The United States is locked in a tight race with China and Russia to build destructive cyberweapons capable of seriously damaging other nations’ critical infrastructure, according to a leading expert on hostilities waged via the Internet.

Scott Borg, CEO of the U.S. Cyber Consequences Unit, a nonprofit institute that advises the U.S. government and businesses on cybersecurity, said all three nations have built arsenals of sophisticated computer viruses, worms, Trojan horses and other tools that place them atop the rest of the world in the ability to inflict serious damage on one another, or lesser powers.

Ranked just below the Big Three, he said, are four U.S. allies: Great Britain, Germany, Israel and perhaps Taiwan.

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But in testament to the uncertain risk/reward ratio in cyberwarfare, Iran has used attacks on its nuclear program to bolster its offensive capabilities and is now developing its own "cyberarmy," Borg said.

Borg offered his assessment of the current state of cyberwar capabilities Tuesday in the wake of a report by the American computer security company Mandiant linking hacking attacks and cyber espionage against the U.S. to a sophisticated Chinese group known as “Peoples Liberation Army Unit 61398.

In today’s brave new interconnected world, hackers who can defeat security defenses are capable of disrupting an array of critical services, including delivery of water, electricity and heat, or bringing transportation to a grinding halt. U.S. senators last year received a closed-door briefing at which experts demonstrated how a power company employee could take down the New York City electrical grid by clicking on a single email attachment, the New York Times reported.

U.S. officials rarely discuss offensive capability when discussing cyberwar, though several privately told NBC News recently that the U.S. could "shut down" the electrical grid of a smaller nation -- Iran, for example – if it chose to do so.

Borg echoed that assessment, saying the U.S. cyberwarriors, who work within the National Security Agency, are “very good across the board. … There is a formidable capability.”

“Stuxnet and Flame (malware used to disrupt and gather intelligence on Iran's nuclear program) are demonstrations of that,” he said. “… (The U.S.) could shut down most critical infrastructure in potential adversaries relatively quickly.”

China, Russia have different priorities
Borg said China and Russia have similar capacity to cause mayhem, but have different priorities and skill sets.

“Russia is best at military espionage and operations,” he said. “That's what they have focused on for a long time. China is looking for crucial business information and technology. China's main focus is stealing technology. These things quite separate. You use different tools on critical infrastructure than you use for military espionage and different tools again on stealing technology."

Borg said that each has its strong suit. "The Russians are technically advanced. The Chinese just have more people dedicated to the effort, by a wide margin,” he said. “They are not as innovative or creative as the U.S. and Russia. China has the greatest quantity, if not quality."

Borg said the group featured in Mandiant’s report, the People’s Liberation Army Unit 61398, may be one of the most important groups working in China, but not necessarily the most important.

"There are at least two dozen groups carrying out aggressive operations against the U.S.,” he said. “They get in each other’s way and trip over one another, but they are all operating with the tacit approval of the Chinese government.

"They're not cooperating with each other because they don’t share capabilities," he added. "One group has good programming, but is bad at access or targeting." 

The Chinese hacking efforts are so broad, Borg said, that the highest-ranking Chinese officials “almost certainly do not know what all the groups are doing,” or the consequences. As a result, he added, they have been embarrassed by reports like the one in Tuesday’s New York Times, which first reported on the Mandiant assessment.

China is the most likely of the superpowers to leave a calling card, making their work the easiest to track. "China is very arrogant in its authorship of cyberweapons,” Borg said. “It does little to conceal its identity."

That’s in sharp contrast to the Russians, who he noted are not above writing code in Chinese to throw off investigators.

While the U.S. could respond to ongoing cyberattacks from China and Russia by shutting down the power grid of "any of its adversaries” and causing severe physical damage, Borg said it is encumbered by several factors.

One is its vulnerability to cyberwarfare as the world’s most networked nation, he said.

And from a geopolitical standpoint, Borg said, the U.S. would not want to badly damage the economy of either China or Russia. In fact, he said, the U.S. would almost certainly have to incorporate protections for critical systems like the power grid in any cyberattack.

Also, detecting the source of hostilities is not always easy, Borg said, as cybertracks are not as easy to follow as missile tracks. That means “mutually assured destruction,” the main strategic tenet of the Cold War, is problematic at best when talking about cyberwar, he said.

