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- [00:01]
Kayleigh McEnany
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- [00:18]
Bloomberg Announcer
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 Apple Android Auto with the Bloomberg Business app Listen on demand wherever you get your podcasts or watch us live on YouTube.
- [00:40]
Kayleigh McEnany
Upward pressure on oil prices once again back north of 104. Closing in on $105 a barrel again as there appears to be no sign of diplomatic progress between the United States and Iran when it comes to reopening the Strait of Hormuz. Are on any other issues, including Iran's nuclear program. We heard from President Trump in the Oval Office earlier today that he has a plan. It's a simple one, he says, a great plan. Iran can't have a nuclear weapon. The problem is in the proposal, response to the proposal that Iran sent back. The president said in their letter they didn't commit to not having a nuclear weapon. Therefore, in his mind, that proposal was garbage. And he says that has all led to the ceasefire being in a weak place.
- [01:21]
President Donald Trump
Listen, unbelievably weak, I would say, I would call it the weakest right now after reading that piece of garbage they sent us. I would say the ceasefire is on massive life support.
- [01:37]
Joe Weisenthal
At the beginning of that hour and 15 minute long event, the president made clear he had a room full of generals waiting on him. And now Axios reporting he did in fact go into a meeting with his top military advisers to talk about potential military options. Secretary Chris Wright, the energy secretary on CBS has faced the nation yesterday saying if it's clear the next few days there's not a good path to a negotiated settlement, we'll go back to the military method to open the Strait. That's where we start our conversation with Adam Farrer with us of course, from Bloomberg Economics, Geo economics analyst for Asia Pacific with a good hand on what's happening right now in the Middle East. Adam, it's great to see you. Are we as good as going back to war?
- [02:18]
Adam Farrer
So the president seems to be jumping to the conclusions that many of us reached last week, right where we saw Iran and the United States exchanging fire. The United States actually destroying vessels in the Strait of Hormuz that were theoretically attacking both US Naval vessels and commercial vessels moving through, but also attacks on regional partners, including the UAE and over the weekend, Kuwait. So the, the fact that he has come to this conclusion at this point is not terribly surprising. What is interesting is what we're now learning about Iran's response.
- [02:48]
Nick Burns
Right.
- [02:48]
Adam Farrer
Iran after now this prolonged multi month war finds itself actually relatively confident, it appears because its response to the, to President Trump's outreach was actually almost ident identical to what it said weeks ago in terms of what its demands would be with limited change. And that speaks to what they see as their red lines, which is their nuclear program and now controlling the Strait of Hormuz and how they simply don't align with the United States and I think a clear impression in Tehran that they are, you know, holding on to leverage in this negotiation.
- [03:19]
Kayleigh McEnany
Well, so it becomes a question of if the US is able to extract enough leverage to get that needle to move or if it's going to have to come from other external forces like for example, China. The President obviously has a meeting, a reschedule meeting with Xi Jinping in Beijing this week. He had rescheduled it from the end of March with the hope that this war would be wrapped up by the time we got around to this new date. Is it ultimately China that's going to have to have a say as to when this reaches a conclusion.
- [03:48]
Adam Farrer
So from our perspective, there's no doubt that that will be on the table when President Trump arrives in Beijing. President Xi is deeply concerned about the instability that's growing and remains in the region and the loss of the free flow of oil to that China is reliant on from the region. But at the same time, I think we have to be cautious about what is really going to come out of this on the Iran issue. They will discuss it, but I think it's highly unlikely that we see new outcomes or deliverables specifically on the conflict. And that's both because President Xi, while interested in this resolution, has taken a relatively backseat approach to China's involvement in negotiating the outcome of the war. Supporting Pakistan as a key mediator but not stepping in itself. It will continue to play an important role pushing both China, Tehran and potentially the Gulf to moderate. But it's not going to. It does not appear that Xi is willing to use his trade leverage on the United States to extract anything, with his focus really being on the the trade truce and maintaining that moving forward.
- [04:47]
Joe Weisenthal
A race against time is how Morgan Stanley describes the effort to reopen the Strait. Adam, with a base case dated brent seen at $110 a barrel this quarter, 100 in the following three months, 90 between October and December. The bull case, 130 to doll dollars a barrel. That's in the case of a longer closure. Based on everything we're hearing now, we're getting a longer closure, aren't we?
- [05:12]
Adam Farrer
Everything's pointing in that direction. And the reality is that even if we remain in this kind of prolonged stalemate or, you know, you know, cease fire, name only.
- [05:21]
Joe Weisenthal
Yeah.
