Welcome to the PDB situation report, I'm Mike Baker, your eyes and ears on the world stage. Alright, let's get briefed. First up, Iran says a proposed agreement with Oman would divide control of the state of Khomuz and bar American warships from passing through. Sorry, you can't come in, you of us, Navy. We'll be joined by retired rear admiral Mark Montgomery to get his insight. Later in the show, Chinese technology is transforming Russia's Iranian designs Shahed drones into something increasingly resembling low-cost cruise missiles. Author Gordon G. Jang, a friend of the show, will stop by for more on that. But first, today's situation reports spotlight. This week, Iran announced its negotiating with Oman over control and revenue from the state of Khomuz. Tehran says the proposed framework would divide commercial shipping routes between the two countries and bar American and allied warships from passing through. This all sounds very interesting and confusing. The question is whether Iran can turn those claims into lasting control of one of the world's most important water ways. And what happens if it tries to enforce those rules against the U.S. Navy? Well, joining us to break it down is retired rear admiral Mark Montgomery, senior director of Foundation for the Defense of Democracy's Center on Cyber and Technology Innovation. Sir, welcome back to the situation report. Thank you for having me, Mike. Could you give us, I mean, there's so much to unpack with the current situation regarding the Iran conflict, but could you give us sort of a top line assessment from your perspective of where we are right now with the street of Khomuz? First, I'd say that the blockade is working and its core level, the United States is preventing Iran from exporting 90 plus percent of its fossil fuels out. That doesn't mean some's not getting through from tanker trucks or some through very small ships that got to hug the coastline. That might be happening. But it's broadly serving its purpose of economically isolating the Iranian government and putting pressure on it to come to the table. And I think we're getting a small amount. And this number varies wildly, which is why the Secretary of Energy can say today was a 12 million barrel day and then a critic the next A.C. but the next day was a 2 billion barrel day. I think it varies wildly, but ships are willing to take the risk with their AIS, their automated information system off their radars off at night of transiting under the cover of U.S. aircraft flying over the Kachita missiles and drones with the Iranian detection network that's been heavily damaged by U.S. attacks in late June and July on the islands that are in the strait and the and the Bunder Abbas coastline. So that's how I see things going. The problem is no neither sides happy with that. Eventually Iran will find that unpalatable and strike out. And the reality is for the United States and our western partners that's not quite enough flow even when you add the pipeline flow in to restore cells to pre-war levels and get overall gas prices going down and the ability to refill your strategic material and reserves going up. And I guess the part that's confusing only so the past few days, the part that's confusing a lot of people is the White House president of Trump came out and said, look, we've demined the primary corridor, right? They ended out for the Strait of Hormuz, implying that, okay, let's get back to business because now we've created a safe passage, we've gotten rid of the mines, and then surely they're after, then you have the Iranians and the Omanis come out, you know, the Omanis have been very careful about how they've set things, but the Iranian regime has basically said that, you know, we're in these conversations with the Oman, you know, we're going to deal with the mines that are in the corridor, we're going to control the Strait, and we're not going to allow warships through, we'll be out there say so. And I think, I mean, the starkness of the conflicting positions or statements coming from the sides is creating really some massive confusion. I talk to people every day and they're like, where are we with this? So I'd probably listen to Admiral Brad Cooper, the sent-com commander who, around the same time, the president put out that true social post, said that the United States has cleared a route through the southern, you know, through what I think of these Omani waters. I suspect that that southernmost route that didn't really exist before the February War, totally through Omani waters, is clear of mines and the U.S. sends unmanned vessels through it pretty regularly to check sanitize it, but it's very hard for the Omani as to mine that. It's at a large distance from their land. We would see their ships coming, small boats coming and strike them. The route through Omani waters may well be clear, the northern of the Transistries. Clear of mines is only the Omani's mine that one. But the traditional southern route, the one that's in international waters, north of Omani, south of Iran, that one I think is heavily mined still. I mean, I'd be surprised if it's been demined because I really think there's a handful of countries that could do it and no one said they did from those handful of countries. And with that uncertainty, again, I think that the problem that I think the White House is facing here is, so I agree with you. I think the blockade is a very solid idea, but I think economic pressure, what he referred to his economic D-Day, I think that's important. We're not going to change this regime through, or even get them whatever this regime looks like right now because the question of leadership is still there. But we're not going to get them to the table in a meaningful way, not that they've ever negotiated in a good faith sense, but we're not going to get them there without economic pressure, right? The more munitions falling from the sky won't do it. But it does appear as if what has to happen is the White House has to demonstrate significant patience. It sounds like, apart from what you're saying, obviously the volume, the