US-Iran Tensions Flare as Trump Says Ceasefire Is Weakened | Balance of Power

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0:25 Upward pressure on oil prices once again

0:27 back north of a hundred and four closing

0:29 in on a hundred and five dollars a barrel again as there appears to be

0:32 no sign of diplomatic progress between the United States and Iran when it comes

0:36 to reopening the Strait of Hormuz

0:38 or on any other issues including Iran's nuclear program.

0:41 We heard from President Trump in the Oval

0:43 Office earlier today that he has a plan.

0:45 It's a simple one.

0:46 He says a great plan, Iran can't have a nuclear weapon.

0:50 The problem is in the proposal a response to the proposal that Iran sent back,

0:55 the president said in their letter they

0:57 didn't commit to not having a nuclear weapon.

0:59 Therefore in his mind that proposal was garbage and he says

1:03 that has all led to the ceasefire being in a weak place.

1:05 Listen.

1:07 Unbelievably weak.

1:09 How would I say?

1:09 I would call it the weakest right now.

1:13 After reading a piece of garbage they sent us,

1:15 I would say the ceasefire is on massive life support.

1:21 At the beginning of that hour and 15 minute long event,

1:24 the president made clear he had a room full

1:26 of generals waiting on him and now Axios reporting

1:30 he did in fact go into a meeting

1:31 with his top military advisers to talk about potential military options.

1:37 Secretary Chris Wright,

1:38 the energy secretary on CBS's Face the Nation yesterday saying if it's clear

1:42 the next few days there's not a good path to a negotiated settlement,

1:46 we'll go back to the military method to open the strait.

1:49 That's where we start our conversation with Adam Fair.

1:52 With us of course from Bloomberg

1:53 Economics geo-economics analyst for Asia Pacific

1:57 with a good hand on what's happening right now in the Middle East.

1:59 Adam, it's great to see you.

2:00 Are we as good as going back to war?

2:03 So, the president seems to be jumping to the conclusions

2:05 that many of us reached last week, right?

2:07 Where we saw Iran and the United States exchanging fire,

2:10 the United States actually destroying vessels in the Strait of Hormuz

2:13 that were theoretically attacking both US

2:16 naval vessels and commercial vessels moving through,

2:19 but also attacks on regional partners including

2:21 the UAE and over the weekend Kuwait.

2:23 So, the the fact that he has come

2:26 to this conclusion at this point is not terribly surprising.

2:28 What is interesting is what we're now learning about Iran's response, right?

2:32 Iran, after now this prolonged multi-month war,

2:37 finds itself actually relatively confident, it appears,

2:40 because its response to the to President

2:42 Trump's outreach was actually almost identical to what

2:44 it said weeks ago in terms of what its demands would be with limited change.

2:48 And and that speaks to what they see as their red lines,

2:51 which is their nuclear program and now controlling the Strait of Hormuz.

2:55 Now, these simply don't align with the United States and I

2:58 think a a clear impression into Iran that they are,

3:00 you know, in holding on to leverage in this negotiation.

3:04 Well, so becomes a question of if the US

3:06 is able to extract enough leverage to get that needle

3:09 to move or if it's going to have

3:10 to come from other external forces like, for example, China.

3:13 The president obviously has a meeting a rescheduled

3:16 meeting with Xi Jinping in Beijing this week.

3:19 He had rescheduled it from the end of March with the hope that this war

3:23 would be wrapped up by the time we got around to this new data.

3:27 Is it ultimately China that's going to have to have

3:30 a say as to when this reaches a conclusion?

3:32 So, from our perspective, there's no doubt that that will be on the table

3:36 when when President Trump arrives in Beijing, right?

3:39 President Xi is is deeply concerned about

3:41 the instability that's growing and remains in the region

3:44 and the loss of the free flow of oil

3:47 to China that China is reliant on from the region.

3:50 But at the same time, I think we have to be cautious about what is

3:53 really going to come out of this on the Iran issue.

3:56 They will discuss it, but I think it's highly unlikely that we

3:58 see new outcomes or deliverables specifically on the conflict.

4:02 And that's both because President Xi, while interested in this resolution,

4:06 has taken a relatively backseat approach to China's

4:09 involvement in negotiating the outcome of the war,

4:11 supporting Pakistan as a key mediator, but not stepping in itself.

4:15 It will continue to play an important role

4:17 pushing both Tehran and potentially the Gulf to moderate.

4:20 But, it's not going to It does not appear that Xi

4:22 is willing to use his trade leverage on the United

4:24 States to extract anything with his focus really being

4:28 on the the trade truce and maintaining that moving forward.

4:32 A race against time is how Morgan

4:34 Stanley describes the effort to reopen the strait.

4:37 Adam, with a base case dated Brent seen at $110 a barrel this quarter,

4:43 100 in the following 3 months, 90 between October and December.

4:46 The bull case, 130 to 150 dollars a barrel.

4:50 That's in the case of a longer closure.

4:53 Based on everything we're hearing now,

4:54 we're getting a longer closure, aren't we?

4:56 Everything's pointing in that direction.

4:58 The The reality is that even if we remain

5:00 in this kind of prolonged stalemate or or, you know,

5:04 you know, ceasefire name only,

5:07 that that's still going to continue to have deep impacts on the oil

5:10 market with the inability of shippers and oil companies to have,

5:14 you know, trust that their ships can freely move

5:17 throughout the region and in and out of the strait.

5:19 Even if we get ships moving out with the the huge

5:22 amount of oil that's still stuck in the Gulf,

5:24 the question is can those ships come back?

5:25 And how reliable will that flow be?

5:27 All of that points to oil higher oil prices over time.