"It might be difficult to determine proportionate response,” he said. “It might not be simple to attack the attacker.”

For example, policymakers may think an attack has been carried out by the Chinese, when it was actually the work of the Russians or a rising power in the cyber world, like Iran. That is why intelligence -- getting insight into these operations -- is more important in a crisis than cyberforensics, which can take longer and not be as certain.

"There is no MAD in the Cold War sense," he said, "You can’t be 'assured' of attribution. The attack can be anonymous. It can be spoofed," or disguised as coming from another source. 

Iran developing 'serious capability'
The U.S. first began to develop its own offensive capabilities 20 years ago when several strategic thinkers, particularly at the Naval Post-Graduate School, began to see the possibilities. It was not so much a strategic priority, but more "people familiar with electronics and hackers exercising their imagination." (Borg says one of those thinkers, Winn Schwartau, used fiction to discuss the threat and the possibilities, in a 1991 book, "Terminal Compromise.")

While the U.S. has the means to respond and to defend itself, Borg notes that some countries have no recourse. He cited the Russian invasion of the Republic of Georgia in August 2008, when the Georgian government and media infrastructure was quickly compromised.

What was particularly interesting, Borg said, was that the Russian military and intelligence services weren’t directly involved.

"The first wave was carried by organized crime," he noted. "The second wave was carried out by a (hacker) group organized though social media.” He said Russian hackers could download the attack software from a variety of popular sites, including dating and gun-collecting websites.

In both cases, Borg concluded, the organizers apparently were tipped off early about the timing of Russian military operations, he said.

The attack on Georgia also illustrated another aspect of cyberwarfare, Borg said, noting that Georgia, Estonia and Lithuania afterward formed a cyberalliance, leaving them in a better position to deal with future assaults.

That also appears to be the case with Iran, which recently announced that it decided to establish cyber army and claimed to have 4,000 to 5,000 military personnel involved in defensive and offensive operations. That isn’t all bluster, Borg said, noting that when the U.S. leveled new sanctions on Iranian banks last year, U.S. banks suddenly came under attack.

"Iran is developing a serious capability," said Borg. “It's exaggerating the present capabilities, but it’s working toward the future."

That’s especially troubling because the risk of smaller nations waging cyberwar against one other may be higher than with the online superpowers, he said.

He cited reports indicating that Iran may have been behind what he called one of the more serious cyberattacks to date -- an assault last August on the Saudi Aramco computer network that disabled more than 30,000 computers used to control the flow of Saudi oil. The Saudi Interior Ministry blamed "foreign countries" for the attack.

Borg said he believes the attack was an "Iranian fundamentalist attack ... at some point loosely the under auspices of Iran, and blessed by Iran. The fundamentalist group made a claim of responsibility. ... “Based on technical analysis, the claim has credibility."

For that reason, Borg says he is less worried about the possibility of China or Russia launching a catastrophic attack against the U.S. than he is about the emerging cyberpowers.

“What I’m really concerned about isn’t Russia or China, but attacks from Iran or terrorist groups working with state actors,” he said.

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The United States, the European Union and the U.N. have imposed tough economic sanctions against Iran –- blocking access to the international banking system and hurting sales of Iranian crude oil -– as a way to persuade Tehran to abandon its nuclear program. 

In the short term, the harsh sanctions have had an impact on Iran’s economy -– inflation has gone through the roof, and the unemployment rate is staggering, especially among young Iranians. Prices of consumer goods have doubled, tripled, even quadrupled in some cases, according to consumers. 

The business community is in disarray, and as things keep getting worse, it’s all people are talking about.

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Barely getting by 
At the Tajrish Bazaar in North Tehran on a recent afternoon, Ahmed, a 31-year-old unemployed man, poured his heart out to me. Speaking on the condition of anonymity, as all those interviewed for this story did because of the political sensitivity of speaking out in Iran, he told me his story. 

He said he has been unemployed for the past year, doing odd jobs, and that he barely makes enough to feed himself, let alone his wife and children. The lack of jobs and the extraordinary rise in food prices have hamstrung him. But he was most worried about what the crippled economy is doing to the youth of Iran, who he said are turning to crime and drugs if they can’t find work. 

