ahmed: “Frustrated by Western-inspired legal codes and a government court system widely seen as corrupt, many Afghans think that the militants’ quick and tradition-rooted rulings are their best hope for justice.”

NIGERIA: The Nigerian army got help from vigilantes in its fight against Boko Haram.

The Wall Street Journal’s Drew Hinshaw: “As they entered the city, hundreds of local hunters and vigilantes, armed with muskets and machetes, rushed to meet them.”

MIDDLE EAST: Egypt releases Australian journalist.

Al Jazeera on Egypt releasing one of its own journalists, Peter Greste, after more than 400 days in prison: “Australian Foreign Minister Julie Bishop said on Sunday that Greste had arrived in Cyprus and was ‘desperate’ to return to his native Australia.”

IRAN: Washington insists Iran has no choice but to make a nuclear deal.

The Wall Street Journal’s Jay Solomon and William Mauldin: “Iran’s economy is now fundamentally incapable of recovery without a nuclear accommodation with the West, increasing Washington’s leverage in final negotiations with Tehran, said the Treasury Department’s outgoing sanctions czar David Cohen.”

YEMEN: The Houthis threaten to take power as U.S. drone strikes continue.

Al Jazeera on a Houthi deadline: “The Houthis issued the ultimatum at a meeting on Sunday telling politicians ‘to reach a solution and fill the vacuum’ within three days or ‘the revolutionary leadership’ would ‘take care of the situation of the state.’”

Reuters on a drone strike and a drone crash in Yemen over the weekend: “The incidents suggest there has been no letup in the U.S. stealth programme against suspected militants despite the resignation of the president who backed the programme.”

ASIA-PACIFIC: South Korea and the United States differ on North Korea; China builds a second aircraft carrier as its Muslim minority flees.

The Washington Post’s Anna Fifield: “Differences between the United States and South Korea over their approach to North Korea are becoming increasingly apparent, and Seoul’s interest in exploring renewed contacts with its estranged Communist sibling could call into question the likely success of the Obama administration’s harder line.”

South China Morning Post’s Laura Zhou on China building its second aircraft carrier: “A city government microblog and an official newspaper in Changzhou, Jiangsu province, separately mentioned on Saturday that a power cable manufacturer in the city had ‘won a tender for the second aircraft carrier.’ The sources cited a city government economic and information technology conference held on Friday.”

The Wall Street Journal’s Jeremy Page and Emre Peker report on China’s Muslim minority population fleeing to Southeast Asia and Turkey: “Fearing Uighur separatists are adopting the ideology and tactics of jihadists, China wants to shut down what state media call the ‘underground railway.’”

EBOLA: The terror of last year’s outbreak subsides as the Ebola epidemic wanes.

The New York Times’ Norimitsu Onishi on Liberia’s return to normality: “People can be seen shaking hands once again, squeezing into taxis and touching during conversations, as the fear of the virus ebbs and Liberians slip back into their daily, tactile rhythm.”

REVOLVING DOOR

The Washington Business Journal’s Jill R. Aitoro: “DLT Solutions, which resells government information technology software and services, changed hands from one private equity owner to another, bringing new leadership and a headquarters move this summer.”

AND FINALLY, a neck-and-neck race for the best commercial (in SitRep’s opinion) from last night’s Super Bowl: Angry Neeson or First Draft?