flow of oil and LNG is still depressed, certainly compared to pre-work levels. So I guess my next question that I'm kind of bumbling my way to is, do you believe that the White House has sufficient patience to continue this blockade and what does that look like from a logistical perspective? There's been a lot of talk about where and tear on the US military assets. So I do think the White House has the patience. I'm not sure the Iranians have the patience. In other words, I think at some point Iran goes, this is not acceptable. They try to leverage the midterm elections with some kind of aggressive outburst in late September, early October against our Arab partners that causes full-scale military operations to restart. Very few things can prevent that kind of escalating rapidly other than if the United States is fixed, its inability to shoot down drones with ground-based systems. In other words, we had this hole in our swing during the 40-day war where we could shoot down ballistic missiles pretty well. We could shoot down drones that were going long distances with aircraft, but drones that were just popping across the straight and heading by rain, Kuwait, Qatar, and Eastern Saudi Arabia. They're critical infrastructures of oil and gas fields. We couldn't stop those. They hit it well and we'd get in between us and our air partners. We both all would talk into Ukraine where the ads are lies and for a lot of these weapons systems. The United States has had some U.S. companies produce things rapidly. I just don't know if we're good enough yet to neutralize the impact of Iranian attacks there. Without that, I think this escalates pretty rapidly again, and that would mess up President Trump's plan for a patient maneuver through the midterm elections. That's a really interesting way to look at this, because I think it's -- we tend to look at it in, I think, black and white terms. The economic pressure works. The regime either collapses or they say enough's enough and we sit down at the table and they come up with something. The idea that they choose a different path and say enough's enough, but instead of sitting down to negotiate, they attack, and that has been essentially a pattern throughout the course of the conflict, so it seems like a likely perspective. Do you think that from a logistical perspective, the U.S. can maintain this blockade? I mean, talk to me if you could about what the wear and tear does look like on the U.S. Navy that's operating in the area, managing this blockade. That's a fantastic point. So we actually know this. In 2012 and 2013, we did a maximum pressure campaigner, 2013-2014 against Iran. When we kept two carrier strike groups, a plus up of four or five Air Force fighter squadrons, and a plurality of our air and missile defenders, you know, that it wasn't that make them Patriot units. Well we've replicated that except more, you know, a plurality of our THAAD and Patriot units, plus five or six or seven Air Force squadrons.
we have 18 plus destroyers and two carrier strike groups. What happened 12 years ago was that we broke our readiness three years later, which is to say doing all these operations put you an extremist two or three years later. You can still you can do this for 12 or 18 months and then ships will show up six and 12 months later. But then when those ships that have been cycled through way too hard have to come back two or three years later, they're not ready. So there was actually a point at the beginning of 2017 three years after our previous maximum price campaign for the first time in 70 years we had no aircraft carriers capable of getting underway. An Air Force fire squadded readiness had bottomed out into the you know somewhere in the mid to high 30% instead of the normal 60% 70% so we crushed our ability to conduct military operations three years later. I know President Trump's really worried about his today problem, but he needs this president he has to be aware about his successors tomorrow problem that in 2028-2029 we're going to have a readiness bathtub it's called where we really can't get our navy to Air Force and our army air defenders in a position to win. I know this is probably not a particularly fair question, but do you think he's being given that advice? I guess part B of that is do you think that he's listening to it? I suspect they try to tell him that I don't know that the system we have in the White House lends itself to bad news delivery. And so maybe not as discreetly as I just said it, maybe if he sent him a clip they'll get it. But he spends a lot of time watching the situation report on total anyway. Yeah, so my gut my gut is I think the president would acknowledge it if he was briefed on it, but he might say to himself look it's more important that I he truly wants to remove a rods ability to have a nuclear weapon. I believe that it's a heartfelt strategic goal of his and he thinks that if it means we need to suffer pain now and pain three years from now it's worth it for this kind of like geostrategic victory you know of the century to date. It's interesting because and we'll jump onto this after the break, but you know I think that I agree with you. I think that is a and sometimes you hear a lot of people who push back about everything about the Trump administration. You know, I think they they don't believe that he's got certain things that he actually believes in, but I do believe that this is one of those things I believe he honestly understands in a sense the danger of the Iranian regime getting a nuclear weapon. The problem is that as long as the Islamic Republic stays in place as long as this regime and in whatever form it is stays in place no matter what deal you make you're essentially kicking the can down the road and I'm going to leave it at that just for a second sir if you'll stay right where you are we will be back with more from Admiral Mark Montgomery here on the situation report so stick around. Hey Mike Baker here with a solid pro tip for looking your best. Now if you're searching for a simple way to upgrade your hair and skincare routine let me tell you about this great company I restore. 