- [05:22]
Adam Farrer
That's still going to continue to have deep impacts on the oil market. With the inability of shippers and oil companies to have, you know, trust that their ships can freely move throughout the region and in and out of the strait. Even if we get ships moving out with the huge amount of oil that's still stuck in the Gulf, the question is, can those ships come back and how reliable will that flow be? All of that points to oil, higher oil prices over time. And the supply shortage that we are seeing growing here is real. And companies or countries only have so much stockpile before that will continue start to actually impact folks at the pump.
- [05:57]
Joe Weisenthal
Really interesting as always, Adam. Thank you so much. Adam Farah, Bloomberg Economics with Brent Clock. And then at $155 a barrel right now, WTI at 99, they're both up almost 4% individually with the President today making it clear that the counteroffer, the counter proposal that he received from Iran, as Kayleigh put it, was garbage. Here's how he put it to reporters.
- [06:20]
President Donald Trump
It was just unacceptable. You know, a lot of people said, well, does he have a plan? Yeah, of course I do have a plan. I have the best plan ever. Iran has been defeated militarily, totally. They have a little left they probably built up during this period of time. We'll knock that out in about a day. But I have a plan. You know what? It is a very simple plan. I don't know why you don't say it like it is. Iran cannot have a nuclear weapon.
- [06:47]
Joe Weisenthal
This is where we start our conversation with Heather Conley, non resident Senior Fellow at the American Enterprise Institute, former Assistant Secretary of State for the Bureau of European Eurasian affairs in the George W. Bush administration. Heather, it's great to see you. Welcome back.
- [07:01]
Heather Conley
Thank you.
- [07:01]
Joe Weisenthal
Rhetoric today, not great. We've got a ceasefire on massive life support, as the President put it, and a counter proposal that is totally unacceptable. What happens now?
- [07:13]
Heather Conley
Well, Joe, when I was last with you, we said we're stuck. We're still.
- [07:17]
Kayleigh McEnany
Nothing's changed.
- [07:18]
Heather Conley
Nothing. Nothing has changed. I think what has changed is that you now have the President ready to go to Beijing. And this is not what he wanted. He wanted this to be in the rearview mirror. He wanted to present strength. And now he comes in a weakened position asking Xi Jinping for help to get the Iranians to agree. I think what was important about this deal is again, the Iranians are saying we're not talking about this nuclear issue right now. We are talking about the issues that we want to talk about. And that's why you saw the president visibly angry today because he just cannot get Iran to move on that front.
- [07:54]
Kayleigh McEnany
So not a lot of movement diplomatically. But you, you have repeatedly told us, Heather, over the last number of weeks that you don't see that this conflict is going to have a military resolution ultimately. But is using a military option the only thing that the very least could move the needle toward a diplomatic resolution?
- [08:10]
Heather Conley
Kayleigh it's going to depend on the military operation. And what the president likes to use is, you know, strong from the air, what we call pinprick to try to get the regime to move. What we're talking about now is clearing and holding the Strait of Hormuz. That is a much longer term riskier military proposition. And I think that's why the president is really struggling with committing those resources because I think he is risk averse to taking significant military casualties. Thankfully and extraordinarily we have not taken that. So he has a really big decision to make. What has been also shocking is we really thought the market would help make incentivize both sides Iranian storage capacity, they'd have to shutter wells. We'd start to see the stock market and oil. And we're seeing extraordinary US Exports. We're seeing extraordinary stoppage of Chinese imports. That's imports. That's what's stabilizing us. So the market hasn't shifted. And now it's really up to President Trump to see whether he's going to go all in or we're going to go back to some smaller military operations to see if he can affect some change.
- [09:20]
Joe Weisenthal
We'd love to hear more of your thoughts about how the president will end his week in Beijing because it's yes, Iran, but also a lot more that he's going to be talking to President Xi about. Nick Burns got into this, of course, a former US Ambassador to China in a conversation on Bloomberg this weekend. Listen to what he said.
- [09:38]
Nick Burns
For both the governments, for both leaders,
- [09:40]
Brandon Pugh
this is the most important relationship.
- [09:42]
Nick Burns
They have the US China relationship and they have ambitions for this year. I mean, they want to meet Xi Jinping, Donald Trump two to three, even four times this year. And there's a lot to talk about. I think we'll see a big focus on Trade supply chain and the commercial
- [09:59]
Joe Weisenthal
relationship and potentially Taiwan. President was asked today about it in the Oval. He said, yeah, it always comes up. I don't think it'll happen. I think we'll be fine. Presumably referring to China retaking the island, he says he will discuss Taiwan weapons sales with President Xi and that that was a headline that crossed the terminal and got a lot of attention to what could this lead to, particularly if he's looking for a deal with help with Iran.
- [10:26]
Heather Conley
Yeah, I mean, China has been very clear. This is their number one topic for this conversation.
- [10:31]
Joe Weisenthal
Taiwan is.
