His security consulting firm derived 98% of its $12 billion in revenue from U.S. government contracts last year, which made Booz Allen vulnerable to DOGE cuts that spooked investors and forced him to lay off 7% of its staff. But Rozanski told me he’s optimistic as DOGE has moved to an “agency-by-agency efficiency discussion” that he welcomes. And national security funding “is likely to go up if the reconciliation bill goes through.” Here are four takeaways from our conversation.

In defense, the U.S. can’t afford to be second. “If China can have significant compute capacity in space with very low latency down to the ground, they can essentially embed AI into much cheaper, much simpler systems. You don’t want China to be able to break all of our encryption, and us not being able to break theirs. The price for that is tremendous.”

Government needs to be an early adopter on tech. “By the time the government got into the cloud, the private sector was already there. These clouds were not architected to meet the exacting security needs that the government has. It would have been a lot better if the government had moved together with the private sector and said, We want to adopt this technology. We are going to be a big customer, and this is what we need. When you get to autonomy, robotics, physical AI, quantum, I would want the government to be at the table saying we’re going to use a lot of this, and this is what we need to be able to use it. 

It’s good to have options in dealing with Iran. “The investments that the country has made in defense technology give the president options that frankly no other country on Earth has … I rather live in a world where the U.S. is leading the way and has options, even if the option is to do nothing. In most countries, doing nothing is the only option they have.”

CEOs spending time in Washington should be talking—and listening. “The most important thing is to engage. I will talk to anybody who will talk to me. I learn everything from every conversation. And sometimes I learn more from their questions than I learn from my answers. But it also is an opportunity to ask questions. So I think consistent, persistent engagement, very broad engagement. Who’s relevant today, who’s relevant tomorrow, the political process will dictate that, so you can’t get narrowly focused.”

More news below.

Contact CEO Daily via Diane Brady at diane.brady@fortune.com

Top news

Trump floats “regime change” in Iran

Hours after Defense Secretary Pete Hegseth said the U.S. bombing of Iran’s nuclear facilities was “not about regime change,” President Trump posted on social media, “It’s not politically correct to use the term, “Regime Change,” but if the current Iranian Regime is unable to MAKE IRAN GREAT AGAIN, why wouldn’t there be a Regime change??? MIGA!!!”

Iran responds with war threat

Overnight, Israel continued to bombard Iran’s military facilities. Iran responded by firing only one missile at Israel, which was brought down by a U.S. air defense system. A spokeserson for Iran’s Republican Guard said America will face "heavy, regrettable and unpredictable consequences" through "powerful and targeted operations … Mr Trump, the gambler! You may start this war - but we will be the ones to finish it!" BBC live updates here.

Cooler heads …

Eurasia Group’s Ian Bremmer thinks Trump is now likely to declare a victory of some sort but back away from the kind of prolonged, dragged-out war that his MAGA base would fiercely oppose.

But was Iran’s nuclear capability actually destroyed?

Trump posted on social media that “Monumental Damage was done to all Nuclear sites in Iran, as shown by satellite images. Obliteration is an accurate term!” But satellite photos show parts of Iran’s nuclear sites remain undamaged and no one knows where Iran’s stockpile of 408kg of enriched uranium is located. This job may not be done.

Oil shock—or maybe not

Iran has the ability to close the Straight of Hormuz, the bottleneck shipping channel in the Persian Gulf through which 20% of all the world’s oil moves. The Iranian parliament already approved the move. CNBC thinks that could spike the price of oil up to $100 per barrel. But oil futures contracts aren’t there yet—an indicator that investors believe that Iran’s response may be more limited. Iran, after all, needs the oil revenue.

Russia heading towards recession

After years of anticipated economic strife, Russian authorities warn the country is on the precipice of a recession as the Kremlin’s bloated military spending amid its ongoing invasion of Ukraine exacerbates underlying labor shortages and rising inflation, Fortune’s Lily Mae Lazarus reports.