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aluminum face mask making this a great opportunity to upgrade your routine and to save money take advantage of iris store's labor days savings with huge discounts on their red light therapy devices just head on over to iris store dot com and use the code pdb means pdb at iris store dot com give your hair and skin the upgrade they deserve and you know when they ask how you earn about iris store and tell them the pdb sent you welcome back to the pdb situation report joining us once again it's retired rear animal mark Montgomery senior director of foundation for the defensive democracies center on cyber and technology innovation and i've got some cyber questions for to throw your way sir uh here in just a bit but i wanted to stick with and what we've been talking about on on iran and the the issue of the strata hormones and this is uh this uh it's not going to be a well-formed question but we were talking about the advice that's being given to the president uh related to the readiness the abilities that the logistics of the uh military assets that he's using uh at this point where does that advice come from what does that look like um in terms of of someone coming in sitting down and because that how it works that someone walks over from the Pentagon sits down and says sir here is the realities of uh you know use of our assets uh and the strand on them and where we need to reconsider deployments for what we need to do in terms of rotation what a set process look like to get information directly to an in front of the president so in a traditional um administration uh that i'm sorry i said yeah okay i'm okay i i understand you had to caveat that and a traditional administration out expect the service chiefs as they head of the navy the army the air force with their service secretaries the civilian leadership to sit down with the the secretary defense of the deputy secretary because the deputy secretary often runs procurement and maintenance uh in kind of met modernization management and that's true in this administration with uh deputy secretary fineberg to sit down on them and say look here's the impact of this then you go over and you talk to the director of office management budget and explain what's going on and say look there's little things you can do with some extra money they would mitigate some of this but some of these things are unavoidable um you know if we don't get and this is what happens if we stay on this mission for nine months which is where we're closing in right now i guess we're at six months right now but here's what it is at nine months here's where it is at 12 and this thing is exponentially worse the when you go past 12 months then 15 then 18 you really start to fall off a cliff on your future readiness and you walk the president through the and then you go see the president and with as much protection as possible around him uniform military the secretary defense delivers this and says look this is the trade off if we continue operations like this which is what we're recommending to do for a blockade plus defending the southern route plus being ready to strike if we need to we need this force level here's all the mitigation we do a little bit extra money here pull back this European deployment pull back this Asia deployment you know be less ready around the world and other places we can make it so it's not so bad two three years for now but in no matter what we do here's the damage that happens if we keep this up nine months 12 months 50 months 18 months those kind of briefs have happened to people like President Obama President Trump in Trump 45 you know when you've had extended deployments doing things it should have happened to him when we did all that Southcom you know with us is Ford and Southcom and other in all the ships that went down there you know prior to the Maduro extraction I don't think it happened then and then we pivoted right into Iran and I really don't think they've had that discussion I believe this is a tough one to deliver and I don't think that the president is getting this because I think he would be I don't know if you'll call but when people talk about the stress on the Lincoln he was really cavalier about it and I trust the president cares about our men and women in uniform and if he were getting the right readiness briefings he would have even if he disagreed with how the crew was acting on the Lincoln he wouldn't have been so cavalier about it because that he's going to have a legacy and these kind of issues will strain his legacy over time a failure to take care of readiness in an administration I this is again he might border on a strange question but in a in a normal administration any administration typically on on issues like this on on deployment of assets and rotation of assets and these sort of things at a top line that'll mean sort of down granular but typically does the secretary of defense have more weight in these discussions or is it the service chiefs the service commanders this is we know the beauty of our country is we have a civilian led military there's no more a doubt that civilians in charge even when we're not happy with the performance of that civilian he's in charge and so secretary Heikset is the leader of the discussion I do think. kind of cheerleader approach to the Iran War makes it hard for him to caveat, you know, to explain the risk to be the truth saer at the table. Usually, a Secretary of Defense is not quite as boisterous in cheerleading and look, there's value in a Secretary of Defense motivating the troops. That's quickly surpassed by the importance of him being the person that gives the president unfiltered, accurate, risk decision making. Whether it's the president only drops into the situation he's got. The president's got 1,000 issues a day. You've got to make sure that on these important issues, you're able to show him the trade space, make sure he understands the risk, show him opportunities to mitigate and then let the president make the decision. Yeah. It is, I