US-Iran Fight Centers on Hormuz

Summary

Balance of Power – US-Iran Fight Centers on Hormuz

Podcast: Balance of Power (Bloomberg)
Date: March 13, 2026
Hosts: Joe Mathieu, Kailey Leinz, Tyler Kendall
Notable Guests: Jennifer Welch (Chief Geoeconomics Analyst), Rosemary Becky (Republican Strategy Partner), Jeannie Shan Zaino (Democracy Fellow), Mike Shepard (Tech Editor), Nathan Dean (Policy Analyst), Brian Karbaugh (CEO, Andesite, ex-CIA)

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Overview

This episode centers on the rapidly intensifying US-Iran conflict, with a specific focus on the strategic Strait of Hormuz, the evolving nature of US and Israeli military operations, global energy markets, and the domestic policy ripple effects. The episode also explores the role of artificial intelligence (AI) in the defense sector, legislative responses in Washington, and features an in-depth interview with a former CIA officer-turned-tech CEO.

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Key Discussion Points & Insights

1. US-Iran Conflict Escalation and Military Operations

• US and Israeli Attacks:
  The US and Israel have conducted airstrikes on over 15,000 targets, decimating Iran’s military capacity, especially its one-way drone capabilities (down by 95%).

  • Defense Secretary Pete Hegseth: “This will be the most intense day of bombing yet.” [01:55]
  • President Trump’s Statement: Emphasizes “unparalleled firepower, unlimited ammunition, and plenty of time.” [01:55]

• Uncertain Endgame:
  Both sides remain defiant. Iran’s new supreme leader has vowed to keep the Strait of Hormuz closed and to open new conflict fronts if strikes continue.

  • Jennifer Welch: “The timeline for this war remains very uncertain, but it certainly doesn’t look like there is an end in sight.” [02:43]

• Divergence Between US and Israel:
  There are signs of potential tactical differences, especially following Israeli strikes on Iranian oil infrastructure.

  • Jennifer Welch: “There is a risk here of divergence between these two partners that up until now have been operating largely in lockstep.” [04:01]

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2. Energy Markets & Economic Impacts

• Oil Price Surge Fears:
  With shipping in the Strait of Hormuz at risk, oil prices have surpassed $100/barrel. Prolonged disruption could drive prices above $150, near $164/barrel.

  • Jennifer Welch: “If the disruptions persist for closer to three months, you could see oil well above $150 a barrel.” [05:11]

• US Lifts Some Sanctions on Russian Oil:
  The administration has eased certain Russian oil sanctions and released strategic reserves to soften the market impact.

  • Jennifer Welch: “Waiving of the Jones act, the release of strategic petroleum reserves—it’s definitely going to have a cushioning effect. … But if this conflict continues, it will only be a temporary comfort.” [06:41]

• Ceasefire or Partial Re-Opening of the Strait?
  Back-channel talks seek either a broader ceasefire or perhaps selective re-opening for certain national interests, but major hurdles remain over demands for guarantees and sanctions relief.

  • Jennifer Welch: “The two sides are very far apart on what that would entail.” [08:23]

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3. Domestic Political Pressures and Messaging

• Pressure on Trump Administration:
  Rising gas prices become a significant political liability; options like a federal gas tax holiday are being discussed.

  • Rosemary Becky: “The longer this continues, it again creates such pressure to do something about it, particularly as we get towards the midterms.” [09:55]

• Casualties and Messaging Disparities:
  Latest Pentagon reports: 13 US service members killed since the war began. Contrasts emerge between military and civilian leadership in response and priorities.

  • Jeannie Shan Zaino on Joint Chiefs Chair Dan Kaine: “His tone is absolutely on point. … You just think about how horrifying this is.”
  • On Defense Secretary Hegseth: “He spent … chastising the press … at a time when he should be mourning the loss of these heroes. It just reflects where his interests are and where his focus is, and it is not where it should be.” [12:30–13:50]

• Tactical Objectives:
  Administration reiterates no plans for “boots on the ground,” pressing for regime change as the strategic goal.

  • Rosemary Becky: “The goal is to get a regime change in place. The goal is not to have boots on the ground.” [14:29]

• Americans' Fear of Terrorism:
  77% of Americans believe a terror attack on US soil is likely as a result of the war.

  • Jeannie Shan Zaino: “It’ll strengthen their resolve to defend the homeland, but … it will also underscore what a misguided situation we are in at the hands of an administration with no clear goals or ability to achieve them.” [16:05]

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4. AI Technology, the Pentagon, and Private Sector

• Anthropic and the Pentagon:
  The Pentagon designates AI company Anthropic as a “supply chain risk” but continues using their tools during a 6-month phase-out. Anthropic sues the government, underscoring tension over AI safeguards and military control.
  • Mike Shepard: “There is an inherent contradiction—on the one hand, the Pentagon says you are now a supply chain risk, and yet we need your technology for the next six months.” [19:24]
  • On Use-Case Ethics: “Anthropic’s CEO argues this technology is still so nascent and error-prone, we do not trust it for using it yet in fully autonomous weapons.” [22:24]
  • On Transition to New Vendors: “It would be a little bit messy, but eventually you could find something that would plug in.” [23:50]

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5. Congress, Government Shutdown, & Supplemental Funding

• DHS Funding Crisis:
  The Department of Homeland Security is in its fourth week of partial shutdown, missing payroll for 206,000 employees as political deadlock persists.