- [10:32]
Heather Conley
Taiwan is. Absolutely. And they would love to see the president do some language changes around how we talk about our lack of support or our opposition to Taiwanese independence. Absolutely. But look, I mean, we've already seen the president give on this. He's already sort of suspended or sort of postponed arms shipments to Taiwan. Quite frankly, our own limited defense production capabilities is really limiting the type of weapons that we are going to be able to provide all our allies, including Taiwan. But the fact that this conversation is on the bilateral menu is in itself not appropriate. We have never sort of allowed that to bleed in. It should be held separately. The US has its own policy, you know, and at this point, returning to a status quo is really gone. And we're going to be watching President Trump's words so carefully, and the Chinese are going to exploit any differences in a massive shift in policy.
- [11:31]
Kayleigh McEnany
Well, so if word selection and language is so critical here, Heather, this is not a president who is known for being, for being careful with those things. Frankly, he likes to speak off the cuff, and I just wonder how quickly even him saying something isn't aside or not meaning for it to change US Policy stance that you actually could see that happen, happening or understood at least by the Chinese that way.
- [11:56]
Heather Conley
Well, and in fairness, President Biden also made quite a few gaps, changed policy, and his aides were very quick to. To wield back on this. So we have seen this before, but you're right, this is where that any significant shift, even delay, that President Trump says, it's just, it's going to be so exploited by the Chinese and it's going to have ripple effects across all of our allies. Is the American credibility and capability as a partner and ally. That's what's being tested right now profoundly. Europe, Indo Pacific and in the Middle East.
- [12:27]
Joe Weisenthal
Surely Iran is on the phone with Beijing right now trying to influence this to whatever extent it can to its own benefit. What might the regime be telling President Xi?
- [12:38]
Heather Conley
Well, it's been Interesting, because the Iranian foreign minister was in Beijing before they submitted their latest proposal. There didn't seem to me to be any pressure by Beijing to change or alter the Iranian proposal. You had senior Iranian officials again today say we support China's four point plan. So they're trying to move away from, I think the White House's 14 point plan, or MOU, and they are saying that, you know, China will be playing a shaping role. But China's stayed sort of on the sidelines here. They're waiting to see. They want the United States in a weakened position again. China believes its rise is unstoppable and America's decline is unstoppable. And they believe this is just another data point that supports their theory. And unfortunately, because the conflict has not resolved in any meaningful way, it really in some ways strengthens the Beijing's point of view here.
- [13:38]
Kayleigh McEnany
In our final few moments here, Heather, I'd like to turn to another conflict that was at least on pause over this weekend between Russia and Ukraine, a three day cease fire that President Trump announced at the end of last week that just so happened to overlap with victory day celebrations in Russia. Read into that as you will. But in his victory day remarks, Russian President Vladimir Putin seemed to suggest that the war with Ukraine was nearing an end. And I wonder how you understood or interpreted that.
- [14:02]
Heather Conley
Yeah, I mean, what we've really seen over the last couple of days, particularly the May 9 victory parade, is the Putin is now under some pressure economically and politically. We really haven't seen that the last four years. And it's because Ukrainians have now really challenged him. The reason the parade was so small is they were really afraid that Ukrainian drones would disrupt that, which would have been a massive humiliation to Vladimir Putin because he's under pressure there'll be Duma elections. Not that these are elections, but it's a re legitimization of his leadership. He's under pressure. And so they're starting to float some things. Like in some ways it has a few echoes of our own conversations around Iran. When do we declare victory?
- [14:43]
Kayleigh McEnany
What does this look like?
- [14:44]
Heather Conley
How do we get ourselves out of this? I don't think anything's going to come of it. Just seeing some reports that are crossing from Kyiv sources that the US Is suggesting that they'll help negotiate a cease fire and Moscow wants sanctions relief for that cease fire, like the cease fire in the Middle East. These are not cease fires. Let's stop calling them that. They are reduction in violence. But this is not a cease fire. There's not a cease fire in Lebanon. There's not a cease fire in the Gulf. There's certainly not a cease fire in Ukraine and in Russia. It's just a reduction in violence to a point. So watch Russia. Some things are happening, but this is pressure of Ukraine's drone capability and some of their small gains on the battlefield. Something's starting to turn. We got to watch it all right?
- [15:28]
Kayleigh McEnany
Indeed we will. And thank you for helping us do so. Heather Conley, nonresident senior fellow at the American Enterprise Institute, essentially telling us that these cease fires are in name only. But in name or not, President Trump says the cease fire with Iran is on life support. What does that mean politically here at home? We'll get into that with our political panel. Rick Davis and Jeannie Shane Zaino, stay with us.
- [15:48]
Joe Weisenthal
On balance of Power. We'll have much more coming up after this.