guess, this is a self-science, and I guess was I'm asking to speculate, but do you think that we'll be talking about this blockade for the next three months, for the next six months? I mean, from your perspective, a lot of experience in this realm. From your experience, what do you think this is going? Again, terrible question, but it's the best I got. So I think the blockade will continue. I think the president realized it made a mistake when he relaxed it for two or three weeks. You know, 12 Iranian, large vessels went through, edited China, to T-POT refineries. I don't think we're going to relax it again. He's not going to relax it until he has a deal on nuclear weapons. Now, whether the movement through the southern transit scheme stops because of attacks, whether we're doing full-scale combat operations, that could still, that could happen. I could envision that happening as a small chance before the midterms, but much more likely, some period after the midterms, when the pressure becomes too hard on the Iranians, and they have to do something. But the blockade should not stop. It is absolutely squeezed that we know it bothers them. Once a while acknowledge it bothers them, they're economists and they're bankers in there, and they're financial people. So we know it bothers them. We need to keep it up. It is America's greatest tool. It's how we close the straight or most are navy. Yeah, I think the one thing we'd going back to what we were talking about towards the beginning was, look, the one thing from, at least from my perspective, after watching the Iranian regime for all these years, is the one thing they fear is a significant uprising. They can kill their way out of small protests or even mid-size protests. But what they really fear is losing their come through, like, grip on power to the people who finally get fed up and say, "We want actually a better life." And I think the only way that happens is with the maintenance of the severe economic pressure, and that economy is sideways. So I think if the White House does have the, the wherewithal, the patience, then I think that's the right track rather than, again, getting in. But the wild card, as you pointed out, I think absolutely correctly is, will the Iranian strike out in an aggressive manner to try to get out of that cycle? Let me pivot if I could in the time that we've gotten left and take advantage of the fact that you are running the center on cyber over at the foundation for defensive democracies. What do you make of the recent spade of attacks on water systems in the US? There's been, obviously, talk about the belief that they could likely be connected to Iranian hackers. What do you think? So just for background and context, I ran a federal commission on cybersecurity. The last big one we had, and after I left that and came to FDD, the first paper I wrote was called "Water," the weakest link in our critical infrastructure, based on its cybersecurity. So I will tell you, our water system. I think they turned that into a feature film, didn't they? Yeah, they have. It was that. So it is, water is underfunded, like most water systems that Americans use are from their state and local utilities. Those are groups of people who don't have two wood nickels to rub together to deal with the growing challenge. So your under-resources at the private sector, at utility level. Then the federal government's helper is the Environmental Protection Agency, which has been uniformly awful on a bipartisan basis for 25 years and helping the water industry cybersecurity. And I've been critical of the last four administrations on this, very consistent from Obama to Trump to Biden to Trump. The EPA has been awful. It worries about all kinds of political issues and not about cybersecurity. So combining two F grades, you know, I'm a teacher at Georgetown. If you get an F on both your papers, it's highly likely you're getting an F in the class and we get an F in the class. We're unprotected. The Iranians know it. They attacked us by the way two years ago in Pennsylvania. Senator Federman really made a big deal about this and some of the local politicians there in a congressman in Pennsylvania did. The Iranians attacked. They just defaced things electronically. This last attack, at least 13, 14 states, probably more. Lots of utilities. It's interesting. It was kind of a signaling thing because they didn't really disrupt and break. When they get inside like this, they could really disrupt systems. They could break equipment, you know, through running pumps with valve shut and things like that. They could have adjusted the chemical flows to make the water more like ammonia temporarily and put some people at risk. They didn't do that. They just got into the systems and now as they were there and generally came out, they did minor disruptions, not the major ones they go to. So this is kind of a signaling. Here's what we could do. I got to tell you Mike, our water systems are the worst followed very quickly by rural health care, K through 12 education, and food and ag. So kind of all the systems that keep you alive. We suck at protecting this critical infrastructure. And by the way, the only thing that makes this worse is if your enemy could move faster by say having AI powered tools. So our failure to protect these systems for the last 25 years is going to now end up with a metaphysical butt kicking by criminal actors, China, Russia, Iran and North Korea, all of whom have aggressive offensive cyber programs. Yeah, I think to that point, I had that child, I believe it was spent years mapping out systems of power grid and everything, really, transportation hubs. Go ahead, Perth. Yeah, you're right. China's what China's interesting. We actually caught them in an operation called volt typhoon installing malware so that it would disrupt the system. And they did this to thousands of sectors exactly where you said transportation rail aviation and ports, you know, how we get our forces out. And our theory is is that in wartime or in a crisis, they would enact the system to disrupt our infrastructure. This is