  • Nathan Dean: “There haven’t been really many negotiations whatsoever … we think this probably takes another week. … When this is done, we should be good through September 30th.” [26:44]

• Pentagon Supplemental Request:
  Expectation of a significant funding package (possibly $100B+) for Middle East operations, potentially bundled with other priorities like farm aid.

  • Nathan Dean: “If this bill is … 50 to 100 billion … and it goes through normal order, … it can actually pass. If it goes through reconciliation … blows up to a trillion-dollar package … we just don’t think that would happen.” [27:39]

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6. Ex-CIA Tech Leadership: Interview with Brian Karbaugh, CEO Andesite

• AI for Cyber-Defense:
  Karbaugh, a former CIA Jawbreaker team member, builds Andesite to apply AI for real-time, contextual cybersecurity both in public and private sectors.

  • On AI’s defensive value: “Now you see that AI is really the attacker [too] … the challenge is—on defense we have to move at that same type of speed and alacrity.” [33:56]

• Role of Humans vs. AI:
  Stresses that human judgment remains crucial: “Having the human being be at the helm is core to what we do … the human can use that which is uniquely human—in the end, to use their judgment.” [35:49]

• Public vs. Private Sector Risk:
  Discusses heightened risk for private actors, especially those intertwined with global supply chains or Israeli interests.

• Importance of Cyber Investment:
  Notes that the administration’s push for a 50% increase in Pentagon spending acknowledges future threat escalation and the need for robust tech defenses.

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Notable Quotes & Timestamps

• Joe Matthew (re: US firepower): “Watch what happens to these deranged scumbags today.” [01:55]
• Jennifer Welch (on the conflict): “It looks like it might not be next week either. … What all of that suggests is that the timeline for this war remains very uncertain, but it certainly doesn’t look like there is an end in sight.” [02:43]
• Jennifer Welch (oil price warning): “If the disruptions persist for closer to three months, you could see oil well above $150 a barrel, maybe even closer… around $164.” [05:11]
• Jeannie Shan Zaino (on Pentagon leaders): “There’s no controlling that narrative … he [Hegseth] has taken to chastising them at a time when he should be mourning the loss of these heroes.” [13:20]
• Mike Shepard (AI vendor contradiction): “There is an inherent contradiction… because on the one hand, the Pentagon says you are now a supply chain risk, and yet we need your technology for the next six months until we find a suitable replacement.” [19:24]
• Brian Karbaugh (Andesite CEO): “For sure, everyone across the intelligence community … was moving with the best intentions, but you just had massive amounts of information… What we needed was that combined, coalesced provision of contextualized information that gave us the type of insight we needed.” [32:25]
• Brian Karbaugh (AI for defense): “We think the right architecture, the right decision is to empower the human to be at the helm, make those decisions, really sort of enabled and enhanced by the power of AI.” [36:03]

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Important Timestamps

• US/Israel attack escalation, Trump statements: [01:04–01:55]
• Market, oil price, war timeline analysis: [02:43–06:41]
• Back-channel negotiations on Hormuz Strait: [08:02–08:23]
• Political panel on gas prices/domestic fallout: [09:06–11:14]
• US military casualties, Pentagon/military messaging: [11:14–13:50]
• AI in the Pentagon (Anthropic dispute): [18:04–24:37]
• DHS shutdown, Congress funding debate: [25:06–28:32]
• Ex-CIA CEO Brian Karbaugh interview: [31:06–40:22]

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Tone & Takeaways

The episode is urgent, deeply analytical, and infused with both strategic and economic concern. The guests’ language is candid and, at times, critical—especially regarding the clarity of US goals, the administration’s messaging, and the risks to American security and economic stability.

• Warfare in the region and oil market shocks are ongoing—no clear resolution in sight.
• Washington faces difficult political trade-offs, amplified by public fears and legislative gridlock.
• The rise of AI on the battlefield and in cyber-defense presents both opportunity and profound new risks.
• Veteran intelligence officers are increasingly shaping security technology in the private sector.

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For listeners seeking a comprehensive understanding of the US-Iran flashpoint, the economic ramifications, and the intersection of new technology with national security, this episode delivers expert insight, candid analysis, and exclusive perspectives.

Transcript

[Joe Matthew]

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[Jeannie Shan Zaino]

Bloomberg Audio Studios Podcasts Radio news. You're listening to the Bloomberg Balance of Power podcast. Catch us live weekdays at noon and 5pm Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch US live on YouTub.

[Tyler Kendall]

The US threatens that the war with Iran is going to intensify. We heard from President Trump in a post earlier today saying that the U.S. has unlimited ammunition and that the U.S. has, quote, plenty of time. This came right before a briefing from senior U.S. officials, including the Defense Secretary, Pete Hegseth, who is confirming that the US and Israel have hit more than 15,000 targets and says that Iran's one way drone capability is now down 95%.

[Mike Shepard]

That the United States is decimating the

[Joe Matthew]

radical Iranian regime's military in a way the world has never seen before. Never before has a modern, capable military which Iran used to have been so

[Mike Shepard]

quickly destroyed and made combat ineffective, devastated.

