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FP’s Situation Report: Islamic State brutally murders Jordanian hostage; Jordan responds with executions; Oil fails the Islamic State; U.S. eases foreign surveillance; and much more from around the world.

FP’s Situation Report: Islamic State brutally murders Jordanian hostage; Jordan responds with executions; Oil fails the Islamic State; U.S. eases foreign surveillance; and much more from around the world.

By David Francis with Sabine Muscat

The Islamic State sets a new standard for savagery. Jordan’s government had been negotiating in good faith to secure pilot Moaz al-Kasasbeh’s release. But according to Jordanian television, the terror organization was playing a sick game: The hostage was burned alive a month ago and his brutal death was videotaped. Now, there are growing fears a 26-year-old American aid worker held hostage by the group could meet a similar fate. FP’s Seán D. Naylor and Lara Jakes: “The bloody failure of Amman’s attempts to bargain with the Islamic State means that the United States may have no real options, short of military force, for winning the release of the aid worker.”

Jordan takes revenge by killing two al Qaeda prisoners in pre-dawn executions. The Jordanian government hung Sajida al-Rishawi, the failed suicide bomber offered in a trade for Kasasbeh, and Ziad al-Karbouly, who has been on death row since 2008 for planning terror attacks. The Associated Press’s Omar Akour and Karin Laub: The Islamic State’s “brutality against a fellow Muslim could backfire and galvanize other Sunni Muslims in the region against them.”

The Islamic State is no longer a petrostate. Revenue from its illicit oil trade paid for the group’s initial charge across Iraq. Experts estimated the terror organization earned $1 million to $3 million per day during the summer. But the Pentagon says the U.S.-led air campaign and low oil prices have combined to scuttle the Islamic State’s budding energy sector, FP’s Kate Brannen reports.

More on the Islamic State below.

The United States eases its foreign snooping. The world was up in arms when Edward Snowden revealed the extent of the U.S. government’s post-9/11 spying efforts on foreign nationals and politicians. Now, after more than a year of wavering, the White House has taken a bold step. FP’s Gopal Ratnam on President Barack Obama’s decision to give foreigners the same privacy and civil liberty protections available to Americans, a decision “unprecedented in the annals of global spying.”

PRESS PACK: Islamic State films the execution of its Jordanian hostage

FP’s Elias Groll: “The brutal video is both one of its most violent and most slickly produced. Filled with wire-frame drawings and digitized cuts that dissolve its subjects in a flicker of pixels, the video uses Kasasbeh to attack the U.S.-led military campaign against the Islamic State.”

The Washington Post’s Adam Taylor: “As recently as Sunday, Amman had reiterated its offer to swap Kasasbeh for Sajida al-Rishawi, a failed Iraqi suicide bomber held by Jordan since 2005, whose release the Islamic State had demanded.”

The Wall Street Journal’s Asa Fitch, Suha Ma’ayeh, and Maria Abi-Habib: “After state media reported on Tuesday that the pilot was killed Jan. 3, many Jordanians wondered whether the government was sincere when it claimed to be negotiating Lt. Kasasbeh’s release with Islamic State.”

The New York Times’ Rod Nordland and Ranya Kadri on a family’s grief: “No one dared let them know right away that Lieutenant Kasasbeh’s tormentors had apparently burned him alive inside a cage, a killing that was soon described as the most brutal in the group’s bloody history.”

Welcome to Wednesday’s edition of the Situation Report, where we’re hoping Ash Carter performs better today in front of the Senate than Chuck Hagel did back in 2013.

Connect with me at david.francis@foreignpolicy.com and @davidcfrancis and spread the word about SitRep — your 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

9:30 a.m. The Senate Armed Services Committee holds a hearing on Ashton Carter’s nomination for secretary of Defense. 10:00 a.m. The House Committee on Foreign Affairs holds a hearing on U.S.-Cuba relations. 12:00 p.m. Robert S. Litt, general counsel of the Office of the Director of National Intelligence, speaks at the Brookings Institution on “U.S. Intelligence Community Surveillance One Year After President Obama’s Address.” 1:30 p.m. The Woodrow Wilson Center hosts a panel on “Falling Oil Prices: Changing Implications for Global Producers.” 2:00 p.m. The Brookings Institution hosts a panel on “Countering Violent Extremism: Improving Our Strategy for the Future.”

WHAT’S MOVING MARKETS

FP’s Keith Johnson on a brief uptick in oil prices: “[T]he nature of the rebound … offers a cautionary word about why it’s happening — and suggests there will be more, not less, market volatility in the months to come.”

The New York Times’ Clifford Krauss on cuts to energy subsidies: “The cuts are just a small fraction of the global total of annual subsidies, but energy experts say they are beginning to add up.”

The Washington Post’s Anthony Faiola on Greece taking aim at German Chancellor Angela Merkel: “In a high-risk diplomatic offensive, the new Greek government is seeking to roll back the tough austerity measures imposed by its massive bailout during the European debt crisis.”

The New York Times’ Mark Mazzetti, Eric Schmitt, and David D. Kirkpatrick on Saudi attempts to use oil to make Russia give up on Syria: Saudi Arabia is “using its dominance of the global oil markets at a time when the Russian government is reeling from the effects of plummeting oil prices.”

