Transboundary river basins face water stress exacerbated by data scarcity and political instability, and most allocation models require ideal conditions that ordinarily do not exist. This study operationalizes Water Diplomacy Theory (WDT) for data-scarce, conflict-prone basins through quantifiable allocation rules—a critical gap as 310 transboundary basins worldwide face similar challenges. We address: (1) How can a four-stage allocation framework reduce basin-wide water stress under varying Institutional Capacity (IC), Data Transparency (DT), and Stakeholder Inclusion (SI)? (2) What treaty provisions achieve bindingness under upstream-downstream power asymmetries? (3) How does this framework advance beyond existing models in equity, efficiency, and adaptive capacity? We synthesize Water Diplomacy Theory with Hydro-political Security Complex Theory to construct a novel four-stage framework: initial allocation with ecological floors, conditional reallocation triggers, interannual water banking, and satellite-verified compliance. Drawing on 14 treaty precedents and 30-year hydrological data for the Salween River, we embed these rules in an open-source water banking model. Results demonstrate that increasing IC from low to high reduces basin-wide water stress by 34% (±7%, 95% IC) under drought conditions. Stakeholder Inclusion decreases allocation conflicts by 52%. Water banking outperforms priority rules by 23% across climate scenarios. Cooperation becomes self-enforcing when IC exceeds 0.55. The novelty and contribution to existing literature our study provides are: (1) first operationalization of hybrid commons-to-treaty transition with 85.7% empirically grounded clauses; (2) evidence that binding cooperative treaty design is achievable in weak-state contexts through institutional design; and (3) a portable template for data-scarce conflict-affected basins.