5:31 And the supply shortage that we are seeing growing here is real.

5:35 And company or countries only have so much stockpile before

5:38 that will continue start to actually impact folks at the pump.

5:41 Really interesting, as always, Adam.

5:43 Thank you so much, Adam Ferrar,

5:44 Bloomberg Economics with Brent clocking in at $105 a barrel right now.

5:49 WTI at 99.

5:51 They're both up almost 4% individually with the president

5:55 today making it clear that the counter offer,

5:57 the counter proposal that he received from Iran as Kayleigh put it, was garbage.

6:03 Here's how he put it to reporters.

6:05 It was just unacceptable.

6:07 You know, a lot of people said, "Well, does he have a plan?" Yeah,

6:11 of course I do have I have the best plan ever.

6:13 Iran has been defeated militarily, totally.

6:17 They have a little left they probably built up during this period of time.

6:20 We'll knock that out in about a day.

6:22 But, I have a plan.

6:23 You know, it's a very simple plan.

6:25 I don't know why you don't say it like it is.

6:27 Iran cannot have a nuclear weapon.

6:32 This is where we start our conversation with Heather Conley,

6:34 non-resident senior fellow at the American Enterprise Institute,

6:37 former Assistant Secretary of State for the Bureau

6:39 of European Eurasian Affairs in the George W.

6:42 Bush administration.

6:43 Heather, it's great to see you.

6:45 Welcome back.

6:46 Thank you.

6:46 Rhetoric today, not great.

6:48 We've got a ceasefire on massive life support as the president

6:52 put it and a counter proposal that is totally unacceptable.

6:56 What happens now?

6:57 Well, Joe, when I was last with you, we said we're stuck.

7:01 We're still stuck.

7:02 Nothing nothing has changed.

7:05 I think what has changed is that you

7:06 now have the president ready to go to Beijing.

7:10 And this is not what he wanted.

7:11 He wanted this to be in the rearview mirror.

7:13 He wanted to present strength.

7:16 And now he comes in a weakened position asking

7:19 Xi Jinping for help to get the Iranians to agree.

7:23 I think what was important about this deal is again,

7:25 the Iranians are saying we're not talking about this nuclear issue right now.

7:29 We are talking about the issues that we want to talk about.

7:32 And that's why you saw the president visibly angry today

7:35 because he just cannot get Iran to move on that front.

7:39 So, not a lot of movement diplomatically,

7:41 but you have repeatedly told us Heather over the last number of weeks

7:44 that you don't see that this conflict

7:45 is going to have a military resolution ultimately.

7:49 But is using a military option the only thing

7:51 that the very least could move the needle toward a diplomatic resolution?

7:55 Kayleigh, it's going to depend on the military operation.

7:58 And what the president likes to use is, you know, strong from the air,

8:02 what we call pin prick to try to get the regime to move.

8:06 What we're talking about now is clearing and holding the Strait of Hormuz.

8:11 That is a much longer-term, riskier military proposition.

8:16 And I think that's why the president is really struggling with committing

8:20 those resources because I think he is

8:22 risk averse to taking significant military casualties.

8:26 Thank thankfully and extraordinarily, we have not taken that.

8:30 So he has a really big decision to make.

8:33 What has been also shocking is we really

8:35 thought the market would help make incentivize both sides.

8:40 Iranian storage capacity, they'd have to shut their wells.

8:43 We'd start to see the stock market and oil.

8:46 And we're seeing extraordinary US exports,

8:48 we're seeing extraordinary stoppage of Chinese endpoints.

8:51 That's imports.

8:52 That's what's stabilizing us.

8:54 So the market hasn't shifted and now it's really up

8:57 to President Trump to see whether he's going to go

9:00 all in or we're going to go back to some

9:01 smaller military operations to see if he can affect some change.

9:05 We'd love to hear more of your thoughts about how

9:07 the president will end his week in Beijing because it's yes,

9:11 Iran, but also a lot more that he's going to be talking to President Xi about.

9:15 Nick Burns got into this, of course,

9:17 the former US ambassador to China in a conversation on Bloomberg this weekend.

9:21 Listen to what he said.

9:22 For both the governments, for both leaders,

9:24 this is the most important relationship they have, the US-China relationship.

9:29 And they have ambitions for this year.

9:31 I mean, they want to meet Xi Jinping,

9:33 Donald [clears throat] Trump, two two three, even four times this year.

9:37 And there's a lot to talk about.

9:38 I think we'll see a big focus on trade,

9:41 supply chain, and the commercial relationship.

9:45 And potentially Taiwan.

9:47 President was asked today about it in the Oval.

9:49 He said, "Yeah, it always comes up.

9:51 I don't think it'll happen.

9:52 I think we'll be fine." I presumably referring to China retaking the island.

9:57 He says he will discuss Taiwan weapons sales with President Xi.

10:02 And that that was a headline that crossed

10:03 the terminal and got a lot of attention.

10:05 So, what could this lead to, particularly if

10:08 he's looking for a deal with help with Iran?

10:10 Yeah, I mean, China has been very clear.

10:12 This is their number one topic for this conversation.

10:15 Taiwan is?

10:16 Taiwan is absolutely.

10:18 And they would love to see the president do some language changes around

10:22 how we talk about our lack of support or our opposition to Taiwan is Absolutely.

10:30 But look, I mean, we've already seen the president give on this.

10:32 He's already sort of suspended or sort of postponed arm shipments to Taiwan.

10:38 Quite frankly, our own limited to defense

10:41 production capabilities is really limiting the type

10:44 of weapons that we are going to be

10:45 able to provide all our allies, including Taiwan.