warlike activity. If they had done this with like physical explosives, you know, backpacks with some text and hung them on a thousand infrastructures, we'd be a war. They did it with cyber and we're kind of like, oh, good job, boys. You know, we've got to start understanding cyber warfare is a mission area that one that we have to take seriously and one that our adversaries are exploiting heavily. Yeah, I think if people really wanted to depress themselves one evening, they should just dig in to understand how vulnerable our infrastructure is to outside attack. And yeah, it is. It's the next realm, right? The idea being the next major global conflict. And I'm sure we'll have ones, you know, human nature. The idea will be to bring the pain to the homeland as fast as possible, which is why they've spent time mapping out all the weaknesses. And so I would love to have you back on server. We could spend a lot of the time talking about that. And that I'm at cheery note. Sir, thank you very much for your time. Edmund work with Governor really appreciate you coming back on the sit rap and I look forward to the next conversations there. Me as well. Good to talk to you, Mike. From men's experience. And he is absolutely right. What keeps Washington up at night, at least people in the Intel and then the Pentagon elsewhere is oftentimes not conflict. You know, it's the vulnerabilities of our transportation, our power grid, our water systems. Yeah, it's a problem. Well, well, we'll devote entire sit rap to that at some point. So stand by for the cherry news. All right, coming up next, China is helping Russia transform cheap Iranian design drones into weapons approaching the speed and capability of cruise missiles. This has cherry news all over the place. Arthur Gordon G. Jane, great friend of the show, will stop by for more on that. So please stay with us. Hey, Mike Baker here. Now, the president's daily brief is brought to you by mod. Let me tell you about mod. Their once or twice daily, modafinal drink can keep you energized, focused, and alert. That all sounds good, doesn't it? Here's the deal. Caffeine energy drinks, what they do is they block a devenancy, right? And that's the chemical that makes you tired. It builds up. And when caffeine wears off, well, you know, what happens? It crashes, right? Modafinal works differently that engages pathways in your
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[email protected]. See the website for important safety information and I want to thank mod for sponsoring the PDB. Welcome back to the PDB's situation report. A new Wall Street journal investigation shows how Chinese technology is transforming Russia's Iranian-designed shendrons into weapons increasingly resembling low-cost cruise missiles. Now new jet-powered variants are using Chinese engines and servomotors and gyroscopes, and they can travel around 300 miles per hour, that's roughly three times faster than the originals, making them of course far harder for Ukraine to intercept. The question is whether they think it is quietly helping America's adversaries rewrite modern warfare while claiming of course neutrality. Joining us now is Gordon G.J., author of Plan Red, China's project to destroy America. You can follow him on X at Gordon G.J., Gordon thank you very much for coming back on the situation report. No, well thank you so much Mike. We have a lot to discuss, but let's first talk about this reporting that's come out over the past handful of days, talking about Russia's ability to develop new generations of this She had drone that they originally were getting from Iran, and they're apparently, at least according to the reporting that's coming up, they're working with China or at least using Chinese technology components to upgrade these drones into what essentially are starting to look a little bit like low-cost cruise missiles. Yes, you know every Iranian weapon or virtually every Iranian weapon with a microchip has a microchip that was either manufactured in China or a source for Iran by Chinese intermediaries. So this reporting sounds about right, and I think that essentially what you're talking about, it is a collaboration among Russia, China, and Iran for drones, they're working very closely with each other on all sorts of things, so yes, this sounds right. Do you think it's, because sometimes it gets a little murky, and I think that does cause problems in terms of our understanding of the way that the PLA, the People's Liberation Army or CCP, how they act and their views on life, sometimes people get lost in this discussion, well, do they really know what they're doing or is it just Iran or Russia accessing components out there on the market through a middleman, and this is not something that's being driven in any sort of fashion by the CCP, what's your take on all that? Well, for instance, Mike, at the front in Russia, you have Chinese People's Liberation Army officers there. I assume that they're not making decisions, but actually observing and then taking back all sorts of stuff, but they're also Chinese mercenaries fighting for Russia. This was reported by Reuters, I believe. So those mercenaries, they could not have gotten exit visas to go to Russia without the knowledge of the Ministry of State Security, and therefore the top of the Communist Party. So you've got the Chinese contributing combat personnel to the fight in Ukraine. China's support for Russia in this war is across the board. So they're working very closely together, because Xi Jinping believes that Vladimir Putin is really important in accomplishing what China seeks to do, which is to disrupt the world, which means Putin is more important to this partnership than most people believe, because Putin is willing to do things as Xi Jinping would love to do himself, but would rather have somebody else do for him. I mean, it sounds like Putin's essentially acting as a proxy for Xi Jinping. Absolutely. This is a proxy war, and Iran is also a proxy war because Iran could never have attacked Israel on October 7th. And Iran's proxies could never have acted without substantial