next on this week in defense news, what the obama administration's new defense strategy will mean press

release the pentagon, welcome to this week in defense news. why is iran picking a fight with the united states and can it stop american warships from passing through the straight. a top analyst explains and a look at u.s. arms export and export reforms after a flurry of foreign sales ended september 2011. but first president obama made a rare visit, that will shape some $490 billion in spending cuts over the coming decades, cuts to be detailed next month when the administration's 2013 budget request goes to congress. the new strategy scraps the long standing policy that the u.s. military be able to fight two major wars at once and it

would shift to asia as ground forces are cut in favor of air and naval power. is this the right strategy, will it yield on a tighter budget, and what will it mean for pentagon and the industry that supply it. joining us now are david bertow and lauren lexington. welcome back to the show. >> welcome and then i want your take on this. >> the strategy was tight about eight page, is it the right strategy and what will it mean. >> this has to answer a couple of critical questions. one thing we have debated for a long time as we looked at the draw down is what do we need the military for going forward. the strategy announced this past week does start moving us in the direction of answering that question. however it ducks really critical strategic issue. this is kind of a political strategic issue. you have the pentagon on the one hand sighing we can cut $490 billion but that's it. you have sequestration with

another $500 billion in cuts. you've got paneta saying i can't cut anymore. the president saying i will veto any attempts to be cut. it looms over the implementation of this strategy. the final thing is this is one side of the coin, but until we see what's in the budget, we won't really know whether this did. >> whether the administration puts the money where the mouth. >> it certainly is timely, as the president pointed out in remarks last week before the presentation, we are out of iraq, al-qaida, to use the phrase has been decimateded and we are ready to draw down and turn over responsibility in afghanistan. so in effect what we are doing with this strategy is putting the post9-11 bush strategic priorities behind us and looking to the future which means first and foremost pivoting to asia. >> one thing the president laid out right up front as a fan is channeling president i sen hower and saying -- and it

strength. >> we all know that ultimately the economic basis of national security is critical. there has been a tendency to focus on the deficit as the national security problem, but it is not. it is a manifestation of the economy. the economy is a national security challenge. >> and it applies on the other side of the ocean. our main issue is chai china is not a military buildup. >> it is -- if this administration cannot close the gap between chinese and american economic growth rates over the long run it won't matter, china will dominate the western pa glisk but still american allies want a strong american presence because beijing is being -- and it has grown to such that there are big territorial claims being made as well. >> no doubt about it. but let's go to the programs, i mean the strategy doesn't talk about programs, it talks about broad area, speck ops, spiker

capabilities, air and naval, ground forces would draw down infestment in technology. the one program that was mentioned was a new bomber which i thought was very, very interesting. why did that deserve mention and what are some of the other programs that will fair well and others that will fair poorly. >> there's no reasons why the bomber is interesting symbol here. one is that there's a tendency on the part of the administration to look at defense industry and defense jobs in two different categories. there's the kind of old style 20th century jobs which we're not interested in preserving and some times that works for -- and then there's the high- tech 21st century jobs. in a sense, it is closest we can come to something that bridges those two. >> right. >> it is an actual real airport that might get built someday, but it is clearly 21st century technology so it bridge that is gap. >> i don't see multimission. >> second thing, this is a plane that has been threatened already, put it ton chopping

block. it was then residence recollected. it is still at risk internally. so there's a strong symbolism in terms of the flexibility of doing what's right and did reverse ability that the president built into it. >> one name is the phoenix. >> you can see why the bomber is so important by just looking at a globe. if you turn a globe to the pacific side and look, all you see is water on that side. >> in any range. >> the distance is huge compared with any other theater of operation and therefore you must have long range. that means this is a pivot to air power and naval power and away from ground forces. >> let's go to one of the assertions that the president and secretary also made, that this budget in the end is going to be actually not one of cuts but a reduction in the rate of increase and that the budget will ultimately still be higher than where it was in the bush administration. is that magic, or reality

>> rhetorical magic. >> which is notwithstanding, there are pressures inside that come into play. look at the cost of military personnel, it is good for double digit. >> when the administration says they're cutting by $490 billion over ten years that's a cut from the obama plan. the cut from the 2011 enacted level is more like 350, but it is still being cut. in terms of purchasing power this budget is not going up. it is going down. but our and folks are talking about -- but there's no appetite for making the benefit reform and ultimately in an election year with unemployment rates still declining but high, going to be willing to put some

of these out -- more military. >> you have to cut the force, it is probably the only politically practical way to reduce military pay in benefits. in other words, if it goes down from 202,000 where it is today to 175, 174, then of course you have costs for personnel going forward. >> it is the only way to get there, it is the only way you can get that kind of change through the congress. >> if we're not careful, they will really come from exesionses. we will just not bring as many into the force. there's a little interest this year, if we want to preserve the senior ncos who will actually give us the capability, that creates a more expensive higher grade, longer. >> it is a good point because they say what they're going to do is maintain these rates with special skill asks leadership capabilities in order to regenerate if there's a need. >> that regeneration thing i thought was particularly interesting because it is rare that you have a build down that has in it built in, it was very

important to chairman determine dempsey to have that ability to go back up. but is that a double edged sword in a certain sense. >> you were talking earlier about an industrial, about on the industrial base how that's going to reflect. >> i think it sets you up for real problem here in terms of how do you make decisions and actually think you can make them stick. congress still has to play in this process. this is what the president is proposing. this is the basis for that proposal. it will be laid out in front of the congress and then play the game as we always do. >> this does raise an obvious question, and the points they were going to make ten commitments to the war. we are going to maintain the defense industrial base. we will maintain -- we will maintain posture. >> how are you going get these. >> we have about 30 seconds left. the republican criticism has been blistering on this. what's the alternative to doing this plan at this point?