10:49 But the fact that this conversation is

10:52 on a on the bilateral menu is in itself not appropriate.

10:55 We have never sort of allowed that to bleed in.

10:58 It should be held separately.

11:00 The US [snorts] has its own policy.

11:03 You know, and at this point, returning to a status quo is really gone.

11:08 And we're going to be watching President Trump's words so carefully.

11:11 And the Chinese are going to exploit

11:13 any differences in a massive shift in policy.

11:15 Well, so if word selection and language is so critical here, Heather,

11:19 this is not a president who is known

11:21 for being for being careful with those things, frankly.

11:24 He likes to speak off the cuff.

11:27 And I I just wonder how quickly even him saying something

11:30 as an aside or not meaning for it to to change

11:34 US policy stance that you actually could see that happening

11:38 happening or understood at least by the Chinese that way.

11:41 Well, and in fairness,

11:41 President Biden also made quite a few gaffes and changed policy

11:45 and his aides were very quick to to wheel back on this.

11:47 So, we have seen this before.

11:49 But, you're right.

11:50 This is where the any significant shift, even delay,

11:56 that President Trump says it's just it's

11:57 going to be so exploited by the Chinese.

11:59 And it's going to have ripple effects across all of our allies.

12:02 Is the American credibility and capability as a partner and ally?

12:07 That's what's being tested right now profoundly.

12:09 Europe, [clears throat] Indo-Pacific, and in the Middle East.

12:12 Iran is on the phone with Beijing right now trying

12:15 to influence this to whatever extent it can to its own benefit.

12:19 What might the regime be telling President Xi?

12:22 Well, it's been interesting because the Iranian Foreign Minister

12:24 was in Beijing before they submitted their latest proposal.

12:29 There didn't seem to me to be any pressure

12:31 by Beijing to change or alter the Iranian proposal.

12:36 You had a senior Iranian officials again today say,

12:40 "We support China's four-point plan." So,

12:43 they're trying to move away from I think the White House's 14-point plan or MOU.

12:50 And they are saying that, you know, China will be playing a shaping role.

12:54 But, China's stayed sort of on the sidelines here.

12:58 They're waiting to see they want the United States in a weakened position.

13:02 Again, China believes its rise is

13:05 unstoppable and America's decline is unstoppable.

13:09 And they believe this is just another data point that supports their theory.

13:13 And unfortunately, because the conflict has not resolved in any meaningful way,

13:18 it really in some ways strengthens the Beijing's point of view here.

13:23 In our final few moments here, Heather,

13:24 I'd like to turn to another conflict that was

13:26 at least on pause over this weekend between Russia and Ukraine.

13:29 A three-day ceasefire that President Trump announced at the end of last

13:32 week that just so happened to overlap with Victory Day celebrations in Russia.

13:36 Read into that as you will, but in his Victory Day remarks,

13:40 Russian President Vladimir Putin seemed to suggest

13:42 that the war with Ukraine was nearing an end.

13:44 And I wonder how you understood or interpreted that.

13:47 Yeah, I mean, what we've really seen over the last couple days,

13:49 particularly the May 9th Victory Day parade,

13:51 is that Putin is now under some pressure, economically and politically.

13:56 We really haven't seen that the last 4 years.

13:58 And it's because Ukrainians have now really challenged him.

14:02 The reason the parade was so small is they were really afraid that Ukrainian

14:05 drones would disrupt that, which would have

14:07 been a massive humiliation to Vladimir Putin.

14:11 Because he's under pressure, there'll be Duma elections,

14:13 not that these are elections, but it's a re-legitimization of his leadership.

14:17 He's under pressure.

14:19 And so they're starting to float some things,

14:21 like in some ways it has a few echoes of our own conversations around Iran.

14:26 When do we declare victory?

14:27 What does this look like?

14:28 How do we get ourselves out of this?

14:30 I don't think anything's going to come of it.

14:32 Just seen some reports that are crossing from Kyiv sources

14:36 that the US is suggesting that they'll help negotiate a ceasefire,

14:40 and Moscow wants sanctions relief for that ceasefire.

14:44 Like the ceasefire in the Middle East.

14:45 These are not ceasefires.

14:47 Let's stop calling them that.

14:48 Yeah.

14:48 They are reduction in violence, but this is not a ceasefire.

14:52 There's not a ceasefire in Lebanon.

14:53 There's not a ceasefire in the Gulf.

14:54 There's certainly not a ceasefire in Ukraine and in Russia.

14:58 It's just a reduction in violence to a point.

15:01 So, watch Russia.

15:03 Some things are happening, but this is pressure of Ukraine's drone capability

15:08 and some of their small gains on the battlefield.

15:10 Something's starting to turn.

15:11 We got to watch it.

15:12 All right, indeed we will.

15:13 And we thank you for helping us do so.

15:15 Heather Conley, non-resident senior fellow at the American Enterprise Institute,

15:19 essentially telling us that these ceasefires are in name only.

15:22 but a name or not, President Trump says

15:24 the ceasefire with Iran is on life support.

15:27 What does that mean politically here at home?

15:28 We'll get into that with our political panel, Rick Davis and Jeanne Zaino.

15:32 Stay with us on Balance of Power.

15:33 We'll have much more coming up after this.

15:38 You're listening to the Bloomberg Balance [music] of Power podcast.

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15:53 Just say, "Alexa, play Bloomberg 11:30." Interesting

15:58 to see what traders are buying today.

15:59 It includes cyber.

16:01 Both Palo Alto and CrowdStrike are moving higher

16:05 as we anticipate more confusion surrounding the war with Iran.