Chinese support. They all have Hezbollah, Uthi militia, Hamas. They all had large quantities of Chinese weapons. They had Chinese diplomatic support. This is clear that this is another proxy war. And if you want a third proxy war, that's North Africa where China is fueling insurgencies, that look like wars, which we've gotten on the wrong end of, by the way. So yes, China's rolling the world with proxy wars on three condoms. Going back to the issue of the drones, because this is, I think, a remarkable development. We're watching in real time. Oftentimes, you know, the idea of weapons development, new technologies, advancing weapons, it happens somewhere out there, right? The average citizen doesn't see anything about it until suddenly there's a, oh, look, you know, we've developed a new generation of fighter jets. So we're really watching on the battlefield in Ukraine, sort of this advancement of modern warfare. And they've basically taken the Shaddron, Russia has, and using, including engines from China, I had a manufacturing buy, I believe the company's name is Telefly. I might be wrong on that. Have created these, these next generation of these Shaddrones flying about three times faster than the original versions, they're jet powered. And of course, that speed makes them all the more difficult for the Ukrainian service to actually target and shoot down. Yes. And Iran's own Shaddrones, they are chock full of all sorts of Chinese components. And some of them were actually made in China, according to some reporting. So really what we have is China being the arsenal of authoritarianism or totalitarianism. Yeah. And I mean, again, staying on that subject, I think one of the things that happened over the past few weeks that seems like it's kind of flown under the radar. We've talked about it here on the PDB, but it is in also involving Chinese components, because Russia now using fully autonomous drones, right? They basically, they teach, through AI, they teach the drone what to potentially, what to target, right? They just show them propane tanks, tanks, vehicles, whatever it may be, right? And so eventually it learns, oh, these very, these thousands of different things are all potential targets. And then they let loose. And so recently, we've had a case, may well be the first one where you had an autonomous drone, or using AI, they took, the Russians took the human out of the loop, and this drone decided to target and kill humans, which sound science fiction, but it's now happening. And again, Chinese components were found in, in the, in the drones. The reporting, you might, is that this is the first time that civilians were killed with an autonomous drone, and it could very well be the first time any human was killed. But the point is it's occurring right now, and it's occurring with Chinese technology and Chinese components. And by the way, yes, I did just take a sip of water out of what appears to be a goblet. I'm, I'm getting much fancier, Gordon, I know, when we first would start talking, I would be wearing a t-shirt and drinking out of a sippy cup, but now I'm really stepping up my game, as it were. I'm really impressed, Mike. That's great. Thank you. It's the evolution of Mike. So I want to kind of take a switch, I want to do it, stay, obviously, on China just for the time being, but I want to kind of move into a different direction. And this is going to take us a little while, maybe on back, but President Trump has come out with this idea of economic tea day. All right. We're now moving into this extreme pressure on the Iranian regime in an effort to completely squeeze their economy, stop all revenues. And of course, at the same time, as he announced economic tea day or economic outcast, I guess Operation Economic Outcast, he also then issued a warning to governments saying anybody who continues to give them the ability to trade, whether it's your banks, your government, businesses, will suffer the consequences of US economic pressure as well. Now in the U.S., obviously, nowhere I'm going with this, China being the most important economic lifeline for Iran, do you see any condition under which the Chinese regime will say, sure, we'll go along with President Trump on this Operation Economic Outcast? Only when the United States imposes severe costs on Beijing remembers Treasury Secretary [BLANK_AUDIO]
And the president himself have issued warning after warning to China first, the support of Iran, and we haven't done anything. So, you know, the Chinese don't really respect the United States. They don't take us seriously. They don't think that we have the political will. So, yeah, they're not going to do anything until Trump lowers the hammer on them. When Trump does that, then yes, the Chinese will do this because there are a lot of things that the president, our president can do to make the Chinese really hurt. So, for instance, he can have the Treasury Secretary invoke section 331 of the USA Patriot Act. That would unplug the Chinese banks from the global financial system. That means they could not transact dollars anywhere in the world because every dollar transaction done except for paper currency, of course. But every other dollar transaction clears through New York, and they clear through correspondent banking relationships, and we can end those relationships. So, yes, we can make the Chinese hurt, but until the president does that, the Chinese are just going to look at us and laugh. Do you think, I know this is a terrible question, very speculative, soft science, but do you think the White House would do that? And essentially broaden and widen this in a massive way. The Iran conflict out to China. Do you think that's something they would pursue? I think it's something that they would do, but I don't know. This is up to one man. And so far, he has failed to make good on his warnings. Gotta remember though, in 2017, Trump did have his Treasury Secretary invoke the USA Patriot Act. They unplugged a small Chinese bank, the bank of Dundong, for handling transactions for North Korea. What happened after that was interesting because