- [15:54]
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- [16:53]
Bloomberg Announcer
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- [17:12]
Joe Weisenthal
Interesting to see what traders are buying today, and it includes Cyber. Both Palo Alto and CrowdStrike are moving higher as we anticipate more confusion surrounding the war with Iran. And later this hour, we're going to be talking with Brandon Pugh, the principal cyber adviser to the Secretary of the army, to get an inside view on how the military is looking at all of this. With more, of course, coming out of the president today in his conversation with reporters in the Oval Office. You heard Charlie Just mention it. Massive life support is how he describes the cease fire here with Iran. And Kaylee, when you think about what could take place in the days ahead, as we just discussed with Heather Connally ahead of the president's sit down with President Xi, this could be a pivotal week in this war.
- [17:54]
Kayleigh McEnany
It absolutely could. And I wonder what the signal is sent in terms of the president's conflict around the direction of the war that he is now openly saying he wants to pursue a federal gas tax holiday. If you believe that gas prices, as the president has consistently maintained, are going to plummet when this is over, you might not think that they're on the verge of plummeting. If you're looking to, to, to pull
- [18:15]
Joe Weisenthal
a relief, those ideas, like, argue with each other. And when he was asked, he said, yes, I will reduce it, but as this ends. And he's been saying that all along. But of course, we have oil prices on the rise today and a gallon of gas selling for $4.52 on average nationally. See what the panel thinks of all of this. Bloomberg Politics contributors Rick Davis and Jeannie Shan Zaino are both with us with our eyes on geopolitics. Rick is our Republican strategist and partner at Stone Court Capital. Jeannie is our Democratic analyst and democracy visiting fellow at Harvard Kennedy School's Ash Center. Where's your head right now on this, Jeannie? We've talked about the gas tax, the fact that that might not even make a difference, particularly if it increases demand. And people are paying a lot more than $0.18 extra right now for a gallon of gasoline these days. The president is sitting down reportedly with his military advisers right now to talk about options if this cease fire does not hold. Do you think that he will need to use them?
- [19:13]
Bloomberg Announcer
You know, even people like Leon Panetta were saying over the weekend he may have to use them and I should just add to your life support. He described what Iran sent over and by way of a proposal, I think, as a piece of garbage that wasn't even worth reading. So it sort of encapsulates where these two sides are, that nothing has changed. And, you know, it's so important to just underscore. Benjamin Netanyahu was on 60 Minutes last night and when he was pressed, he said this war is not over because we haven't taken that enriched uranium out of Iran. And until we get it out and dismantle those sites, this thing isn't, isn't over. And when pressed about how you would do that, the suggestion was apparently it would have to be ground troops. And so this is where we are. Iran has moved the idea of taking that enriched uranium out of Iran to the bottom of their list of what they would be willing to do. And for Benjamin Netanyahu in the US it remains at the top. And so Donald Trump is in a really tough situation. Some people saying, hey, your best bet now is when you get to Beijing to ask you to press Iran to reopen that strait. But of course, dear earlier conversation, when you do that, they're going to ask for something in return. And what they extract on that, number one in their minds would be some kind of give on Taiwan, which is devastating for our allies.
- [20:39]
Kayleigh McEnany
Well, and as we consider this trip with Beijing, which we should all bear in mind, is a rescheduled trip, this was originally supposed to happen at the end of March and it was delayed a number of weeks until this week because of the war with Iran. The anticipation at that time from the White House was that things would be wrapped up. That was when we were still taking with sticking with the four to six week timeline. And yet here we are well beyond that with no timelines being given at this point. So it all sets the stage for a bit of a difficult optic situation as the president makes tracks to Beijing, even as he still expresses confidence over his relationship with the Chinese President Xi Jinping, who he'll be meeting. Just listen to how he previously has characterized Xi and his this meeting.
- [21:24]
President Donald Trump
We're going to have a meeting with President Xi. It's going to be, I think quite amazing. He's been a friend of mine. I've gotten along with him very well over the years. We're doing a lot of business with China and making a lot of money. We're making a lot of money. It's different than it used to be. But I'll be talking about that'll be one subject. But he's been very nice about this. You know, in all fairness, he gets like 60% of his oil from hormones and he's been, I think he's been very respectful. We have a been challenged by China. They don't challenge us. We're leading China in AI. And I'm going to go see President Xi in two weeks. I look forward to that. But I'll say I'm leading. We have friendly, we have very friendly competition. But it'll be actually be a very important trip.
- [22:14]
Kayleigh McEnany
So obviously there's a lot on the agenda, Rick. But I wonder what might have previously dominated this conversation, issues like artificial intelligence and trade, how much you expect that that will Be overshadow, shadowed by the Strait of Hormuz and Iran specifically?