ISLAMIC STATE: China is worried Japan’s military could grow. Iraqi Christians take up arms. Plus, al Qaeda member Zacarias Moussaoui claims support from the house of Saud.

McClatchy’s Stuart Leavenworth: “In Beijing, concerns over Tokyo’s possible response to the beheadings — a buildup of Japan’s military — trumped diplomatic niceties.”

The Wall Street Journal’s Nour Malas: “Fresh recruits to a new Iraqi Christian militia said their families were abandoned to militants by government forces last summer and they seek to create a force that will keep their towns and villages safe even after Islamic State is defeated.”

The New York Times’ Scott Shane: “[A] former operative for al Qaeda has described prominent members of Saudi Arabia’s royal family as major donors to the terrorist network in the late 1990s and claimed that he discussed a plan to shoot down Air Force One with a Stinger missile.”

UKRAINE CONFLICT: Ukraine launched a new effort to combat corruption within its government as its security forces lose ground in the east.

FP’s Jamila Trindle on problems within Ukraine’s tax system: “The government would require a huge upfront tax payment and then withhold the refund companies were legally due.”

Newsweek’s Oliver Carroll on heavy fighting at the contested Donetsk airport: “During the week before it fell, the Ukrainians inside were steadily beaten down to the second and third floors of the building; and then, by Saturday, to just a part of the second floor.”

AFGHANISTAN: DoD’s intel chief says there’s roughly a 20 percent chance prisoners swapped for Bowe Bergdahl could return to battle.

FP’s David Francis: The “acknowledgment of the risks of recidivism came after reports last week that one of the five prisoners reached out to the al Qaeda linked Haqqani network, which has killed hundreds of American soldiers.”

EUROPE: The Belgians killed last month in terror raids are suspected to have fought in Syria. Meanwhile, three soldiers were attacked near a Jewish center in France.

The Wall Street Journal’s Matthew Dalton: The two suspects killed “appear to be among a number of Belgian citizens with links to Katibat al-Battar, a group of Libyans believed to have fought in their home country before moving to Syria to battle the regime of President Bashar al-Assad.”

The BBC: The attacker in France “has been named by the mayor as Moussa Coulibaly, aged 30 and of Malian origin, but there appears to be no link with the Paris gunman Amedy Coulibaly, who killed four people in a Jewish supermarket in January.”

ARGENTINA: The strange case of the death of an Argentine prosecutor takes another turn.

The New York Times’ Simon Romero: “Alberto Nisman, the prosecutor whose mysterious death has gripped Argentina had drafted a warrant for the arrest of President Cristina Fernández de Kirchner, accusing her of trying to shield Iranian officials from responsibility in the 1994 bombing of a Jewish center here.”

ASHTON CARTER: Expect a relatively easy confirmation although lawmakers can press for details on the president’s Islamic State strategy.

Writing for Foreign Policy, Mark R. Kennedy: “President Obama asserts that the United States’ goal is to ‘degrade and ultimately destroy ISIL.’ Then what? Assuming that we accomplish that formidable task, who governs the territory in Syria now controlled by the Islamic State?”

MIDDLE EAST AND AFRICA: Fighting erupts in Libya for control of the country’s biggest oil port, Es Sider. Houthis threaten to seize power in Yemen while Nigeria’s Goodluck Jonathan gets a pre-election surprise on missing oil revenue.

Reuters on Libyan clashes: “The fighting came a day after the United Nations said it was seeking a ceasefire to pave the way for a new round of peace talks between rival factions operating two opposing governments, nearly four years after Muammar Gaddafi’s overthrow.”

The Wall Street Journal’s Asa Fitch and Hakim Almasmari: “As the new deadline for a deal approaches, Yemeni political leaders say little consensus has been achieved on how the country should be run.”

The Financial Times’ William Wallis: “Goodluck Jonathan, the Nigerian president, has received a long awaited audit into billions of dollars of allegedly ‘missing’ oil revenues just 11 days before a closely fought presidential election.”

NORTH KOREA: Pyongyang says it doesn’t want to talk with Washington.

AFP’s Park Chan-Kyong: “The statement from the country’s top military body, the National Defence Commission (NDC), came after reported moves by Washington and Pyongyang to revive long-stalled six-nation talks on denuclearisation.”

CUBA: Senate hawks slam Obama’s outreach to Havana as Cuba releases proof of life photos of Fidel Castro.

FP’s John Hudson: The criticism came “despite a significant drop in the number of political opponents detained by the communist state since the two nations announced plans to restore diplomatic relations in December.”

The Miami Herald’s Mimi Whitefield on Cuban government websites publishing “a recent interview and photo session with the former Cuban leader.”

AND FINALLY, the Washington Post’s Craig Whitlock on Jill Kelley and a scandal in Tampa that led to the forced resignation of CIA Director David H. Petraeus and the early retirement of Marine Gen. John Allen, who now heads the Obama administration’s diplomatic effort to defeat the Islamic State: “In late 2012, Kelley’s talent as a Tampa hostess and her knack for charming men in uniform indirectly triggered one of the most embarrassing national security scandals of the past decade.”