16:08 And later this hour, we're going to be talking with Brandon Pugh,

16:10 the principal cyber advisor to the Secretary of the Army to get

16:14 an inside view on how the military is looking at all of this.

16:19 With more, of course, coming out of the president today

16:21 in his conversation with reporters in the Oval Office.

16:23 You heard Charlie just mention it.

16:26 Uh massive life support is how he described the ceasefire here with Iran.

16:31 And Kaylee, when you think about what could take place in the days ahead,

16:34 as we just discussed with Heather Conley

16:36 ahead of the president's sit-down with President Xi,

16:38 this could be a pivotal week in this war.

16:40 It absolutely could.

16:41 And I wonder what the signal is sent

16:42 in terms of the president's conflict around the direction uh

16:45 of the war that he is now openly saying

16:47 he wants to pursue a federal gas tax holiday.

16:50 If you believe that gas prices, as the president has consistently maintained,

16:54 are going to plummet when this is over, Mhm.

16:56 you might not think that they're on the verge of plummeting

16:58 if you're looking to to to pull a relief valve.

17:01 ideas might argue with each other.

17:03 And when he was asked, he said, "Yes, I will reduce it,

17:05 but as soon as this ends." And he's been saying that all along.

17:09 But of course, we have oil prices on the rise today,

17:11 and a gallon of gas selling for $4.52 on average nationally.

17:15 See what the panel thinks of all of this.

17:17 Bloomberg politics contributors Rick Davis and Jeannie Shaheen Zeno

17:20 are both with us with our eyes on geopolitics.

17:23 Rick is a Republican strategist and partner at Stonecourt Capital.

17:26 Jeannie is our Democratic analyst and Democracy

17:28 Visiting Fellow at Harvard Kennedy School's Ash Center.

17:32 Where's your head right now on this Jeannie?

17:34 We've talked about the gas tax, the fact that that might not even make

17:38 a difference particularly if it increases demand and people

17:41 are paying a lot more than 18 cents extra

17:44 right now for a gallon of gasoline these days.

17:47 The president is sitting down reportedly with his military advisers right

17:51 now to talk about options if this ceasefire does not hold.

17:55 Do you think that he will need to use them?

17:59 You know, even people like Leon Panetta were saying over the weekend he

18:03 may have to use them and I should just add to your life support.

18:06 He described what Iran sent over and by way of a proposal,

18:10 I think as a piece of garbage that wasn't even worth reading.

18:13 So, it sort of encapsulates where these two sides are that nothing has changed.

18:20 And you know, it's so important to just underscore Benjamin Netanyahu

18:25 was on 60 minutes last night and when he was pressed,

18:29 he said this war is not over because we haven't taken that enriched

18:33 uranium out of Iran and until we get it out and dismantle those sites,

18:37 this thing is an isn't over.

18:39 And when pressed about how you would do that, the suggestion

18:43 was apparently it would have to be ground troops.

18:46 And so, this is where we are.

18:48 Iran has moved the idea of taking that enriched

18:50 uranium out of Iran to the bottom of their list

18:53 of what they would be willing to do and for Benjamin

18:56 Netanyahu and the US it remains at the top.

18:59 And so, we Donald Trump is in a really tough situation.

19:03 Some people saying, "Hey, your best bet now is when you get to Beijing to ask

19:07 G to press Iran to reopen that street." But of course, the earlier conversation,

19:12 when you do that, they're going to ask for something in the return

19:15 and what they extract on that, number one in their minds,

19:18 would be some kind of give on Taiwan, which is devastating for our allies.

19:23 Mhm.

19:24 Well, and as we consider this trip with Beijing,

19:28 which we should all bear in mind is a rescheduled trip.

19:30 This was originally supposed to happen at the end of March and it was

19:34 delayed a number of weeks until this week because of the war with Iran.

19:38 The anticipation at that time from the White

19:40 House was that things would be wrapped up.

19:42 That was when we were still taking

19:43 with sticking with this four to six week timeline.

19:47 And yet, here we are well beyond that with no timelines being given [snorts]

19:51 at this point.

19:52 So, it all sets the stage for a bit

19:53 of a difficult optic situation as the president makes tracks

19:58 to Beijing even as he still expresses confidence over his relationship

20:01 with the Chinese President Xi Jinping who he'll be meeting.

20:05 Just listen to how he previously has characterized Xi and his this meeting.

20:10 We're going to have a meeting with President Xi.

20:12 It's going to be, I think, quite amazing.

20:14 He's been a He's been a friend of mine.

20:17 I got I've gotten along with him very well over the years.

20:19 We've been doing a lot of business with China and making a lot of money.

20:22 We're making a lot of money.

20:23 It's different than it used to be.

20:25 Um but I'll be talking about that.

20:27 That'll be one subject.

20:28 But, he's been very nice about this, you know,

20:31 and all fairness he gets like 60% of his oil

20:34 from hormones and he's been I think he's been very respectful.

20:38 We haven't been challenged by China.

20:40 They don't challenge us.

20:41 We're leading China in AI and I'm going to go see President Xi in 2 weeks.

20:46 I look forward to that, but I'll say I'm leading.

20:50 We have friendly We have very friendly competition.

20:54 But, uh it'll be actually it'll be a very important trip.

20:59 So, obviously, there's a lot on the agenda, Rick,

21:02 but I wonder what might have previously dominated this conversation.

21:06 Issues like artificial intelligence and trade,

21:08 how much do you expect that that will be

21:10 overshadowed by the Strait of Hormuz and Iran specifically?

21:15 Yeah, it's hard to tell.

21:16 I mean, part of it is going to be confused by the fact that the president's

21:19 loading up Air Force One with over

21:20 a dozen executives from the tech industry and others.