In Iran, appearance is everything. How you dress and wear your beard says a lot about your politics. 

As I talked to Ahmed, who was dressed in Western-style clothes, another man looked on disapprovingly. He had a full dark black beard and was dressed in conservative black clothes. He was listening to everything Ahmed said and wanted to talk to us, although he declined to give us his name.

He said that people like Ahmed were making excuses and were lazy. He argued that the economy had become tougher, but no more so than the Iranian people were used to over the years. He blamed the U.S. for the bad economy, accusing President Barack Obama of unfairly trying to squeeze Iran. But he said that in the end, the rough economic times had taught Iran to be more self-reliant. 

“We need to tighten our belts for now and weather this storm with the West as we have always done. And we will be victorious again,” he said.

New sanctions' real impact
The most recent international sanctions have targeted Iran’s crude oil and banking sectors. In addition to harsh U.S. measures, 27 countries in the European Union agreed in January to ban Iranian oil imports –- giving countries until July 1 to terminate their deals. They also put a freeze on assets belonging to the Central Bank of Iran and a ban on trade in gold and other precious metals.  

Anthony Cordesman, who holds the Burke chair in strategy at the Center for Strategic and International Studies and is a long-time Iran watcher, said that despite years of sanctions against Iran, the most recent ones have had the greatest impact –- partly because they target banking.

The banking sanctions “have had the most popular, or broad, impact. Right now Iran can’t even operate on the international clearinghouse.”   

“I think that this is the first time that sanctions have really had a major bite. Up to now, they have all been fairly limited,” said Cordesman.  “But beginning in November, and it’s just beginning to bite, you can’t bank internationally effectively, you can’t move money. You don’t have a stable conversion rate –- but the rial [Iran’s currency] is way down, so your savings are of very uncertain value unless you’ve invested in property.  You don’t know what’s going to happen to your business. You have to be very cautious about how much money you can spend on a marriage for your children or their education.” 

He added that we really won’t begin to see the full impact of the sanctions until summer, when they have all gone into effect.  “So everyone knows it’s getting worse, but no one knows yet how serious.” 

Vali Nasr, the incoming dean at the Johns Hopkins School of Advanced International Studies, explained how these sanctions differ from 30 years of sanctions that mostly targeted imports into Iran. 

“The new set of sanctions targeting Iran’s oil industry, central bank, ability to conduct international financial transactions, are of a different nature largely because they are going after the government’s source of income –- the ability to sell oil or receive money for oil,” said Nasr. “So these have had an impact because they have caused extensive inflation inside Iran. They’ve caused the government to scrap a variety of projects, which has caused unemployment.  

“There is no doubt that economic hardship has become much more pronounced. And there is on top of that a layer of uncertainty. So there is significant economic hardship that is hitting the lower rung of society and the Iranian middle class,” said Nasr.
 
Back in Tajrish Bazaar, Roya, a well-dressed woman in her 60s wearing a Hermes scarf for a hijab and carrying a Louis Vuitton bag, explained how even she is being hit by the economic uncertainty. While she is a wealthy Iranian living in the leafy suburbs of affluent North Tehran, she said her purchasing power has been halved by the struggling economy. 

“Everything has doubled in price,” Roya said. “My son lives in Los Angeles, and it’s cheaper to go shopping there -- amazing. Things have become difficult for me even though I am among the better off Iranians. I can’t imagine how difficult it is for folks downtown.” 
When I asked her what the solution was, she replied sarcastically, “That’s for the country’s economists to figure out.”

Close to the bone
For international relations analysts, like Cordesman and Nasr, getting reliable information on what’s going on in Iran is very difficult. Both analysts said that basically all of their information on the impact of the current sanctions is anecdotal. 

“You have to rely on anecdotal information especially because the Iranian government does not have an interest in revealing how painful the sanctions are. They may admit that they are hurting, but they don’t want to put numbers out there,” said Nasr. 

But it’s not all doom and gloom for the regime. President Mahmoud Ahmadinejad often touts during public events that Iran has a record $90 billion in foreign exchange reserves, as well as untold reserves of gold, silver and precious stones. 

Even though experts estimate that Iran has seen a decline in sales of about 300, 000 barrels of oil per day as a result of the sanctions, this has been offset by a 15 percent rise in crude prices. 