that was supposed to be a warning to Beijing, Beijing ignored that warning because the China's big four banks then were dealing with North Korea in ways that broke American laws. And we didn't do anything. And so the Chinese took that away. If we were to take one of the Chinese big banks and unplug them, you can be sure that the Chinese will sit up and take notice and they will change their attitude really quickly. President Trump has enormous leverage. He has not used it for various reasons. When he does, you'll see the Chinese come wailing. I want to pick up where you just finished that sentence. But first Gordon, we have to take a quick break. So if you don't mind, please stay right where you are. That means all of you. Man, we'll be right back with more from Gordon Zhang. And don't forget, you can go to X, find them at Gordon G. Zhang, but we'll be right back with the situation reports of stick around. Welcome back to the BDB situation report. Joining us once again is Gordon Zhang. You can follow Gordon on X, you know, where to find X, just search up at Gordon G. Zhang. Gordon, thank you very much for sticking around my big fear is always that I'll come out a break and you'll be gone. And I'll be talking to an empty chair. Listen, I'm still here. Excellent. I want to talk about a recent development. It's actually picked up a lot of buzz. And that would be CIA director John Radcliffe's visit to Moscow. I had been very close mouthed about what the purpose of the visit was. There was some talk early on when it first broke that maybe it sat down directly with Vladimir Putin. That doesn't seem to be necessary. The case, you probably sat down with this is a counter part there and foreign intelligence service, Sergei Nerefkin. What do you make of that visit? There have been a number of different reports on what Radcliffe was meant to do. Some people say he was there just to try to broker a deal to end Ukraine. I don't buy that. I think that he was there to issue a warning to Russia that they, that if they were to invade the Baltics, that the United States would intervene. Of course, we don't know, but, you know, sending the CIA director on a C-17 all the way to Moscow, just to talk about Ukraine. That doesn't make sense because there have been so many discussions between the United States and Russia on that. I don't think that they would actually send a CIA director to do that. As everyone's pointed out, the last time we sent a CIA director by himself to the Russian capital, it was before Russia's 2022 invasion of Ukraine. We sort of warning not to, and of course, we know what happened. I think that right now, the explanation that the administration denies is actually the most credible one. Yeah. Well, there certainly was a buildup of intelligence and reporting talking about. And part of that, I think you have to put in the box labeled Russian disinformation, right? It's one of the regular tools in the old kit bag is anytime they get on the back foot for whatever reason, they tend to rattle that that saber and say, well, you know, maybe we go the route of a tactical new court, you know, we are concerned about NATO's involvement. You know, and they know that that it kind of feeds into this long, outstanding fear of a escalation of the war. So I think part of this is sometimes them just floating this information, you know, there's been some recent reporting talking about how some folks inside the Kremlin are concerned that Putin might be, you know, at some point considering a tactical new. Well, again, nobody rattles the nuclear saber better than Putin's minions. So I don't know necessarily what to make of that, but I agree with you. I think it, you know, this type of trip. I doubt it was to go and sit down and talk about, you know, one or more of the prisoners still being out American prisoners still being held in Russia. And I doubt it was just purely about Ukraine, because that I don't think there's any real negotiations going on at the current moment. So that sounds, I think you're on the right track. To what degree, this is going to be a strange question, but to what degree do you sense that that the relationship between China and Russia? As it relates to Ukraine, as it relates to Iran, are the dynamics still the same? Is, is Xi Jinping still kind of in charge of that relationship? Or, you know, what, how do you assess like that, that, that dynamic? What happens when, when Putin and Xi Jinping get together in a room? Xi Jinping has been really arrogant recently, and you know, we saw that when Trump went to Beijing in May, where you had Xi Jinping went out of his way to humiliate Trump. And that is a real sign of a leader who is either extremely confident or extremely insecure, but whichever it is, is a dangerous state of mind. I tend to think it's Xi Jinping being arrogant. I think he believes that the United States is in terminal decline. That's, you know, he's been talking about this for more than a half decade, actually a decade now. So I think he actually believes it. Now, I don't believe it. I think that that's a misassessment of the situation, but it's a very dangerous one because this is what motivates and gets Xi Jinping to act. So I think that he is bolstering both the Iranians and the Russians, saying that the United States is finished and you can do what you want. And that makes this an extremely consequential moment. And you don't, again, I want to revisit this. I keep wondering about the impact of this economic deed day on Iran, because that wild card is China. And I've been looking at this and I really don't see. I mean, I just know what you're saying. If we actually do put pressure on China, I just don't see the White House actually doing that. I mean, they could. I'm just saying I don't know that at this point in what was supposed to be. I think in Trump's mind, anyway, at the outset was going to be a pretty quick, you know, engagement in terms of Iran. I don't know that he can make that leap to say, okay, we're broadening this thing out to essentially going to significant economic war with China. Like if we don't do that, China