21:25 Uh, it looks like more of a trade mission than a summit uh in regards to that.

21:30 I mean, I wonder what these executives are going with the expectation doing.

21:34 Are they going to get deals signed?

21:35 Are they going to give the impression to the Chinese

21:39 that US companies want to come and invest in China?

21:41 I mean, like there are all kinds of competing narratives.

21:44 Uh, and I would say that um one of the lower

21:47 level narratives right now is probably the Strait of Hormuz.

21:51 I mean, the president's right that China has other options to try and figure

21:55 out how to feed their their their desires for more and more oil for power.

22:00 Uh, they haven't been actively involved other than supporting

22:04 the negotiations through one of their friends in Pakistan.

22:07 Uh, and you know, helping out Iran on the edges of this war.

22:11 So, uh it's hard to see how somehow this comes out to be a dominant issue.

22:17 I think clearly the dominant issue is Taiwan.

22:20 It's the reason that she wants to meet.

22:22 Uh, it fuels a lot of his political issues at home.

22:25 It is his one major desire uh at the end of his administration to have unified.

22:30 And and you know, it's it's one

22:33 of these things where little words are going to matter.

22:35 And I'm sure that uh President Xi is you know,

22:39 Prime Minister Xi is going to try and get

22:40 Trump into the war of words and say something like,

22:43 you know, we recognized his claims to Taiwan,

22:47 not just acknowledge them, which is what the current administrations had.

22:52 And that would be a huge success.

22:54 So, little things on our side are incredibly important to Xi,

22:59 and that's what I I be watching out for.

23:02 Well, Rick, I'm glad you mentioned the entourage because

23:04 this is going to be a who's who of corporate America.

23:07 I don't know how they all do they get all get on the same plane?

23:09 Genie, listen, Boeing's Kelly Orberg, the CEO of GE Aerospace,

23:15 Cargill, Illumina, Visa, MasterCard, Micron, Qualcomm, Blackstone.

23:20 Yes, Tesla, Elon Musk will be along for the ride.

23:24 Interestingly, Jensen Huang of Nvidia will not be.

23:28 How does this change the contours of this trip

23:31 and what will all these executives have to show for it?

23:35 Yeah, it's quite a who's who and you know,

23:36 if if just imagining if this trip had taken place

23:40 without the shadow of the strait and the war in Iran,

23:44 I think it might be a completely different conversation.

23:47 What Donald Trump said he wanted to do in his second term,

23:50 which was focus on trade and tariffs.

23:52 I mean, his favorite word, right?

23:54 Um, but all of that has been overshadowed by what is going on in Iran.

23:59 These folks will be there, but what it China is most focused on, China is most

24:04 focused on getting a concession from Trump as it pertains to Taiwan.

24:09 And this gets back to our alliances in the region.

24:13 You're an ally of the US in that region.

24:15 You've got to be feeling very, very concerned whether you're Japan,

24:18 South Korea, or any Taiwan, certainly the Philippines.

24:22 You've got to be thinking at this point the president

24:25 has got to stay on message, not get off,

24:29 not say something in exchange for some kind of push from G on the on Iran

24:34 over over the strait to give any leeway as it pertains to democracy in Taiwan.

24:40 And of course, we all know Donald Trump,

24:42 you know, doesn't like to stick to message.

24:45 And of course, what does that do if you are those allies?

24:48 These are allies who could go nuclear.

24:50 And that is what we're hearing that they

24:52 are saying US is sort of unpredictable, unreliable.

24:57 China has a real interest in moving forward on Taiwan.

25:01 If you're those countries, you start to think about going nuclear,

25:04 and that's why alliances matter, and what has happened in Iran and our treatment

25:08 of our allies is so long-term term detrimental to the security of this country

25:14 and overshadows all of this on tariffs and trade.

25:19 Just on the subject of going nuclear, Rick,

25:21 we heard from President Trump in the Oval today repeatedly say

25:25 when he was pressed on the plan when it comes to Iran,

25:27 he said he has a great plan that Iran can't have a nuclear weapon.

25:31 And the pursuit of a non-nuclear Iran

25:34 permanently is obviously what many in the Republican

25:36 Party tell us is the objective here and why the president's effort is worth it.

25:40 But do you think it'll be even harder to defend that notion as being

25:44 the entire plan in itself as lawmakers

25:47 make their return to Washington this week?

25:50 Yeah, I look, I mean, that is actually the one unifying concept.

25:54 There's nobody out there, you know,

25:56 saying uh that they think Iran ought to have a nuclear weapon.

26:00 So, there's a lot of debate going on as to whether or not

26:03 we ought to be allowing trade through the Gulf for moose and, you know,

26:07 what this embargo's really resulting in and how to manage it,

26:10 and everyone's got a different idea of what success is there.

26:13 But everyone would agree that this effort has

26:17 to result in one thing and the most important thing,

26:21 and that is a nuclear-free Iran.

26:23 And so, that's why there's so much pressure

26:26 on this administration not to get a ceasefire, not to open the strait,

26:30 but to actually have some agreement in place that um

26:35 that that articulates on both sides that there will be no nuclear capacity,

26:40 no nuclear weapon capacity for Iran.

26:43 And of course, you know, Iran was never going to give Donald Trump a win

26:48 the week before he goes to China to talk about issues there.

26:53 So, the idea that they were going to come up with a solution this weekend was,

26:58 I think, a little premature.

27:00 Great analysis from our panel today,

27:02 Bloomberg Politics contributors Rick Davis and Jeannie Shanahan.

27:05 We'll see you both on the late edition of Balance

27:07 of Power as we turn to cyber at the Pentagon,

27:10 an important conversation you want to hear next only on Bloomberg TV and radio.