[Joe Matthew]

It's about to get more devastating. According to the Secretary of Defense, this will be the most intense day of bombing yet. And if you read the president's post on Truth Social, they are consistent. We have, quote, unparalleled firepower, the president writes, unlimited ammunition and plenty of time. He says. Watch what happens to these deranged scumbags today. Jennifer Welch has been leading our coverage here at Bloomberg Economics, our chief geoeconomics analyst when it comes to not only the status of the war on the ground here, but its impact on the economy and, of course, energy prices is Jenny, it's great to see you. And welcome back to Balance of Power. What do we make of this moment that we're in with a market that's fearing, going long into the weekend, what might happen in the next couple of days?

[Jennifer Welch]

Well, I think it's really introducing questions about what President Trump had said earlier in the week that he expected that the war would end very soon Although he had caveated, probably not this week. It looks like it might not be next week either. But I think what we're seeing here is a continuation of defiance on both sides, because not only do you have the US Saying that we're continuing to escalate strikes on Iran, that we are continuing to move into even closer targeting of targets and assets there, even though many of them have already been hit, but you also have Iran coming out with this very defiant statement from its new supreme leader promising to keep the Strait of Hormuz closed and to open new fronts in the conflict if the United States and Israel continue to expand. And I think what all of that suggests is that the timeline for this war remains very uncertain, but it certainly doesn't look like there is an end in sight.

[Tyler Kendall]

For now, we're talking about potential escalation. We heard earlier this week from President Trump that potentially we could see the US US Hit electricity infrastructure if the Strait of Hormuz remains closed. We now have reporting that Israel is going after oil infrastructure. Jenny, just how big of an escalation would this be if we see continued attacks against these energy infrastructure?

[Jennifer Welch]

Well, I think in addition to that, there's the question that was raised by Secretary of War Hegseth's remarks earlier when he commented that Iran's new supreme leader had been injured by strikes. Though in addition to the targeting of infrastructure, there's questions about continued targeting of the leadership and how that could or could not harden Iran's resolve here. But I think the other question is to what extent are the US And Israel still aligned on the tactics of this war? We recall earlier this week there was some questioning in Washington of those Israeli strikes on oil, oil infrastructure in Iran. And I think there is a risk here of divergence between these two partners that up until now have been operating largely in lockstep.

[Joe Matthew]

What would be the impact on energy prices, for instance? I don't know what the status of the strait would be. But if the United States feels that it's reached its objective, say we find that enriched uranium or we decapitate the regime, whatever it is, that we qualify as victory and Israel continues its campaign, do we have the same factor for energy prices that we have now?

[Jennifer Welch]

I think we would expect that if Israel continues fighting on, which is very plausible, you know, aims on both sides in terms of the US And Israel have been somewhat vague. But at both times, both leaders have talked about something as drastic as regime change or massive instability in Iran, which obviously hasn't happened yet. So if Israel were to continue fighting and pursuing pursuit of that aim, then we would expect Iran would continue to hold shipping in the Strait of Hormuz at risk and continue to attempt to pose risks to other energy infrastructure in the region. And what that means for oil markets is that if we see these disruptions persist, we're already, as you mentioned, almost 14 days into this conflict. For several more weeks, we could not only see oil continue to tick up where it is now, a little bit above $100 a barrel, but rise even higher. We've estimated that if the disruptions persist for closer to three months, you could see oil well above $150 a barrel, maybe even closer. Do we estimate around $164?

[Tyler Kendall]

Wow. What about the potential impacts of the actions that the Trump administration is already taking to try to mitigate some of the supply disruptions, including overnight announcing that they're going to ease some sanctions related to Russian oil, issuing a second temporary waiver for buyers to purchase some of those cargoes that are already at sea. See, Jenny, should we expect more of this type of action from the administration? And I'm also wondering how our regional allies are viewing a move like this that does ease some of that pain when it comes to Russia.

[Jennifer Welch]

You know, some of these moves, including the waiving of the Jones act, the release of Strategic Petroleum reserves, it's definitely going to have a cushioning effect. But in the long run, what's really going to drive markets and drive energy supplies is gaining access back to all of those oil and gas supplies that are right now locked up in the Gulf that in some cases they've turned off production because storage tanks have become so full since they can't export any of them. I think the other thing to keep in mind is that those sanctions waivers were largely into response, what many countries were already starting to do. Recognizing there was a pinch in supplies in the Middle east, they were already starting to look to that Russian oil. And it's probably going to have limited impact here in the US The Jones act will probably take a few cents off the cost of a tank of gasoline, but even that will be relatively minimal. And then the release of the Strategic petroleum reserves. The IEA has been coordinating about 400 million gallons across the world. That will take time to hit in terms of when those reserves are released, the tempo at which they are released, and will only amount to about 20 days worth of supply from the Strait of Hormuz. So if this conflict ends in the next few days, you know, before we hit the 20 day mark, it will have a good effect. If it extends much past that, then it will really only be a temporary comfort.