>> to donald rums rumsfeld. >> and that makes -- that's really the hard part. >> in the persian gulf, that's next. you are watching this

closed when the united states last month imposed tough new sanctions that make doing business with iran's central bank illegal, washington raised the stakes in its standoff with tehran in a bid to stop the country's nuclear program. to stave off the sanctions, iran said that if it couldn't export its oil, they would close the strait of hormuz through which 20% of the world's oil passes. and on concluding 10-day navel exercise, tehran said it would one carrier just passed through the gulf and is to be replaced in the region by the carl vincent. how will washington respond and what happens if iran does try to close the strait and cut off the persian gulf? here to answer those questions is alireza naider. welcome. >> thank you. >> so let's start off, why has iran decided to so dramatically escalate the rhetoric, what does it hope to accomplish and how much is internal

consumption? >> there are two things going on that the regime is very worried about. number one, the u.s. sanctions on the central bank, specifically iran relies on the central bank as a clearinghouse for all oil purchases. so big countries like china, japan, south korea could potentially comply with these sanctions and either stop buying iranian oil or reduce their consumption of iranian oil. the chinese are already negotiating with iran in order to reduce prices. so this is a big worry for the regime in iran. it could really impact iran's economic health. so iran is being very aggressive in the persian gulf as basically a warning to the united states. but also the international community that, look, if you oppose -- impose sanctions on us, specifically the central bank, we might take action. this is basically iran's way of dissuading the sanctions. >> but it didn't stop washington from imposing its sanctions. the european union is going to

do its own, the british defense secretary is in town -- was in town last week, basically said it's going to be unacceptable. at the end of the day, how is washington and everybody going to respond to this? >> i think the key is what the asian countries do, specifically china, japan and south korea. if europe stops buying iranian oil, iran will have to sell asia more oil. and, again, a lot of countries will keep buying iranian oil, but perhaps at a reduced price and so iran's oil revenue could go down. >> does iran have the capability to make good on its threat to close the strait? >> it has some decent military capabilities, but it's really no match for the u.s. navy in the persian gulf. iran has developed some asemitic navel capabilities, has a lot of small fast boats, some decent anti-ship cruz missiles based on chinese technology that has also developed on its own. so it could impede traffic through the strait of hormuz

for a short amount of time, most likely. can it close the strait of hormuz? no. >> what's the likelihood they're going to make good on their threat to attack a u.s. warship, especially a u.s. carrier because that would seem to be a poor choice on their part? >> iran doesn't want a direct conflict with the united united states. it wants a manageable state of attentions where oil prices go up, iran showed that it's strong to its domestic population, especially. look, we have a regime here that is facing upcoming parliamentary elections and presidential elections in 2013. and the regime is deeply worried that the population won't think of these elections as legitimate. if we remember in 2009, millions of iranians came out into the streets and protested against the government. this is a big challenge to the regime. the iranian government doesn't want to replay, so it's trying to look strong in front of the population. >> but the economic situation, the sanctions really have a very -- have had a very

powerful effect on iran so far. >> they have. the iranian currency has devaluated, deappreciatated. iranians are losing confidence in the ability of their government to manage an economy. they didn't have much confidence to begin with, but they're losing even more confidence and the iranian government, the regime needs to show its people that, look, we're defending our interests and we're trying to keep the economy from declining in the face of international pressure. >> but the source of this is the nuclear program which everybody wants to stop. i mean, there are those who say that if iran is this unruly now, how much worse is it going to become if it has nuclear weapons and there are those who see this builds up a pretext to actually attack iran to stop that nuclear program. i mean, if iran attacks a u.s. aircraft carrier, it's impossible to think there isn't going to be a military retaliation to that. how does this play out over the next year and how does iran's nuclear program get stopped, whether by force or by sanctions this year?

>> there's a good chance that iran will not go ahead and assemble and test nuclear weapons. it's developing the capability to do so. if it judges itself in a very precarious situation. but we don't know that the iranian leadership has actually made the decision to assemble a nuclear weapon and test a nuclear weapon. so the increase in costs of iran's nuclear program, international sanctions, domestic instability really will have an effect on shaping iran's kalses. now, -- calculations. now, statement there's room for miscalculation. iran is making these threats in the persian gulf. there's no communication between iran and the united states, so it's hard to see where iran's red lines are. and iran can make those judgments without the united states and doesn't necessarily have the capability and knowledge of u.s. decision making to react in the manner to u.s. maneuvers. >> exactly. alireza, thanks so much for

joining us. iran also turned down the idea of a hotline, that was a key thing to try to remove the extensions. this is going to be an ongoing story. we'd love to have you come on and talk again. coming up defense spending is dropping, alright everybody, get your heads up. now when i was in the military, i learned that if you stand together, you can stand up to anything! no matter where i was deployed, i always knew that somebody had my back! you boys are your own band of brothers!