Inside the Meta deal with Alexandr Wang and Scale AI

Earlier this month, Meta announced that it was hiring 28-year-old Scale AI co-founder Alexandr Wang to lead its AI operations in an acqui-hire deal worth $14.3 billion. Fortune spoke to more than a dozen people close to the figure to track his transformation into Washington’s “AI whisperer.” 

Volkswagen Group’s autonomous pitch

Volkswagen Group is poised to enter the autonomous ride-hailing wave next year with a unique approach—partnering with existing transportation providers instead of replacing them. Fortune rode along with VW Group executive Sascha Meyer to discuss the plan.

The markets

The S&P 500 closed at 5,967.84 on Friday, it’s up 1.47% YTD. This morning, S&P futures were up 0.25% after the price of oil briefly spiked over $79 per barrel and then declined back to just over $76—an indicator that investors think the “oil shock” from the bombing of Iran may be less dramatic than feared. The VIX volatility index, likewise, was down 6% this morning. Bitcoin is back over $101K after hitting a low around $108K. China and Hong Kong were broadly up this morning. The Stoxx Europe 600 and the U.K.’s FTSE 100 were both flat in early trading. Japan, South Korea, and India all saw declines.

From the analysts

UBS on the “deckchair generals”: “Investors should be cautious of knee-jerk overreactions. Investors’ principal concerns are oil supplies and non-oil shipping. While there have been casual threats to close the Strait of Hormuz, Iran does need oil revenue and does not need the anger of oil-exporting Gulf states. Attacks on shipping by terrorist groups might be more likely. However, U.S. trade taxes pose a far bigger threat to shipping volumes than events in the gulf. US President Trump’s ruling out near-term attacks immediately before attacking might be tactical, but [his] suggestion of regime change in opposition to official U.S. policy causes uncertainty. That raises trust issues relevant to trade negotiations. Even modest oil price increases will raise U.S. gasoline prices just as trade tariffs push up other prices, and may add to profit-led inflation too. Tourism in the gulf region is already at risk, with flights being canceled,” per Paul Donovan.Goldman Sachs on the price of oil: “Upside risks to energy prices rise as Iran conflict escalates – Brent oil price rose $2 yesterday to just under $80/bbl, as the market prices in a somewhat higher probability of supply disruptions, with an estimated geopolitical risk premium of $12. The Polymarket prediction market now sees a high chance that Iran will disrupt the Strait of Hormuz in 2025. We consider two types of oil disruption scenarios, not in our base case: 1) reductions in Iran supply only ($80 Brent), and 2) broader disruption of regional oil production or shipping ($110 Brent),” per Sahar Islam  and Ayushi MishraWedbush on the nuclear threat: “A weakened Iran with no nuclear capacity removes the biggest threat to the Middle East and Israel which will be viewed as a positive for the market and tech stocks in particular as investors digest this news. We also note that with Saudi and UAE looking to aggressively embrace the AI Revolution coming off Trump's last trip to the region along with many Big Tech CEOs, the biggest threat to the region and the potential ‘black swan event’ was Iran and its nuclear program...and now that threat is gone. The market will view this Iran threat as now gone and that is a positive for growth in the broader Middle East and ultimately the tech sector. It will take some time for this conflict to settle, but the market will view the worst is now in the rearview mirror with investors looking forward,” Daniel Ives and team.

Around the watercooler

Top economist who previously sounded the alarm on tariffs sees a possible scenario where Trump ‘outsmarted all of us’ by Jason Ma

Wealthy business-owning Trumpers are clashing with MAGA purists over who should get deported by Irina Ivanova

Bitcoin plummets below $100,000 after U.S. strikes Iran nuclear sites by Ben Weiss

Exclusive: From Valentine’s Day strawberries to college printers, these are America’s most-purchased items on Amazon Prime by Eleanor Pringle

CEO Daily is compiled and edited by Joey Abrams and Jim Edwards.