And the effect and pain of sanctions have not been distributed evenly. While blue-collar workers in downtown Tehran can expect to eat meat once a month only as a treat, North Tehran is awash with Mercedes and Porsche SUVs costing as much as $500,000 after the import tax has been paid.    

Will the sanctions achieve goal?
So the question remains as to whether the sanctions will achieve their goal: curtailing Iran’s nuclear program.

“The sanctions have had an impact of getting Iran to the negotiating table. Iran came to Istanbul [the site of the latest diplomatic talks] with much more seriousness than in the past,” said Nasr. 

But he added that the sanctions alone won’t be enough for Iran’s leaders to give up a program they have invested heavily in –- both financially and in terms of building the nuclear program as a point of national pride.  “Just because the Iranian public dislikes this regime –- that does not mean that they dislike the nuclear program. They don’t see this as the regime’s nuclear program, they see it as Iran’s nuclear program,” said Nasr.  

In order for the sanctions to work, Nasr explained, the U.S. and other parties at the table need to give something back -– otherwise it would just seem like Iran is surrendering to the West’s demands, not an easy sell at home. 

“Until now, the whole approach has been stick-heavy and carrot-poor. And the sticks are very explicit and the carrots are vague. And maybe that was necessary to get their attention and to show that we meant business. But now going forward -– [the U.S.] can’t ask [Iran] for concrete concessions –- like stop this, stop that -– but not put concrete things on the table, like this sanction will be lifted.  If all the concessions are on the Iranian side and what they get is just a promissory note, I don’t think it will fly.”   

“End of the day, these two countries have not had a single thing they’ve agreed on or done together in the last 30 years. So you couldn’t expect them to actually be able to conclude a deal without some sort of reciprocal, trust-building, concrete steps going forward.”

Msnbc.com’s Petra Cahill contributed to this report. 

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ULUGAN BAY, Philippines - Hundreds of American and Philippine troops waded ashore on Wednesday in a mock assault to retake a small island in energy-rich waters disputed with China, a drill Beijing had said would raise the risk of armed conflict.

The exercises, part of annual U.S.-Philippine war games on the western island of Palawan, coincide with another standoff between Chinese and Philippine vessels near Scarborough Shoal in a different part of the South China Sea.

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China has territorial disputes with the Philippines, Vietnam, Brunei, Malaysia and Taiwan across the South China Sea, each searching for gas and oil while building up their navies and military alliances.

China said last week the drill would raise the risk of confrontation. On Wednesday, Chinese Vice Foreign Minister Cui Tiankai said China was committed to dialogue and diplomacy to resolve the dispute.

"We are certainly worried about the South China Sea issue," Cui told a news briefing in Beijing, saying "some people tried to mix two unrelated things, territorial sovereignty and freedom of navigation."

Historical records
The comments come before high-level talks with the Obama administration. China, which claims the South China Sea based on historical records, has sought to resolve disputes bilaterally but its neighbors worry over what some see as growing Chinese assertiveness in its claims in the region.

"Location (of the drill) is irrelevant," Ensign Bryan Mitchell, spokesman for the U.S. Marines, told reporters.

"These exercises take place on a regular basis. This year it happens to be in Palawan. The planning for this took place months ago prior to any events that are currently in the headlines."

China, Russia begin naval war games

President Barack Obama has sought to reassure regional allies that Washington would serve as a counterbalance to China in the South China Sea, part of his campaign to "pivot" U.S. foreign policy towards Asia after wars in Iraq and Afghanistan.

Philippine military officials sought to play down the exercise. Lieutenant General Juancho Sabban, military commander for the western Philippines, said the drill "simply means we want to work together, improve our skills."

Sabban's area of command includes Reed Bank and the Spratlys, a group of 250 mostly uninhabitable islets spread over 165,000 sq miles west of Palawan.

The Spratlys are claimed entirely by China, Taiwan and Vietnam and in part by Malaysia, Brunei and the Philippines.

Huge oil reserves
Proven and undiscovered oil reserve estimates in the South China Sea range as high as 213 billion barrels of oil, the U.S. Energy Information Administration said in a 2008 report. That would surpass every country's proven oil reserves except Saudi Arabia and Venezuela, according to the BP Statistical Review.