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2011 was a banner year for u.s. defense exports. saudi arabia approved the long- awaited purchase of $30 billion in new gear, including fighter aircraft and attack helicopters. the united arab emirates became the first nation to buy a cutting-edge new american anti- missile system and japan became the latest nation to pick the joint strike fighter as its next combat jet. can america sustain this pace of orders and will etion port sales be enough to affect budget cuts and how significant a competitor will japan be now that tokyo has decided to start exporting defense equipment and what's next for the administration's export reform initiatives? joining me now it remmie nation

at the 'space industry association. he's a key player in the export reform debate. remmie, welcome back to the show. >> pleasure to be here. >> let's start off, how good of a year was it for u.s. arms exports and how important are these sales? >> you mentioned some of the wins that took place towards the end of the year and those, of course, were very significant in helping to sustain the production lines for a lot of our companies. that still has an over benefit obviously for u.s. domestic purchases, our ability to leverage unit costs, keep engaged for r and d development. but it was also a cautionary tale, i think, in 2011, seeing that the europeans ended up being the number one and number two competitors in the indian fighter competition. >> right. because obviously there have been very, very deep defense cuts across europe and one of the ways their industries are looking to sustain given they're a lot smaller than ours and their purchasing power is less to export a lot.

do you see this as being a competitive u.s. dynamic going forward? >> absolutely. given the u.s. spending thing we have today, it makes the considerations to nice to have to a critical strategic comparative. >> the administration, president obama in particular has put a focus on exports and defense exports as well, both to sustain domestic jobs but to build capacity for allies so they can secure their own burdens. is 2012 a year that's going to be stronger with the administration supporting sales even more strongly? >> i hope so. the indications from this administration, its sponsors of a security reform task force, its focus on export controller forms and even in the statements made today by the president emphasizing the importance of building partnership capacity all point to a recognition of the importance of these defense exports. the real question, the real consideration is more of an institutional one. do the processes that are in

place right now which are really 1,000 different gateways that can say no to an export work in the current paradigm, i would say no, that we need to find a more streamlined predictable way to achieve common national security objectives with our allies and partners. >> that's something former defense secretary bill lin said, there are two people that said no and when people say yes, things get bogged bogged down and don't work. secretary gates expressed that concern. give us a recap. there's been a lot of activity in the last year. what is the progress that was made in 2011, what are some of the key milestones in 2011? >> the most visible area of change that we can look at is the president's emphasis, the administration's emphasis on export control reform. the progression of rejiggering the list, the u.s. munitions list. >> which govern all exports. >> which govern military exports and removing essentially commercial technology from those lists

more appropriate controls on the commerce controls side of things is a very good first step. it's not sufficient. because at the end of the day, if you think about the process by which a decision is made and a sale is carried out for a defense export, the export control process is the tail end of the process. that's just before you ship and letting the u.s. government know i'm about to do so, is this okay. the front end of the process involving multiple considerations of foreign policy, national security, technology and that process can be somewhat cumbersome. >> we have 20 or so seconds left. let me ask you about japan. in every other industry japan has competed, it's become a success at electronics cars. is japan going to be a mange export threat in the next -- a major export threat in the next couple of years? >> it's going to be in partnership with countries like the united states which would be to benefit of the u.s. suppliers. we would take emphasis on their case of a national strategy is critical, not just for our own

budget considerations but also for the exports we need to sustain our industrial base. >> which is a cult-heavy industrial base when it comes to that. >> absolutely. >> remmie, thanks for joining us. coming up in

>> there's much in the new military strategy unveiled by president obama last week that's on the mark as a template to shape some $490 billion in defense cuts over the coming decade, dropping the long stranding requirement to fight two major wars at once poses a risk but the strategy sensibly to fight one major war while holding off another large threat or to fight multiple smaller conflicts simultaneously and focuses more attention and resources on asia where china's economic and military rise are fueling worry, maintain a presence in

the vital middle east but dial back in a more benign europe. land forces face cuts as investment would flow to air and naval power projection, intelligence, surveillance, special operation, cyber warfare, unmanned systems and a new bomberment systems that allow u.s. forces to operate, fight and win inheavily contested areas whether in asia, the persian gulf or elsewhere will be supported along with r&d in future weapons. the strategy success deindependence on whether the 2013 request adequately resources it and congress steps up to resolve the looming threat of another $500 billion in defense cuts. u.s. forces can become smaller more agile through reform and renovation without sufficient starned commitment and hard work. thank you for joining us this week in defense news. i will be back next week at the same time. until then have a great week.