27:15 Stay with us on Balance of Power.

27:16 We'll have much more coming up after this.

27:22 You're listening to the Bloomberg Balance of Power podcast.

27:25 Catch us live weekdays at noon and 5:00 p.m.

27:28 [music] Eastern on Apple CarPlay and Android

27:30 Auto with the Bloomberg Business app.

27:32 Listen on demand wherever you get your podcast

27:35 or watch us live [music] on YouTube.

27:38 Fascinating market reaction or perhaps less of a reaction than

27:42 you might expect for risk appetite at least when you

27:46 hear things coming from the President of the United States

27:48 like describing the ceasefire with Iran as being on life support,

27:52 raising a massive question as to whether or not kinetic military activity

27:56 or other activity is going to resume in the absence of diplomatic progress.

28:01 And Joe, when it comes to Iran,

28:03 obviously we also have massive questions as to whether

28:05 or not if we are to see a resumption in hostilities,

28:07 if some of that hostility may not be military to military Right.

28:10 Right.

28:10 Right.

28:11 Right.

28:11 Right.

28:11 Right.

28:11 Right.

28:11 Right.

28:11 Right.

28:12 Right.

28:12 Right.

28:12 Right.

28:12 Right.

28:12 Yes, exactly.

28:13 as well.

28:13 Something that frankly we haven't seen that much of or as much as you

28:16 might have expected when this conflict initially began at the end of February.

28:21 Knowing that we've been hearing warnings from the FBI director

28:26 going through many administrations about the increased domestic terror threat,

28:30 much of it coming from Iran.

28:31 So, yes, there was a thought that this would

28:32 be a much bigger story here and it's

28:35 where we start our conversation with Brandon Pugh

28:37 is back with us in studio here in Washington,

28:40 the principal cyber advisor to the Secretary of the Army.

28:44 Brandon, it's great to see you.

28:45 Welcome back.

28:46 We have so many questions, most of them you're probably not allowed to answer,

28:49 but we're going to do our best here to try because you are

28:52 in an incredibly important area of the Pentagon

28:55 right now with this emerging technology,

28:57 although maybe you see it as mainstream because this is an existing threat.

29:02 Are you busy knocking down threats that we don't hear about because the idea

29:07 was that the threat level would be greatly increased during a war with Iran.

29:11 Well, thank first thanks for having me back.

29:12 It's always a pleasure to be on the show.

29:14 You know, what's interesting about Epic Fury

29:16 or Iran in particular is how, you know, vocal our leaders have been around

29:19 the role of [snorts] cyber or non-kinetic effects.

29:22 You know, historically we've kind of shied

29:24 away from talking about offensive cyber.

29:26 You know, but the leaders up to the present have talked about it.

29:28 Matter of fact, just a few weeks ago, I guess a couple months ago at this point,

29:31 the president released the nation's cyber

29:33 security strategy and in that they said,

29:35 "Look, we have the best cyber operators in the world

29:37 and we will be leaning into potential cyber options against adversaries.

29:41 We're not constrained to just kinetic effects, which is historically,

29:45 you know, at least publicly how we have talked." Well,

29:47 so when we consider our arsenal of cyber options, if you will,

29:52 to what extent is that something that is developed in wartime like this?

29:56 Is this when advances are actually made or do you have to have all

29:59 of these options prepared for you before you go into a conflict like this one?

30:03 I think it's a mixture of both.

30:04 What we see though is how quickly technology is is accelerating.

30:08 I mean, give you one example is around artificial intelligence.

30:10 There's many advancements that are moving at really machine speed,

30:13 which makes the burden on us to to actually

30:15 be ahead of where we think adversaries are going.

30:18 You know, good example is many fear around how AI is

30:20 going to be used for potential harm or for negative use, especially in cyber.

30:24 Our question is, how are we using AI specifically

30:26 for defense or when needed to go after adversaries?

30:29 Matter of fact, I think adversaries are going

30:31 to misuse the technology however they see fit.

30:33 That's why we always have to stay ahead of ahead of them.

30:37 And I think that's exactly what the army has a history of doing.

30:40 What we've been really leaning into over the last few weeks notably.

30:43 What does this budget proposal Uh mean for you?

30:45 We're talking about a trillion and a half dollars,

30:47 a 50% increase if of course Congress codified what the president has proposed.

30:52 How much of that would be to cyber and what would you do with the money?

30:56 Yeah, so one of the unique authorities that I have in my role,

30:58 most people are like what is this principal cyber advisor?

31:01 I review and certify all of the funds that we use for cyber.

31:05 And it goes into a lot, defense, supply chain security,

31:08 cyber war fighting, how do we training them?

31:11 But there's been noticeable advancements.

31:12 One of them goes back to really AI and cyber specifically.

31:16 And my quest is how are we getting as much of that technology

31:18 in the hands of our war fighter as quickly as we can.

31:21 You know, example something we're really proud of is we

31:23 just hosted an AI tabletop exercise at the at the Pentagon.

31:27 We brought 14 C-suite leaders to to really go after

31:31 a how are we leveraging AI for cyber defense agentically.

31:34 So that way a human operator doesn't have to be

31:36 the one to have to take a course of action, the AI agent can actually do it.

31:40 The reason I mentioned that context of budget

31:42 is we pre-aligned funding in advance of that TTX.

31:45 That way if we generated one to three prototypes,

31:48 we could quickly field them and get them in the hands

31:50 of the soldier in hopefully 30 to 45 days versus that traditional,

31:55 you know, multi-year cycle that we think of.