[Joe Matthew]

All right, Jenny, we understand, according to Bloomberg News reporting, that several back channels have opened just in the past couple of days between Tehran and US Allies when it comes to reopening the strait. What could this result in? An actual cease fire or an agreement to open the strait? Or could it be an agreement to open the strait for only select nations?

[Jennifer Welch]

I think at the moment what we're probably seeing is a mix of both. There's probably efforts to try and breach a larger cease fire, but the two sides are very far part on what that would entail. You know, for example, Iran wants to see guarantees that it won't be re attacked, something that the US And Israel probably aren't willing to offer. And it wants to see sanctions relief, which I think will also be a stretch. The US May want to see Iran make guarantees on its nuclear and missile program, which it wasn't willing to do before the war and probably is even less willing to do now. And in the meantime, I think we see a lot of countries trying to engage Tehran directly to seek the ability for their own ships or ships that are headed towards them to, to gain access so that they can get their energy supplies.

[Tyler Kendall]

All right, Jennifer Welch, Bloomberg Economics Chief Geo Economics Analyst, thank you so much for all of your insights. And we do want to extend the conversation by bringing in today's political panel. That's Jeannie Shan Zaino, Democracy visiting Fellow at Harvard Kennedy School's Ash center and a Bloomberg Politics contributor as well as Rosemary, Betsy partner at Brownstein Hyatt and Republican strategist. Rosemary, I want to start with you and pick up on what we were just discussing. When it comes to oil prices that are now hit Americans, including when it comes to retail gasoline, how much pressure is there on President Trump to pull some of these other levers beyond waiving some oil sanctions on Russia, but perhaps invoking and waiving the Jones act, maybe asking for a federal gas tax holiday. How likely is it that we're going to see some other moves out of the administration?

[Rosemary Becky]

Sue, I think that is as your previous guest talked about, you know, to the extent that this continues, you know, more and more pressure is going to be on the president to do, to, to look at other means of reducing, you know, the, the price at the, at the pump. It, you know, the longer this continues, you know, it again creates such pressure to do something about it and particularly again as we kind of get towards the midterms. Right. I think that you Know, as we saw in the last election, Cy, that, you know, Americans aren't feeling better off and that, you know, they are concerned about affordability. And so I do think that, you know, the president and others are recognizing that. And, and I think that ultimately they will be looking to do other things to bring down, you know, the price of gas. Remember, during the State of the Union, he did talk about how low gas prices are. So the last thing you want to is them, you know, climbing higher and higher.

[Joe Matthew]

We want to make note, by the way, that we had an update from CENTCOM and from the Pentagon earlier today to learn that two more Americans were killed in action after a US Refueling airplane crashed in western Iraq. All six crew members have died. Initial reports were that four of the six had been lost. And we heard about the Americans who were lost this morning from the Chairman of the Joint Chiefs of Staff, Jeannie Dan Kaine. It's always the first thing that he acknowledges when they hold these morning briefings at the Pentagon before he gets to any of the X's and O's or any of the threats against Iran, before he starts taking questions. The Secretary of Defense obviously has a very different approach here. Civilian leadership. A former Fox News personality and, of course, a veteran himself, he spent quite a lengthy period of time chastising the press that at least were assembled for this morning event, Jeannie, and he even tried to rewrite some of the headlines that he had been seeing telling them how to better do their jobs when it comes to covering the war. It was a long time before he got to Americans who had been injured or perished in battle. What do you make of the dichotomy between these two?

[Jeannie Shan Zaino]

It expresses their concerns. Right. On the one hand, you have Kaine, who rightly so starts with the horrific death and killing of these American soldiers, these American heroes. And I listened to that as well, Joe. And his. His tone is absolutely on point. These people, their families, I mean, you just think about how horrifying this is, and then you flip over to a Secretary of Defense or war, as he likes to talk about, and you see what he values and what is most important to him. And that is how he and his mission are represented in the press. This is a person who has cut off the legacy, traditional press out of the briefings, thinking that if he did that, he could control the narrative. He's woken up to what we all knew. There's no controlling that narrative. And now he has taken to chastising them. But the reality is he's doing so at a Time when he should be mourning the loss of these heroes. And I think it just reflects where his interests are and where his focus is, and it is not where it should be. And I applaud Dan Cain for having the right value system and putting that front and Center.

[Tyler Kendall]

Well, 13 U.S. service members have been killed since the war started. Rosemary, let's get your thoughts here on the administration's messaging when it comes to this, but then also about what tactical success and objectives look like on the ground, because we've been talking about it all week here. The markets are watching very closely. Everybody is watching very closely on what the potential timeline is going to be. And we've heard some mixed signals, right? President Trump saying that this could be over as soon as he wants it to, but then also saying in a post earlier today that the US Is willing to sustain this, this for as long as it takes.

[Rosemary Becky]

So, I mean, obviously, you know, the goal here is, is to get this over with as quickly as possible. I mean, I don't think the goals have changed here, right? I think the goals is to get a regime change in place. The goal is not to have boots on the ground. And I still think that the administration and the president are pushing it for this. And I don't think the messaging has changed. And maybe we just need to continue to remind everybody that this is about keeping Americans safe. This is, you know, was part of the president's agenda. And I think that we just, you know, need to be reminding everyone of that. And hopefully, you know, this will move quickly and, and we will see a resolution shortly. But I do think that there's still a commitment towards, you know, making sure there is no boots on the ground and that we resolve this as quickly as possible. And we do see a regime change here.