- [22:29]
Nick Burns
Yeah, it's hard to tell. I mean, part of it is going to be confused by the fact that the President's loading up Air Force One with over a dozen executives from the tech industry and others. It looks like more of a trade mission than a summit in regards to that. I mean, wonder what these executives are going with the expectation of doing. Are they going to get deals signed? Are they going to give the impression to the Chinese that US Companies want to come and invest in China? I mean, like there are all kinds of competing narratives. And I would say that one of the lower level narratives right now is probably the straight of Hormuz. I mean, the President's right that China has other options to try and figure out how to feed their, their, their desires for more and more oil, for power. They haven't been actively involved other than supporting the negotiations through one of their friends in Pakistan and, you know, helping out Iran on the edges of this war. So it's hard to see how somehow this comes out to be a dominant issue. I think clearly the dominant issue is Taiwan. It's the reason that she wants to meet. It fuels a lot of his political issues at home. It is his one major desire at the end of his administration to have unified. And, you know, it's one of these things where little words are going to matter. And I'm sure that President Xi is Prime Minister Xi is going to try and get Trump into the war words and say something like, you know, we recognize his claims to Taiwan, not just acknowledge them, which is what the current administration's had and that would be a huge success. So little things on our side are incredibly important to Xi and that's what I would be watching out for.
- [24:16]
Joe Weisenthal
Well, Rick, I'm glad you mentioned the entourage because this is going to be a who's who of corporate America. I don't know how they all do. They go all get on the same plane. Jeannie, listen, Boeing's Kelly Ortberg, the CEO of GE Aerospace, Cargill, Illumina, Visa, MasterCard, Micron, Qualcomm, Blackstone. Yes, Tesla, Elon Musk will be along for the ride. Interestingly, Jensen Huang of Nvidia will not be. How does this change the contours of this trip? And what will all these executives have to show for it?
- [24:49]
Bloomberg Announcer
Yeah, it's quite a who's who. And you know, if just imagining if this trip had taken place without the shadow of the Strait and the war in Iran, I think it might be a completely different conversation. What Donald Trump said he wanted to do in his second term, which was focus on trade and tariffs, I mean, his favorite word, right. But all of that has been overshadowed. Why? What is going on in Iran? These folks will be there. But what China is most focused on, China is most focused on getting a concession from Trump as it pertains to Taiwan. And this gets back to our alliances in the region. You're an ally of the US in that region, you've got to be feeling very, very concerned. Whether you're Japan, South Korea or any Taiwan, certainly the Philippines, you've got to be thinking at this point, the president has got to stay on message, not get off, not say something in exchange for some kind of push from Xi on the, on Iran over, over the strait to give any leeway as it pertains to democracy in Taiwan. And of course, we all know Donald Trump, you know, doesn't like to stick to message. And of course, what does that do? If you are those allies, these are allies who could go nuclear. And that is what we're hearing that they are saying US is sort of unpredictable, unreliable. China has a real interest in moving forward on Taiwan. If you're those countries, you start to think about going nuclear. And that's why alliances matter. And what has happened in Iran and our treatment of our allies is so long term, term detrimental to the security of this country and overshadows all of this on tariffs and trade.
- [26:33]
Kayleigh McEnany
Just on the subject of going nuclear, Rick, we heard from President Trump in the Oval today, repeatedly say when he was pressed on the plan when it comes to Iran, he said he has a great plan plan that Iran can't have a nuclear weapon. And the pursuit of a non nuclear Iran permanently is obviously what many in the Republican Party tell us is the objective here and why the president's effort is worth it. But do you think it'll be even harder to defend that notion as being the entire plan in itself as lawmakers make their return to Washington this week?
- [27:05]
Nick Burns
Yeah, look, I mean, that is actually the one unifying concept. There's nobody out there, you know, saying that, that they think Iran ought to have a nuclear weapon. So there's a lot of debate going on as to whether or not we ought to be allowing trade through the Gulf for Moose. And you know what this embargo is really resulting in and how to manage it. And everyone's got a different idea what success is there. But everyone would agree that this effort has to result in one thing. And the most important thing. And that is a nuclear free Iran. And so, so that's why there's so much pressure on this administration not to get a cease fire, not to open the strait, but to actually have some agreement in place that, that, that articulates on both sides that there will be no nuclear capacity, no nuclear weapon capacity for Iran. And of course, you know, Iran was never going to give Donald Trump a win the week before he goes to China to talk about issues there. So the idea that they were going to come up with a solution this weekend was, I think, a little premature.
- [28:14]
Joe Weisenthal
Great analysis from our panel today, Bloomberg Politics contributors Rick Davis and Jeannie Shan Zain. I will see you both on the late edition of Balance of Power as we turn to cyber at the Pentagon. An important conversation you want to hear next only on Bloomberg TV and Radio. Stay with us on Balance OF power. We'll have much more coming coming up after this.