31:58 Well, just on the subject of AI,

31:59 obviously Anthropic has had some pretty severe warnings

32:03 around its Mythos model in particular and restricting access

32:06 to it because they say it is so

32:08 good at at specifically weeding out uh cyber vulnerabilities.

32:13 We've had reporting here at Bloomberg that the White House is trying

32:15 to get access to Mythos for a number of federal government agencies.

32:19 Has the Pentagon conducted that kind of exercise

32:22 to see what vulnerabilities it might be exposed?

32:25 Yeah, I think regardless of model,

32:26 what that's getting at is how quickly the technology is is is accelerating.

32:30 I think quicker than a lot of people had expected to be honest.

32:33 I think that's why it's incumbent on not only the army

32:35 but the Pentagon even larger to bring these capabilities quicker to the soldier.

32:39 That way, you know, commercial industry doesn't have

32:41 the capability and years later we're getting it.

32:43 And I think that was what was unique

32:45 is bringing those 14 leaders to the Pentagon.

32:47 We gave them a discrete problem set and we said, "Look,

32:49 we know you've solved a lot of these challenges early on.

32:52 Help us.

32:52 We don't want to start from scratch developing a capability.

32:55 We want to see what you have or what you think

32:57 is over the horizon and then bring it into the army.

33:00 That is very different thinking than traditionally how a military department has

33:03 gone about acquiring something." To what extent is the Pentagon still using

33:08 uh Anthropic technology knowing that this back-and-forth uh is taking place

33:12 that that there may or may not be a deal for a longer-term arrangement?

33:16 Yeah, I can't you know, comment on the specifics of the exact models,

33:19 but I think it was under, you know,

33:20 Secretary Hix says leadership what is unique is that we

33:23 have a lot of options available to us when it

33:25 comes to AI and I think we're really still

33:27 at the beginning of where we need to be going with AI.

33:29 We see a lot of money and resources, time,

33:32 and talent behind um leaning into both commercially available

33:35 options along with generating in-house options when we need them.

33:39 And I think that's the balancing you need to strike.

33:40 Not starting from scratch,

33:42 but also realizing that we sometimes need to fine-tune these AI capabilities So,

33:46 do you have your own model?

33:47 Is there a Pentagon large language model

33:49 that that's proprietary uh inside your agency?

33:53 Well, what we do see is, you know, unique applications of these models.

33:56 I'll give you an example.

33:57 Um you kind of bring it back to cyber.

33:59 Um we have something called Panoptic Junction.

34:02 Uh the name isn't relevant,

34:03 but essentially what it does is it detecting a potential cyber threat.

34:06 So, versus a human being on keyboard

34:08 having to observe behavior then doing something,

34:11 leveraging AI to say, "We've been the model's been trained on this.

34:14 We know it's a potential threat." and then taking a prescribed course of action.

34:18 And I think that helps close the gap.

34:20 We know adversaries have a lot of people on keyboard,

34:22 uh significantly more than we might get to.

34:25 Wow.

34:25 They How do we close it?

34:26 Leveraging technology.

34:27 And that's a model that the army

34:29 actually developed in-house but with commercial partners.

34:31 So, it wasn't like we had to have soldiers and civilians,

34:34 you know, shut in the room.

34:35 We We took an existing product in industry

34:38 and just fine-tuned it for the Army use.

34:40 Well, so when we're talking about technology like this, obviously

34:43 a lot of physical infrastructure comes with that as well.

34:46 For AI, you need a lot of energy infrastructure, for example,

34:49 but obviously there's there's wider servers to contend with as well.

34:52 And we have seen infrastructure in the Middle East targeted specifically.

34:55 So I wonder how you think about the physical security in the cyberspace.

34:59 Yes.

35:00 And this is uh you know, many people say what what keeps you up at night.

35:03 One part of my portfolio, which is unique,

35:05 is I'm the Army's lead for critical infrastructure, both physical and cyber.

35:08 It's a It's a fairly new role that that Secretary Driscoll put into my office.

35:12 And I think it's important because you know,

35:14 we have adversaries wanting to target our critical infrastructure.

35:17 Electric, water, and gas on a pretty routine basis.

35:21 As a matter of fact, in unclassified reporting,

35:22 we saw threat actors affiliated with Iran targeting our operational technology.

35:27 So think of the technology that enables the electric,

35:30 gas, and water to function.

35:32 And that's unclassified.

35:33 Historically, you would think that would be

35:34 the most secure or top secret information.

35:36 So that's incumbent on us.

35:37 We have 288 camps, posts, and stations in the Army.

35:41 And the the challenge is we can't have a failure.

35:43 So we need to mobilize people and equipment in a time of conflict.

35:46 So an adversary could go after a water company that, you know,

35:49 might be lucky if they have a technology department,

35:51 let alone a security department.

35:52 But the military bases rely on that.

35:54 That's why it's a joint partnership, one of which our leadership

35:57 has prioritized specifically defense critical infrastructure.

36:00 Wow, that's fascinating.

36:01 Um to see your role be extended to physical infrastructure.

36:05 Bloomberg had some fascinating reporting about some

36:08 of the third-party providers that you're working with, knowing

36:11 that there are some commercial or at least

36:12 private entities that you've already referred to.

36:16 Does that increase the urgency for you to protect their infrastructure?

36:21 If you're on an AWS cloud,

36:23 their data centers are are going to become that much more important, right?

36:26 I I think that the world is very interconnected now.

36:29 So, it's not like that's a a defense specific application.

36:32 Okay.

36:32 The number it's very interlinked now between our commercial providers and us.

36:36 So, sometimes we have Army information on commercial

36:38 networks and we have to safeguard that.