[Joe Matthew]

Jeannie, we only have a minute left. I'm taken by this poll from Quinnipiac University that finds a whopping number, 77% of Americans think a terror attack is likely because of this or in response to the military action against Iran. It's more like 30 seconds at this point. If such an attack occurs, does that strengthen the resolve of the American people or create more opposition to the conflict?

[Jeannie Shan Zaino]

You know, I think it'll strengthen their resolve to defend the homeland, but I think it will also underscore what a misguided situation we are in at the hands of an administration with no clear goals or ability to achieve them in a war that he said he wouldn't start and has now gotten us into. And we will have boots on the ground because that's the only way you can get that 900 pounds of uranium out.

[Joe Matthew]

We'll be talking about that if it happens. Jeannie, great panel and thank you both, Jeannie Shan Zaino and Rosemary Becky. Stay with us on balance of Power. We'll have much more coming coming up after this.

[Ben Walter]

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[Jeannie Shan Zaino]

listening to the Bloomberg Balance of Power podcast. Catch us live weekdays at noon and 5pm Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa played Bloomberg 11:30.

[Tyler Kendall]

Tyler Kendall here in Washington with Joe Matthew. And as we continue to cover the updates related to the conflict with Iran, the idea of artificial intelligence and the battlefield keeps coming up in conversations. And we're tracking developments in the ongoing dispute between Anthropic and the Pentagon over the company's demands for safeguards in exchange for the military using its AI tools. The Trump administration moved to designate Anthropic a supply chain risk. And Joe, now the company is suing over this, telling a judge earlier this week that it is poised to lose potentially billions of dollars in revenue because of the decision.

[Joe Matthew]

Yeah, it could, you know, be a massive impact on its business. It's a $200 million contract with the Pentagon. But as we've discussed with Mike Shepard before, if you unwind all of its operations with every other defense contractor or any company that's doing business with the Pentagon, that number gets a lot bigger. And so we did want to update things because this has been a dicey week for Anthropic and it's a precedent setting moment, moment at the Pentagon and beyond when we start looking at the use of artificial intelligence technology. Mike is Bloomberg senior editor for Technology and Strategic Industries. And Shep, it's great to have you as always here. So we've got the lawsuit, but the fact is, as I understand it at least, and I'd love to know what you're hearing, Anthropic is still being used and it could be for the next six months by the Pentagon. Even as we wage war against Iran,

[Mike Shepard]

it is still being used. And there really is the conundrum in a way that the Pentagon on the one hand is saying that yet because you won't buy, abide by our terms, the government's terms, you are now a supply chain risk and yet we need your technology for the next six months until we find a suitable replacement. There is an inherent contradiction and that is one that has been highlighted in the, in the government's case. And there are some companies that are not only waiting in the wings, but really stepping forward to try to perhaps take some of that business. OpenAI most obviously and perhaps brazenly, certainly in Anthropic's view, stepped in hours after President Donald Trump and Defense Secretary Pete Hegseth ordered that the company be declared a supply chain race and debarred from federal business. They stepped in with their own, their own version of proposal for classified work. And then we have also seen X elon Musk's AI venture step in them with a plan and approval to do classified work as well. But neither is as fully advanced as Anthropic has been with its Claude tool.

[Tyler Kendall]

So there's these discussions with some other AI tools and companies in the Pentagon. There's now these two lawsuits that Anthropic has brought, I believe one in California, one here in Washington. Are there any discussions between the company and the Pentagon that we know about outside of the legal matter here? Is there another viable off ramp for

[Mike Shepard]

this is really the heart of the matter because in every single other dispute, whether it be an antitrust case, you name it, the parties always try to talk behind the scenes to see if they can maybe diffuse things and not have to go all the way through the whole rigmarole of the courts and then maybe lead to an outcome that is less than satisfying. To be clear, the Pentagon wants to keep using Anthropic's tools. The defense personnel who have been employing them through classified and unclassified platforms really like Them, they're adaptable. And in much the same way that across the business world, those tools have been embraced in a lot of different ways. So too in the government, and yet there is this conflict over the terms. Now, as for talks, we interviewed the Pentagon officials been leading these discussions and at the beginning of the week he flatly said that nope, talks are over, we're moving on. But this is the Trump administration and we know that never really doesn't always mean never.

[Joe Matthew]

You know, I wonder if the Pentagon has a point, Mike, and we get to the philosophical or sort of moral ethical problem here. They want a product that they can use as they see fit. They don't want a company telling them how to use it. That would be no different than Boeing or Lockheed or General Dynamics or Raytheon. Right. We're selling you missiles, but you're going to use those missiles as you see fit. We can't attach strings to them. Why should AI be different?