is the most powerful nation on earth. That's not to say that it's the strongest nation because we still are by far. But it means that we have a leader who is not willing to use American power and we have a leader in China who is arrogant and bold and determined and is getting what he wants, which means that the United States is a second rate power. So, you know, you could very well be right. I don't know what's in Trump's mind. I don't know how far he's prepared to go. But if you're right, you know, we're done. Well, I think we're done on a, yeah, in that regard, I don't disagree with you. And I think we're also done with the idea that somehow this economic pressure on Iran will have the desired effect because they will have their primary lifeline still to support them. But let me jump off of that because again, I think the problem with that conversation of what I wanted to talk about is that it probably leads us nowhere. It's all speculation. How do you how do you assess earlier than we we have?
talking about it recently anyway, but the current state of the Chinese economy. Have we seen any developments over the past month, two months that significantly change your previous assessment of where they are? The July numbers from China definitely point to a contraction of the Chinese economy. So for instance, bank lending fell by $50.4 billion. Now, aggregates financing increased in July, but that's because the Chinese issued a lot of bonds. The Chinese state issued bonds, which means that the Chinese state is re-nationalizing the economy, but you can see the economy falling away. Another indication is that private investment in China for the first seven months fell 9.4%. These numbers are not consistent with an economy that's growing. Now, there are other numbers, as you can put into this, unemployment is probably 20% when you start to look at what's going on, and there's under-employment is another significant problem. So you put all this together, and it shows the Chinese economy in extreme distress, which is one reason why Xi Jinping may decide that he needs to move quickly. He has these broad ambitions that he believes he's the world's only that he is a right to rule the world. He can see problems in the Chinese economy, or maybe he can't. Maybe he is in such a bubble that he can't see this, but the point is that China is in distress, and at least the people under him can see this, and that has got to create situations of stress and perhaps getting motivating Xi Jinping to move against us fast. Now, when you're talking about that, are you referring specifically to Taiwan, or do you think? Yeah, I'm not a big fan of that China is going to invade the Chinese who are going to invade the main island of Taiwan to start hostilities. And the reason is Xi Jinping does some trusted generals and admirals, and the Chinese People's Liberation Army is not ready. But there's another thing, and that is, if China were to invade the main island of Taiwan, it would be a combined air land, sea operation, something that China has never done in its history. It means you have to have intense coordination at the top of the Chinese military. It means Xi Jinping has to give one general or admiral almost complete control over the Chinese military, making that figure the most important person in China. And Xi Jinping, even in his most confident days, isn't going to do that. He's not going to do it now. The Communist Party Central Military Commission, which controls the military, normally has seven members now has only two Xi Jinping and a political commissar. There are no operational officers at the top of the Chinese military anymore. This is not a military that can launch major operations. It's a military that can back into problems, and I think the risk of war is high because I see China backing into confrontations and not being able to settle them. But that's a different story. Invading Taiwan, Xi Jinping, waking up and deciding to invade Taiwan, that's a pretty low probability of that in my mind. How do you think they interpret or read the movement of US military assets out of that region, whether it's moving assets from South Korea, from Japan, to support what's going on in the Middle East right now? What's your assessment of that? Well, the Chinese see a big hole. This is opportunity, big time. But for the reasons I just mentioned, I don't think the Chinese can take advantage of it. This will lead the Chinese probably to more provocative activity in the South China Sea, East China Sea, whatever. And that could cause a, that could cause region-wide war. But in terms of the major operations against Taiwan, I think Xi Jinping is kicking himself because he knows he's got a big window, but he can't take advantage of it. That's really interesting. I've got a few more questions about his current grip on power, his current relations with the senior existing military commanders, but what I don't have is more time. Gordon, so that means you got to come back. Definitely come back. I'd look forward to that. Excellent. Listen, thank you. Gordon is always. Thank you very much for your time. Remember, everybody that's out there, go to X. You can find Gordon at Gordon G. Zhang. It's that simple. Gordon, thank you as always. I look forward to the next time. Well, I do too. And so thank you so much, Mike. Well, that is all the time we have for this week's PDB situation report. Now, if you have any questions or comments, I hope you do. All you have to do is reach out to me at PDB at thefirsttv.com. And send your questions, send your postcards, your faxes, hit me up on my beeper. Every mall three, take some of your great questions, and we put them into an episode that we call, ask me anything. All right, so keep those cards and letters coming. And finally, to listen to the podcast, add free. You can do that, right? It's very simple. Just become a premium member of the president's daily grief by visiting PDB premium dot com. I'm Mike Baker. And until next time, well, you know, the drill, stay informed, stay safe. Stay cool.
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