A Philippine exploration firm, Philex Petroleum Corp, said on Tuesday its unit, Forum Energy Plc, had found more natural gas than expected around Reed Bank, where Chinese navy vessels tried to ram one of Forum Energy's survey ships last year.

The Philippines is due to open oil-and-gas exploration bids in Reed Bank on Friday.

NYT: Signs of an Asian arms buildup in India missile test

Vietnam reasserted its claim to the Spratlys and the Paracel islands, known in Chinese as the Xisha islands, further west of Scarborough Shoal in what it calls the East Sea.

Self-ruled Taiwan, which China considers a renegade province, reiterated its claims over territories in the South China Sea and urged "countries concerned to exercise self-restraint so that peaceful resolutions can be reached through consultation".

Sabban said the military drill was not focused on China.

"Never was China ever mentioned in our planning and execution," he told reporters. "China should not be worried about Balikatan (shoulder-to-shoulder) exercises."

Amphibious assault
Nearly 7,000 American and Philippine troops were launched from U.S. and Philippine ships in the simulated amphibious assault to recapture an island supposedly taken by militants.

Commandos came ashore from U.S. and Philippine ships in a simulated amphibious assault to recapture an island supposedly taken by militants.

Jumping from rubber boats as they hit the shore, the commandos engaged in a mock firefight, making their way inch by inch from the beach to a navy facility to rescue "hostages" and recapture the base.

Read more China coverage on our Behind The Wall blog

Four days ago, commando teams rappelled from U.S. helicopters and landed from rubber boats in a mock assault to retake an oil rig in northern Palawan, 11 miles off the town of El Nido on the South China Sea.

The annual war games come under the 1951 Mutual Defense Treaty, part of a web of security alliances the United States built in the Asia-Pacific region during the Cold War.

The drills are a rehearsal of a mutual defense plan by the two allies to repel any aggression in the Philippines.

Hundreds of kilometers to the north, a Philippine coast guard ship patrols near Scarborough Shoal, a group of half-submerged rock formations 124 nautical miles west of the Philippines' main island of Luzon.

Philippine and Chinese ships are often in the same areas of the South China Sea, with two Chinese maritime surveillance ships a few miles away from the coast guard vessel and five Chinese fishing boats working the waters nearby.

Defense officials have told NBC News that the Army staff sergeant who allegedly shot and killed 16 Afghan civilians, including nine children, admitted his actions to fellow soldiers just before he was taken into custody.

"I did it," he is said to have told them.

According to the officials, a search party that included helicopters was formed after an Afghan soldier reported the American had left their small remote outpost in the early morning hours. In the meantime, the base received word that a number of civilians had been killed in a shooting spree at a nearby village.

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Overhead surveillance first spotted the soldier on his stomach in a field, either attempting to hide or crawl toward the base.  He eventually stood up and walked a short distance to the base where he was confronted and asked about the shootings at the village.  The officials say the staff sergeant replied "I did it."  At that point he was disarmed and taken into custody.  He then asked for a lawyer and has refused to talk ever since.

 

The officials also said they’ve received reports that the soldier was having marital problems and had recently received a troubling letter or email from his wife. According to one official, after four combat deployments it’s not unusual there would be stress on the family.

Defense officials also told NBC News that investigators have reason to believe that alcohol "may" have been a contributing factor in the shooting spree.

The investigation found bottles of alcohol on the small remote base where the staff sergeant was deployed.  The officials emphasize "may" because they say that nowhere in the reporting from the field is there any indication the staff sergeant was inebriated.

The soldier, reportedly married with two children, enlisted in the Army soon after the terror attacks of Sept. 11 and did three combat tours in Iraq before arriving in Kandahar, near where the shootings took place, in December 2011.

US soldier accused in Afghan massacre had brain injury history

Reports that the soldier had received post-traumatic stress disorder examinations are not unusual, since every soldier coming out of combat is routinely screened for PTSD.

The soldier suffered some minor traumatic brain injury in a rollover in Iraq in 2010, but that part of his medical history does not appear at this point to be a factor, according to the officials. They also said the man has a clean medical and behavior record.