- [28:35]
Public Ad Narrator
Support for the show comes from Public. Lately it feels like there are two types of investing platforms. Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a game. Public is positioned differently. It's an investing platform for people who are serious about building their wealth on public. You can build a portfolio of stocks, options, bonds, cryptos without all the bugs or the confetti. Retirement accounts. Yep. High yield cash, yes again. They even have direct indexing. Public has modern design, powerful tools and customer support that actually helps go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market and paid for by Public Holdings Brokerage Services by public investing member FINRA, SIPC advisory services by public advisors, SEC registered advisor crypto services by ZeroHash. All investing involves risk of loss. See complete disclosures at public.com/disclosures.
- [29:35]
Bloomberg Announcer
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 YouTube.
- [29:51]
Kayleigh McEnany
Fascinating market reaction, or perhaps less of a reaction than you might expect for risk appetite, at least when you hear things coming from the president of the United States, like describing the cease fire with Iran as being on life support, raising a massive question as to whether or not kinetic military activity or other activity is going to resume in the absence of diplomatic progress. And Joe, when it comes to Iran, obviously we also have massive questions as to whether or not if we are to see a resumption in hostilities, if some of that hostility may not, not be military to military necessarily, but in the cyberspace, yes, as well. Something that frankly, we haven't seen that much of or as much as you might have expected when this conflict initially began at the end of February, knowing
- [30:34]
Joe Weisenthal
that we've been hearing warnings from the FBI director going through many administrations about the increased domestic terror threat, much of it coming from Iran. So, yes, there was a thought that this would be a much bigger story here. And it's where we start our conversation with Brandon Pugh is back with us in studio here in Washington, the principal cyber advisor to the Secretary of the Army. Brandon, it's great to see you. Welcome back. We have so many questions, most of them you're probably not allowed to answer. But we're going to do our best here to try because you are in an incredibly important area of the Pentagon right now with this emerging technology, although maybe you see it as mainstream because this is an existing threat. Are you busy knocking down threats that we don't hear about? Because the idea was that the threat level would be greatly increased during a war with Iran.
- [31:24]
Brandon Pugh
Well, first, thanks for having me. It's always a pleasure to be on the show. You know what's interesting about Epic Fury or Iran in particular, is how vocal our leaders have been around the role of cyber or non kinetic defects. Historically, we've kind of shied away from talking about offensive cyber, but the leaders up to the present have talked about it. Matter of fact, just a few weeks ago, or I guess a couple months ago at this point, the president released the nation's cybersecurity strategy. And in that they said, look, we have the best cyber operators in the world and we will be leaning into potential cyber options against adversaries. We're not constrained to just kinetic effects, which is historically, at least publicly, how we have talked.
- [32:00]
Kayleigh McEnany
Well, so when we consider our arsenal of cyber options, if you will, to what extent is that something that is developed, developed in wartime like this? Is this when advances are actually made? Or do you have to have all of these options prepared for you before you go into a conflict like this one?
- [32:16]
Brandon Pugh
I think it's a mixture of both. What we see though, is how quickly technology is accelerating. I mean, give you one example is around artificial intelligence. There's many advancements, it's moving at really machine speed, which makes the burden on us to actually be ahead of where we think adversaries are going. You know, good example is many fear around how AI is going to be for potential harm or for Negative use, especially in cyber. Our question is, how are we using AI specifically for defense or when needed, to go after adversaries? Matter of fact, I think adversaries are going to misuse the technology however they see fit. That's why we always have to stay ahead of them. And I think that's exactly what the army has a history of doing. What we've been really leaning into over the last few weeks, notably, what does
- [32:56]
Joe Weisenthal
this budget proposal mean for you? We're talking about a trillion and a half dollars, a 50% increase. If of course, Congress, Congress codified what the President has proposed, how much of that would be to cyber and what would you do with the money?
- [33:09]
Brandon Pugh
Yeah, so one of the unique authorities that I have in my role, most people are like, what is this? Principal cyber advisor. I review and certify all of the funds that we use for cyber and it goes into a lot defense, supply chain security, cyber war, fighting, how are we training them? But there's been noticeable advancements. One of them goes back to really AI and cyber specifically. And my quest is how are we getting as much of that technology in the hands our warfighter as quickly as we can? You know, an example of something we're really proud of is we just hosted an AI tabletop exercise at the Pentagon. We brought 14C suite leaders to really go after a how are we leveraging AI for cyber defense agentically so that way a human operator doesn't have to want to take a course of action. The AI agent can actually do it. The reason I mentioned that context of budget is we pre align funding in advance of that ttx. That way if we generated one to three prototypes, we could quickly feel them and get them the hands of a soldier in hopefully 30 to 45 days versus that traditional, you know, multi year cycle that we think of.