[Mike Shepard]

Well, it's a great question and I'm glad you brought up the analogy between other defense contractors because the ones that are providing those sorts of armaments for kinetic purposes like a bomb or a missile, they don't have a little asteroid risks there saying, you know, you got to come back to us if this use case comes up. Doesn't happen. In this situation though, with Dario Amade, this chief executive of Anthropic is arguing is that look, this technology is still so nascent and error prone, we do not trust it for using it yet in fully autonomous weapons. It's like we can't go there. And the Pentagon is saying, look, there is no such thing. We don't do that yet. There is always a human involved in the chain. And yet Anthropic is to going concern that that could be a slippery slope. And then there is the other point that Anthropic has really drawn a red line on and that is surveillance. And their concern is that this technology could also be used somehow, intentionally or unintentionally, to conduct domestic surveillance on American citizens. And that's also a red line for them. And again, so when you think about Boeing or Raytheon, the analogy works, but only up to a point. If you hear here, Dario.

[Tyler Kendall]

So given that the dispute over these use cases has not been resolved, it's my understanding that there is now the six month phase out for the technology. How, you know, doable is that and could we see the legal matter resolved faster than that? What's the timeline we're looking at?

[Mike Shepard]

Well, the timeline is really fluid now. Because it's unclear what happens if and when one of the judges in California or here in Washington issues a temporary restraining order, does that stop the clock altogether? And then as far as the adaptation to another provider, another technology, say OpenAI Xia or even Google, which this week has been ported on to provide unclassified work for the Pentagon, it would take some time. We have talked to experts who do not only procurement, but specialize in technology with the Pentagon, and they said, look, it would be a little bit messy, but eventually you could find something that would plug in. Now, the question, though, Tyler, is would the user experience and the effectiveness of the technology be quite the same in this sense?

[Tyler Kendall]

All right, Bloomberg's Michael shepherd, senior editor for Technology and Strategic Industries. He always has the latest on this. Mike, thank you. And Joe, this is perhaps the perfect way to bridge domestic and foreign policy. The Pentagon is the federal government, government's largest tech buyer. And as you were asking in that question, the Pentagon maintains that it doesn't want to use anthropic tools. And in those ways, that anthropic is looking for those safeguards. But at this point, it's not enough for the company.

[Joe Matthew]

That's absolutely right. And whether this is something that progresses from here has yet to be seen in the next six months as this technology is unwound. Maybe, you know, a new precedent will be set. But it's, it's an interesting moment that we're in right now with this obviously conflict with Iran that anthropic is now tied into. It's happening at a time when domestic terror threats have returned to the conversation I alluded earlier to this Quinnipiac poll. 77% of Americans think there will be a terror attack on American soil because of this conflict. And it's coming at a time when the Department of Homeland Security is closed. I believe we're at the one month mark tomorrow. The first paycheck for TSA is being missed today. The timing here, Tyler, is potentially terrible.

[Tyler Kendall]

And it's 206,000 employees in the Department of Homeland Security. And you're starting to see the calls from Republicans in particular that they have to get a move on when it comes to funding dhs. Amid, as you're outlining, there is a renewed threat when it comes to Iran. We had President Trump earlier today, one headline crossing the terminal about sleeper cells, though he says the US Knows where they all are and there shouldn't be a concern.

[Joe Matthew]

Yeah, he was talking to Fox News, I believe, about. That's the first time we ever heard a Number on that. But we thought we'd compare notes with Nathan Dean before we get into the weekend here just to have a sense of how long maybe this goes. He's, of course, a Bloomberg Intelligence senior U.S. policy analyst. Nathan, it's great to have you back here on ic. Just we wanted to pull you in on the day that the first full paycheck is being missed to ask whether this new pressure point might make a difference.

[Nathan Dean]

So it's not right now. I mean, if you go to social media, you'll see the Senate Republicans and Senate Democrats almost say the same message. They'll retweet a long line at the airport and say that the other party is responsible for this.

[Joe Matthew]

Yes.

[Nathan Dean]

And, you know, we do think that TSA sickouts are going to bring a resolution to this, but we're just not in the stage yet of the negotiations. So, look, there haven't been really many negotiations whatsoever. And so we think this probably takes another week, if not a little bit longer to get to some type of resolution. But really, whatever. It's not. I mean, whatever that resolution is, you know, essentially we think that when this is done, we should be good through September 30th, and that should be it for the rest of the shutdowns.

[Joe Matthew]

Wow.

[Tyler Kendall]

So that's funding for dhs. We also know that, relatedly, Congress is preparing for a supplemental request from the Pentagon to help sustain what is happening in the Middle East. Do we have any idea how big of a supplemental request this is going to be and how easily, or not so easily it would get past Congress?

[Nathan Dean]

So Bloomberg News has reported this idea of $50 billion, and we've done some analysis showing what that would potentially look like in terms of munitions. Some people have said north of 100 billion, maybe 150 billion. But we would caution clients to say, is this that any single time you see a number here, here, there's always going to be somebody else saying, look, we need to attach something. And we've seen reporting that says that $15 billion worth of farmer aid could be attached to this. So where I'm going with this is that we do think this number is going to be close to 100 billion or just north of 100 billion. But the question is, is it going to go through reconciliation or is it going to go through normal order? If this bill is very small, say 50 to 100 billion farm aid plus Iran supplemental, and it goes through normal order, we think this can actually pass. If it goes through reconciliation, every lobbyist in town, every policymaker is going to say we attach something, next thing you know, blows up to a trillion dollar package and with a margin of vote of one in the House of Representatives, we just don't think that would happen.