Obama: Killing Afghans as serious as killing Americans

Col. Gary Kolb, a spokesman for the U.S.-led military coalition in Kabul, told The Associated Press a 48-hour probable cause assessment has been completed and that the service member continues to be confined.

Additionally, the officials told NBC News that the the military is considering capital murder charges against the soldier, meaning he could face the death penalty if convicted. They said the military also intends to conduct his court martial hearing in Afghanistan. Not only would it send the right signal to the Afghan people, officials said, but trying him in the United States or another country in the region would also present a logistics nightmare given the number of witnesses that would be expected to testify.

Military investigators in Afghanistan hope to file charges and release the identity of the soldier by the end of the week, but warn it could take another two weeks.

The Associated Press contributed to this report.

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PESHAWAR, Pakistan – The ring road in Peshawar is a rough ride: navigating certain stretches means dodging enormous potholes, steering clear of steep ditches and swerving to avoid the occasional brave soul who darts from one side of the road to the other.

Yet this has been, for the last decade, one of the main arteries on which convoys of trucks carrying supplies for U.S. and NATO forces have made their way into Afghanistan. Those ground lines of communication that run from Karachi's ports to two border crossings in Pakistan have been a fundamental part of the U.S.-Pakistan relationship, as has the air line of communication.

When the U.S.-Pakistan alliance was tested once again in late November after a U.S. cross-border air strike that killed 24 Pakistani soldiers, Pakistan reacted by shutting down the ground supply routes – a step they've taken before in protest to U.S. actions. The air lines of communication remain open.

But access to those crucial land routes has never been denied to the U.S. for this long, and the two accounts from the U.S. and the Pakistan military of the cross-border strike that prompted their closure are so starkly different that it's hard to see how they can be reconciled.

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Even though the Americans have reduced their dependence on Pakistan's roads over the last few years by using alternative routes running through Russia and Central Asia, the cost of moving goods via air and on that northern route is much greater – reportedly six times more a month – than using Pakistan's routes.

It now costs about $104 million per month to send supplies through the longer northern route, according to Pentagon figures shown to the Associated Press. That is $87 million more than when the cargo was shipped through Pakistan.

Pakistan's government is conducting its own internal review of the alliance with the U.S., and officials here say no decision will be made about the supply lines until that review is complete and recommendations have been discussed by the government. Already, however, there are forces at work within Pakistan's religious and political parties to prevent the government from reopening those lines and re-engaging on the same level with the U.S.

Issue of nationalism
At a recent rally in Rawalpindi for the Pakistan Defense Council, made up of dozens of religious and political parties, leaders mentioned the NATO supply lines with the same fervor as they did deeply nationalistic issues such as divided Kashmir and the country’s nuclear weapons. The crowd of thousands cheered as speaker after speaker threatened that there could be countrywide protests should the government decide to reopen the supply lines.

"The NATO supply lines should not be restored at any cost," said Mohammad Abdullah Gul, chairman of the National Youth Conference and a member of the Pakistan Defense Council.

"Even if the government restores (them), we are not going to accept it. The people of Pakistan, we are going to mobilize. From Khyber to Karachi, they will be mobilized and they will stop the NATO supply lines," he said.

Retired Col. Nazir Ahmed is the spokesman for Jamaat-ud-Dawa, an organization which he describes as having a "purely Islamic platform."

He said that the NATO supply lines were "rightly" blocked, and should stay blocked "forever," unless the U.S. "comes to us on the basis of equality."

He was particularly outraged by the recent cross-border attack.

"After the aggression that the Americans committed on the Pakistan Army?  They slaughtered and killed so many Muslim soldiers," said Nazir. "Every country has the right to defend its borders and its ideology."

For this segment of the population – frustrated by what they see as a decade of subservience to American policy in a deeply unpopular war here – a decision to reopen the supply lines is tantamount to a decision to put U.S. interests ahead of Pakistan's.

That sentiment felt by a growing number of Pakistanis who think the relationship with the U.S. has not benefitted their own country will make it difficult for Pakistan's leaders to publicly re-engage with the U.S., and reopen the supply lines in the same manner and under the same conditions as before.

Both U.S. and Pakistani officials say they remain committed to their alliance. How the NATO supply routes will fit into that alliance, however, is yet to be seen.