- [34:11]
Kayleigh McEnany
Well, just on the subject of AI, obviously Anthropic has had some pretty severe warnings around its Mythos model in particular and restricting access to it because they say it is so good at specifically weeding out cyber vulnerabilities. We've had reporting here at Bloomberg that the White House is trying to get access to Mythos for a number of federal government agencies. Has the Pentagon conducted that kind of exercise to see what vulnerabilities it might be exposed?
- [34:38]
Brandon Pugh
Yeah, I think regardless of model, what that's getting at is how quickly the technology is accelerating. I think quicker than a lot of people had expected, to be honest. I think that's why it's incumbent on not only the army, but the Pentagon even Larger to bring these capabilities quicker to the soldier. That way, you know, commercial industry doesn't have a capability and years later we're getting it. And I think that was what was unique, is bringing those 14 leaders to the Pentagon. We gave them a discrete problem set and we said, look, we know you've solved a lot of these challenges early on. Help us. We don't want to start from scratch developing a capability. We want to see what you have or what you think is over the horizon, then bring it into the Army. That is very different thinking than traditionally how a military department has gone about after was acquiring something.
- [35:18]
Joe Weisenthal
To what extent is the Pentagon still using anthropic technology, knowing that this back and forth is taking place, that, that there may or may not be a deal for a longer term arrangement?
- [35:29]
Brandon Pugh
Yeah, I can't, you know, comment the specifics of the exact models, but I think under, you know, Secretary Hegstaff's leadership, what is unique is that we have a lot of options available to us when it comes to AI. And I think we're really still at the beginning of where we need to be going with AI. We see a lot of money and resources, time and talent behind leaning into both commercially available options along with generating in house options when we need them. I think that's the balance sheet of strike. Not starting from scratch, but also realizing that we sometimes need to fine tune these AI capabilities for defense.
- [35:59]
Joe Weisenthal
Do you have your own model? Is there a Pentagon large language model that. That's proprietary inside your agency?
- [36:06]
Brandon Pugh
Well, what we do see is, you know, unique applications of these models. I'll give you an example. You kind of bring it back to cyber. We have something called Panoptic Junction. The name isn't relevant, but essentially what it does is it's detecting a potential cyber threat. So versus a human being on keyboard having to observe behavior, then doing something, leveraging AI to say the model's been trained on this, we know it's a potential threat and then taking a prescribed course of action. And I think that helps close a gap. We know adversaries have a lot of people on keyboards, significantly more than we might get to. How do we close it? Leveraging technology. And that's a model of the army actually developed in house, but with commercial partners. So it wasn't like we had to have soldiers and civilians shut in the room. We took an existing product in industry and just fine tuned it for the army use.
- [36:53]
Kayleigh McEnany
Well, so when we're talking about technology like this, obviously a lot of physical infrastructure comes with that as well. For AI, you need a lot of energy infrastructure, for example, example. But obviously there's wider servers to contend with as well. And we've seen infrastructure in the Middle east targeted specifically. So I wonder how you think about the physical security in the cyberspace.
- [37:12]
Brandon Pugh
Yes, and this is, you know, many people say, what keeps you up at night? One part of my portfolio which is unique is I'm the Army's lead for critical infrastructure, both physical and cyber. It's a fairly new role that Secretary Driscoll put into my office. I think it's important because we have adversaries wanting to target our critical infrastructure like electric, water and gas, on a pretty routine basis. As a matter of fact, in unclassified reporting, we saw threat actors affiliated with Iran targeting our operational technology. So think of the technology that enables the electric, gas and water to function, and that's unclassified. Historically, you would think that would be the most secured or top secret information. So that's incumbent on us. We have 288 camps post and station in the Army. And the challenge is we can't have a fix failure. So we need to mobilize people and equipment in a time of conflict. So an adversary could go after a water company that, you know, might be lucky if they have a technology department, let alone a security department. But the military bases rely on that. That's why it's a joint partnership, one of which our leadership has prioritized, specifically Defense critical infrastructure.
- [38:13]
Joe Weisenthal
Wow, that's fascinating to see your role be extended to physical infrastructure. Bloomberg had some fascinating reporting about some of the third party providers that you're working with. Knowing that there are some commercial or at least private entities that you've already referred to, does that increase the urgency for you to protect their infrastructure? If you're on an cloud, their data centers are going to become that much more important. Right.
- [38:40]
Brandon Pugh
I think the world is very interconnected now. So it's not like that's a defense specific application. The number, it's very interlinked now between our commercial provider fighters and us. So sometimes we have army information on commercial networks and we have to safeguard that. And I think it's really a partnership model versus, you know, we shouldn't see this in silos. If that's an army problem or that's a commercial problem, or that's an interagency problem, we need to look for holistic solutions. And that's exactly what we're doing specifically with critical infrastructure. Just this coming Thursday, the Secretary of the army is hosting the inaugural Defense Critical Infrastructure Summit. And that's essentially what it's doing. We're bringing interaction, agency leaders, industry leaders, local leaders, as well as military leaders together for a day long summit around hardening our critical infrastructure, realizing that we can't do this alone. Traditionally we've done it in silos. That approach is just no longer applicable given the current conflict.