36:40 And I think it's really a partnership model versus, you know,

36:43 we shouldn't see this in silos that's an Army problem

36:45 or that's a commercial problem or that's an interagency problem.

36:48 We need to look for holistic solutions

36:50 and that's exactly what we're doing specifically critical infrastructure.

36:53 Uh just this coming Thursday uh the Secretary

36:55 of the Army is hosting the inaugural defense critical infrastructure summit.

36:59 And that's essentially what it's doing.

37:01 We're bringing interagency leaders, industry leaders, local leaders,

37:04 as well as military leaders together for a day-long

37:07 summit all around hardening our critical infrastructure.

37:10 Realizing that we can't do this alone.

37:11 Traditionally, we've done it in silos.

37:13 That approach is just no longer applicable given the current conflict.

37:16 Well, so in what ways does it need to be hardened?

37:19 Where are our biggest vulnerabilities?

37:21 I I think it's a matter of looking

37:22 at who are servicing our installations specifically.

37:25 And I you know, I've always I'm answering in a a very military mindset.

37:28 I'm looking at what installations have no-fail missions where we

37:31 can't have a disruption because because of potential adversary action.

37:35 We need to harden those providers.

37:37 And I think the challenge is they're sometimes small companies.

37:40 That gas company providing gas to your local installation,

37:43 um they might not be thinking about security.

37:45 Some have very strong partnerships.

37:47 What we need to do though is raise the baseline so everybody is

37:50 aware of the potential threat

37:51 to our critical infrastructure and and assist them.

37:54 This shouldn't just be the Army.

37:55 Is this financial assistance specifically or what

37:58 kind of assistance are we talking about here?

38:00 I think it's a mixture.

38:01 I I think part of it is just bringing having a common

38:03 viewpoint around the potential threat

38:05 to our critical critical infrastructure and letting [clears

38:07 throat] our industry operators and owners know of the potential liability or not

38:11 liability is not the more of the threat they face by our adversaries.

38:15 Um but then bringing interagency resources

38:18 together with the Department of War resources.

38:20 And that could be technical assistance.

38:22 That could be financial resources or just

38:24 could be working jointly to solve these issues.

38:27 And I think one of the byproducts we hope

38:29 to come out of Thursday is a DCI playbook.

38:32 So, what are lessons learned that we can glean from this first

38:35 summit and now apply them across installations around the country.

38:38 And and perhaps even around the world.

38:40 interesting.

38:40 This is happening at Fort Bragg, right?

38:42 That's correct.

38:43 So, if if you're the owner of this small gas utility that you mentioned,

38:46 you're out there in Wyoming, is does do you get a phone call from Brandon P?

38:50 Like how how do you connect with with these guys

38:53 downstream and bring them into this conversation?

38:55 You know, what's really interesting is most of these garrison commanders

38:58 and senior base commanders have proven relationships with these folks already.

39:02 I think but it's leaning on those and expanding those relationships.

39:05 What's unique here though is bringing the interagency partners

39:08 to the table versus just just being an army level conversation.

39:11 We want to bring CISA.

39:13 We want to bring Homeland Security, TSA,

39:15 and so on to the table around a you know,

39:18 a common problem and see how we can utilize each other's resources,

39:21 you know, legal authorities.

39:23 I think everybody has a unique role to play here.

39:26 Well, so clearly that's going to be

39:27 a summit that we should closely watch on Thursday.

39:29 There's going to be another summit happening on Thursday

39:31 that we're going to be watching very closely as well.

39:33 It's one in Beijing between President Trump and China's Xi Jinping.

39:37 Where do we stack with China in terms

39:39 of our offensive and defensive cyber capabilities right now?

39:43 Yeah, exactly.

39:44 You know, to your point earlier,

39:45 it's kind of hard to talk specifically around adversaries capabilities.

39:50 [laughter] We're not supposed to say we're winning on both.

39:52 You can give us a general thumbs up, thumbs down.

39:54 I think the the reality is though,

39:56 this is why we have to have the best trained operators in the world.

39:59 And something the Secretary Hagseth signed out a few

40:02 months ago at this point is something called Cybercom 2.0.

40:05 Essentially, that is getting after the man, train and equip function.

40:08 So, how are we making sure we have the best operators in the world?

40:11 We can't fall behind.

40:12 I am very confident sitting here today.

40:14 We have the very best cyber operators in the world without fail.

40:17 I think it's now a matter of fact making sure that continues.

40:20 They have the best resources, the best capabilities, and the best tools.

40:23 Cuz this is a no fail mission.

40:25 They have to be able to defend this nation at all costs.

40:28 And I'm very confident they they are doing that now.

40:30 Can I just ask before they start playing the music,

40:32 um if we could knock the lights out in Venezuela,

40:35 could we not do the same thing in Iran?

40:37 Why why bomb uh power plants when we can just use a cyber solution?

40:41 You know what's unique about cyber is

40:42 it's not the perfect answer for everything.

40:44 I think there's two flavors of cyber if you will.

40:47 How are we using it as an isolated capability?

40:49 So cyber for cyber sake,

40:51 but also using it in conjunction with other types of effects.

40:54 And I think that's something our senior leaders have said

40:56 is that cyber should be infused across all domains of warfare.

41:00 Uh there are cases where it should be isolated though.

41:03 Fascinating conversation, Brennan.

41:04 Thank you so much for joining us.

41:06 Brennan is the principal cyber advisor to the Secretary

41:09 of the Army here with us on Balance of Power.

41:11 And of course we'll have more ahead on the second

41:13 or late edition of Balance of Power at 5:00 p.m.

41:16 here on Bloomberg TV and radio.

41:17 [music] Thanks for listening to the Balance of Power podcast.

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