[Joe Matthew]

It's almost like you've seen this happen before. Nathan, I've got to ask you just quickly, we've got a minute left. Next week, SAVE Act John Thune says I'm bringing it to the floor. He doesn't have the votes, but we're talking about days upon days of debate probably.

[Nathan Dean]

I mean, look, Senator Thune has to go through the motions of bringing it

[Mike Shepard]

to, to the floor.

[Nathan Dean]

This is something the Republicans and especially President Trump want to have happened. But Senator Thune obviously has said he doesn't have the votes to change the filibuster. And at the end of the day, the SAVE act would require 60 votes to pass. And we just don't see that happening anytime soon.

[Joe Matthew]

All right. You got it straight from Nathan Dean. And that's the authority around here in the D.C. bureau, Bloomberg Intelligence senior U.S. policy analyst. Nathan, thank you. Trying to get a weekend because we're going to pick this up up all over again on Monday. I'm Joe Matthew alongside Tyler Kendall in Washington. And we appreciate your spending some time with us here on the Friday edition of Balance of Power. A special conversation ahead, we'll look at the markets as we always do with Charlie Pellet. But a special conversation with a former CIA agent who is getting into private enterprise to seize on the very technology we were talking to Chef about.

[Tyler Kendall]

And that's right, from CIA to CEO. We're going to have those details up next.

[Joe Matthew]

Stay with us on Balance of Power. We'll have much more coming up after this.

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[Jeannie Shan Zaino]

You're listening to the Bloomberg Balance of Power podcast. Catch us live weekdays at noon and 5pm Eastern on Apple CarPlay and Android Android Auto with the Bloomberg Business app Listen on demand wherever you get your podcasts or watch us live on YouTube.

[Joe Matthew]

Thank you for being with us on the Friday edition. We promised you an important conversation and we bring it to you now with the headline on the terminal Tech Savvy spies step out of the shadows and into the boardroom. It's a fascinating moment for former CIA officers to bring their experience in the field to bear in the the private sector and in this case in the market for security focused tech firms. There's one in particular that was launched not very long ago by Brian Karbaugh, former CIA officer. And it's a company that is actually harnessing the very technology that we were discussing earlier with Mike Shepard and that's artificial intelligence and a site is the name of the company and that former CIA officer Brian Carbaugh is with us right now. Brian, welcome to Bloomberg's TV and Radio. It's great to see you.

[Brian Karbaugh]

Thanks for having me.

[Joe Matthew]

We should start by thanking you for your service. And I know that from the if you tell me you'd have to kill me file, there's probably not a lot you could tell us about your resume. But you were part of the CIA Jawbreaker program. You're the real deal and you had the opportunity in that experience to realize what you didn't have but wanted. Now it's your opportunity to create that technology to help our men and women in the field. Andesite is compiling massive amounts of data to do what with in combat?

[Brian Karbaugh]

Yeah, I think that's a, it's a great question for me going back to that experience in Afghanistan after 9 11. Obviously speed was essential. We had to move very quickly. The threats were compounding. All of us who were on those first waves in Afghanistan knew that our country was at risk. The attacks were going to multiply. And what mattered was trying to get the information not just fast enough, but also to have the type of context that you needed to have the type of insight that you needed to sort of make decisions quickly and act on those decisions. And for sure, everyone across the intelligence community and the special operations forces, of which I was a member on the Jawbreaker team, was moving with the best of intentions. But you Just had massive amounts of information piling up and again, everyone was searching for that context. So we found ourselves moving from village to village, town to town, province to province, oftentimes acting on quick tips. But what we need to do needed was that sort of combined coalesce provision of contextualized information that gave us the type of insight we needed to act. So in Andesight, to your point, we're now using artificial intelligence to move at speed to deal with the volumes of data that we have. So in this case it's not the special operations troops who are on the ground as we were back after 9 11, but it's the cyber defenders who are working so hard to protect our public service and private sector institutions, institutions from the growing threat of cyber attacks.

[Tyler Kendall]

How much has the landscape shifted since you were on, on the ground to to today with the advent of AI? How is that really changing the picture when it comes to the US's preparedness and its response to threats?

[Brian Karbaugh]

Dramatically. I think in this case now you see that that AI is really the attacker. So you're seeing, you know, those types of either hacktivist groups or, or hostile countries who are using AI in the offense. I think that's, that's changed the landscape quite dramatically. And when you're dealing with entities who really aren't bound by, by law, they're not bound by moral norms, they're not bound by ethics, as we are in the west, then it certainly I can provide an opportunity for the attackers to move quite quickly. And the challenge is now on the defense, we have to move at that same type of speed and alacrity.

[Joe Matthew]

Just to digress for one moment into a, a conversation or debate that's been happening in the markets here, there's been a thought that I might replace the need for cyber protection, that in fact they're somehow competing with each other, you're using them together. Isn't the onset of AI creating more demand for cyber protection?

[Brian Karbaugh]

I think it does precisely for one of the reasons we just mentioned. We were seeing attackers who are using

[Joe Matthew]

AI as opposed to replacing these platforms. Platforms though, how are you marrying them?