- [39:29]
Kayleigh McEnany
Well, so in what ways does it need to be hardened? Where are our biggest vulnerabilities?
- [39:34]
Brandon Pugh
I think it's a matter of looking who are servicing our installations specifically. And I, you know, I realize I'm answering at a very military mind mindset. I'm looking at what installations have no fail missions where we can't have a disruption because of a potential adversary action. We need to harden those providers. And I think the challenge is there's sometimes small companies, that gas company providing gas to your local installation, they might not be thinking about security. Some have very strong partnerships. What we need to do though is raise the baseline so everybody is aware of the potential threat to a critical infrastructure and assistance them. This shouldn't just be the Army.
- [40:08]
Kayleigh McEnany
Is this financial assistance specifically or what kind of assistance are we talking about here?
- [40:13]
Brandon Pugh
I think it's a mixture. I think part of it is just bringing having a common viewpoint around the potential threat to a critical infrastructure and letting our industry, operators and owners know of the potential liability or not liabilities, not the more of the threat they face by our adversaries, but then bringing interagency resources together with the Department of War. Resources, resources. And that could be technical assistance, that could be financial resources, or it just could be working jointly to solve these issues. And I think one of the byproducts we hope to come out of Thursday is a DCI playbook. So what are lessons learned that we can glean from this first summit and now apply them across installations around the country and perhaps even around the world.
- [40:53]
Joe Weisenthal
It's really interesting. This is happening at Fort Bragg, right? That's correct. So if you're the owner of this small gas utility that you mentioned, you're out there in Wyoming is does do you get a phone call from Brandon Pugh? Like how do you connect with, with these guys downstream and bring them into this conversation?
- [41:08]
Brandon Pugh
You know what's really interesting is most of these garrison commanders and senior base commanders have proven relationships with these folks already, I think, but it's leaning on those and expanding those relationships. What's unique here though is bringing the interagency partners to the table versus just, just being an army level conversation. We want to bring cisa, we want to bring Homeland Security, TSA and so on to the table around a, you know, a common problem and see how we can utilize each other's resources, you know, legal authorities. I think everybody has a unique role to play here.
- [41:39]
Kayleigh McEnany
Well, so clearly that's going to be a summit that we should closely watch on Thursday. There's going to be another summit happening on Thursday that we're going to be watching very closely as well. It's one in Beijing between President Trump and China's Xi Jinping. Where do we stack with China in terms of our offensive and defensive cyber capabilities right now?
- [41:57]
Brandon Pugh
Exactly. You know, to your point earlier, it's kind of hard to talk specifically around adversaries capabilities. But you know, I suppose to say
- [42:04]
President Donald Trump
we're winning on both
- [42:07]
Kayleigh McEnany
down.
- [42:07]
Brandon Pugh
I think the reality is though, this is why we have to have the best trained operators in the world. And something that Secretary Hegseth signed out a few months ago at this point is something called Cybercom 2.0. Essentially that is getting after the man trained and equipped function. So how are we making sure we have the best operators in the world? We can't fall behind. I am very confident sitting here today we have the very best cyber operatives in the world without fail. I think it's now a matter of making sure that continues they have the best resources, the best capabilities and the best tools because this is a no fail mission. They have to be able to defend this nation at all costs. And I'm very confident they are doing that. Now.
- [42:43]
Joe Weisenthal
Can I just add before they start playing the music, if we could knock the lights out in Venezuela, could we not do the same thing in Iran? Why, why bomb power plants when we can just use a cyber solution?
- [42:54]
Brandon Pugh
You know what's unique about cyber is it's not the perfect answer for everything. Yeah, I think there's two flavors of cyber, if you will. How are we using it as an isolated capability, so cyber for cyber's sake, but also using it in conjunction with other types of effects, and I think that's something our senior leaders have said, is that cyber should be infused across all domains of warfare. There are cases where it should be isolated though.
- [43:16]
Kayleigh McEnany
Fascinating conversation. Brandon, thank you so much for joining us. The principal cyber advisor to the Secretary of the army here with us on Balance of Power. And of course we'll have more ahead on the second or late edition of Balance of Power at 5pm here on Bloomberg TV and radio.
- [43:32]
Joe Weisenthal
Thanks for listening to the Balance of Power podcast. Make sure to subscribe if you haven't already. Apple Spotify or wherever you get and you can find us live every weekday from Washington D.C. at Noontime eastern@bloomberg.com if
- [43:47]
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