[Brian Karbaugh]

Yeah, for sure. A quick background. My thought on that, when I look at the aspects of my time at CIA from which I draw the most satisfaction and sort of gratification, it was really the power of the team. So it was that human team that was able to harness technology, to use technology as an enabler. It was diverse teams with different types of backgrounds that came together, unified by a mission to really solve hard problems. At Andesight we're taking that same same approach. So we build a culture that's really powerfully enabling that both within our company and for our customers. We say that we think the human beings are central to using AI to address these problems. I think, you know, as we look at the power and promise of AI, it offers immense opportunity in dealing with volume. But we think even the US intelligence community, I'd seen with greater signals intelligence collection, more volume of data, you lose context and you lose that awareness.

[Joe Matthew]

Yeah.

[Brian Karbaugh]

Having the human being be at the helm is core to what we do. So that the human can use that which is uniquely human in the end, which is to use their judgment to make those decisions.

[Joe Matthew]

Well, that's incredibly important. Will that always be the case for AI, or is that the space we're in right now?

[Brian Karbaugh]

I think when we look at the power of generative AI, it's important for us to remember that as it stands right now, it's not deterministic. It makes mistakes, it makes inferences that are not correct fact. It can say and do things that are inaccurate. And if we're using AI to generate a poem, that might be sort of comedic, but when you're trying to protect your perimeter security inside a network, it's less funny. So we think that, you know, as the AI improves, as the accuracy and credibility improve, then for sure, within andesight, we'll automate more of the workflow. But we think the right architecture, the right decision is to empower the human to be at the helm, make those decisions. Really sort of enabled and enhanced by the power of AI.

[Tyler Kendall]

So what sort of guard guardrails or safeguards would you think would be the right way for the administration, for the federal government to be thinking about this? And I'm also curious about who you work with. The public and the private sectors are. Do they have different needs when it comes to this and to this broader discussion about keeping consumers of this safe?

[Brian Karbaugh]

Yeah, I think, think to, to the different needs, one thing I'd say is we think the threat vectors are the same. So the threat actors, the types of attacks that, whether it's public or private sector institutions, the threat is the same and it's, and it's growing. I'm most concerned when I look at the difference between public and private sector, at where the private sector stands in terms of risk. I think public sector institutions have in many cases, large, you know, sort of well defended networks. There's, you know, there's defense in depth, there's layered cyber defenses. When I look at private sector Entities, particularly businesses with a global footprint, with potentially international, geographically dispersed supply chains, there's risk there. And I think certainly in today's environment, any businesses that are interacting with our counterparts in Israel are at a heightened degree of risk. So I think in the private sector, there's real risk there. And there's also been a blurring of, of the risk where you look at critical infrastructure like hospital systems, the energy infrastructure, financial services, institutions. More and more that infrastructure is in private sector hands. So it's not as sort of tidally categorized as to say public and private sector, because that risk is shared.

[Joe Matthew]

That's really interesting, Brian. I want to get back to where we started here. And that's essentially a new breed of CEOs like yourself, former CIA officers, in some cases, former members of the military who can take their active duty experience and apply it. In these cases, you know, timing is everything, and timing is apparently on your side right here. Do you feel like you're part of a growing community doing this with your experience as a veteran?

[Brian Karbaugh]

I do. I'm starting to see more and more teammates of mine, both from CIA, the National Security Agency, the Special Operations forces in the US Military, I think feel the same way, perhaps that I do, which is, you know, I was drawn to public Service. I spent 30 plus years in public service. It mattered to me. There's nobility in that mission. And I think to the conversation we're having here, when you look at the vulnerability of our energy systems, our hospital and medical systems, you look at the attack that just happened this week, this matters. And to the extent that we can draw from the type of cultural experiences we have, the types of environments in which we operated, to try to apply those skills and experiences in building a business to help address these types of attacks, then I'm absolutely grateful for the opportunity.

[Tyler Kendall]

Joe mentioned the timing. We're also seeing an administration that's trying to boost defense budgets. I believe President Trump's request for the Pentagon next year would boost it by about 50%. How much is this a boon to, to your industry and, and the support that we could see for making sure that we're bolstering our technology in the name of defense of the U.S. i

[Brian Karbaugh]

think it's a recognition that in light of what's happening right now and with an eye to the future, that the threats will continue to grow. So resourcing cyber defense systems and technologies, resourcing the public sector defense of our cyber systems is critically important. So to be able to play a part in that and be a part of a team team again of some pretty extraordinary people who are part of a really powerful network. That's a, it's a great opportunity and certainly it's the right time.

[Tyler Kendall]

All right. Brian Kaba, CEO and co founder of Andesite. It was so great having you here. Thank you Studio. Thank you.

[Brian Karbaugh]

Thanks so much.

[Joe Matthew]

Congrats on your company. We'd love to hear more about how it grows in the near term. You're based right here in Virginia, where we are in the nation's capital. Tyler, the President of the United States likes to talk about central casting. I don't know where they found this man, but I think he used to to work for the CIA. It's great to meet Brian and we thank him for his service. Thanks for listening to the Balance of Power podcast. Make sure to subscribe if you haven't already at Apple, Spotify or wherever you get your podcasts. And you can find us live every weekday from Washington D.C. at Noontime [e-mail]

[Brian Karbaugh]

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