DEFENSE SECRETARY WARNS OF DIRE THREAT OF CYBERATTACK ON U.S.

[“An aggressor nation or extremist group could use these kinds of cyber tools to gain control of critical switches,” Mr. Panetta said. “They could derail passenger trains, or even more dangerous, derail passenger trains loaded with lethal chemicals. They could contaminate the water supply in major cities, or shut down the power grid across large parts of the country.”]

By Elisabeth Bumiller And Thom Shanker

Defense Secretary Leon E. Panetta warned Thursday that the United States was facing the possibility of a “cyber-Pearl Harbor” and was increasingly vulnerable to foreign computer hackers who could dismantle the nation’s power grid, transportation system, financial networks and government.

In a speech at the Intrepid Sea, Air and Space Museum in New York, Mr. Panetta painted a dire picture of how such an attack on the United States might unfold. He said he was reacting to increasing aggressiveness and technological advances by the nation’s adversaries, which officials identified as China, Russia, Iran and militant groups.

“An aggressor nation or extremist group could use these kinds of cyber tools to gain control of critical switches,” Mr. Panetta said. “They could derail passenger trains, or even more dangerous, derail passenger trains loaded with lethal chemicals. They could contaminate the water supply in major cities, or shut down the power grid across large parts of the country.”

Defense officials insisted that Mr. Panetta’s words were not hyperbole, and that he was responding to a recent wave of cyberattacks on large American financial institutions. He also cited an attack in August on the state oil company Saudi Aramco, which infected and made useless more than 30,000 computers.

But Pentagon officials acknowledged that Mr. Panetta was also pushing for legislation on Capitol Hill. It would require new standards at critical private-sector infrastructure facilities — like power plants, water treatment facilities and gas pipelines — where a computer breach could cause significant casualties or economic damage.

In August, a cybersecurity bill that had been one of the administration’s national security priorities was blocked by a group of Republicans, led by Senator John McCain of Arizona, who took the side of the U.S. Chamber of Commerce and said it would be too burdensome for corporations.

The most destructive possibilities, Mr. Panetta said, involve “cyber-actors launching several attacks on our critical infrastructure at one time, in combination with a physical attack.” He described the collective result as a “cyber-Pearl Harbor that would cause physical destruction and the loss of life, an attack that would paralyze and shock the nation and create a profound new sense of vulnerability.”

Mr. Panetta also argued against the idea that new legislation would be costly for business. “The fact is that to fully provide the necessary protection in our democracy, cybersecurity must be passed by the Congress,” he told his audience, Business Executives for National Security. “Without it, we are and we will be vulnerable.”

With the legislation stalled, Mr. Panetta said President Obama was weighing the option of issuing an executive order that would promote information sharing on cybersecurity between government and private industry. But Mr. Panetta made clear that he saw it as a stopgap measure and that private companies, which are typically reluctant to share internal information with the government, would cooperate fully only if required to by law.

“We’re not interested in looking at e-mail, we’re not interested in looking at information in computers, I’m not interested in violating rights or liberties of people,” Mr. Panetta told editors and reporters at The New York Times earlier on Thursday. “But if there is a code, if there’s a worm that’s being inserted, we need to know when that’s happening.”

He said that with an executive order making cooperation by the private sector only voluntary, “I’m not sure they’re going to volunteer if they don’t feel that they’re protected legally in terms of sharing information.”

“So our hope is that ultimately we can get Congress to adopt that kind of legislation,” he added.

Mr. Panetta’s comments, his most extensive to date on cyberwarfare, also sought to increase the level of public debate about the Defense Department’s growing capacity not only to defend but also to carry out attacks over computer networks. Even so, he carefully avoided using the words “offense” or “offensive” in the context of American cyberwarfare, instead defining the Pentagon’s capabilities as “action to defend the nation.”

The United States has nonetheless engaged in its own cyberattacks against adversaries, although it has never publicly admitted it. From his first months in office, Mr. Obama ordered sophisticated attacks on the computer systems that run Iran’s main nuclear enrichment plants, according to participants in the program. He decided to accelerate the attacks, which were begun in the Bush administration and code-named Olympic Games, even after an element of the program accidentally became public in the summer of 2010.

In a part of the speech notable for carefully chosen words, Mr. Panetta warned that the United States “won’t succeed in preventing a cyberattack through improved defenses alone.”

“If we detect an imminent threat of attack that will cause significant physical destruction in the United States or kill American citizens, we need to have the option to take action against those who would attack us, to defend this nation when directed by the president,” Mr. Panetta said. “For these kinds of scenarios, the department has developed the capability to conduct effective operations to counter threats to our national interests in cyberspace.”

The comments indicated that the United States might redefine defense in cyberspace as requiring the capacity to reach forward over computer networks if an attack was detected or anticipated, and take pre-emptive action. These same offensive measures also could be used in a punishing retaliation for a first-strike cyberattack on an American target, senior officials said.

Senior Pentagon officials declined to describe specifics of what offensive cyberwarfare abilities the Defense Department has fielded or is developing. And while Mr. Panetta avoided labeling them as “offensive,” other senior military and Pentagon officials have recently begun acknowledging their growing focus on these tools.

The Defense Department is finalizing “rules of engagement” that would put the Pentagon’s cyberweapons into play only in case of an attack on American targets that rose to some still unspecified but significant levels. Short of that, the Pentagon shares intelligence and offers technical assistance to the F.B.I. and other agencies.

Elisabeth Bumiller reported from New York, and Thom Shanker from Washin

@The New York Times

WEST IS FOOLISH TO CELEBRATE IRAN’S RIAL CRISIS, AYATOLLAH SAYS

[The ayatollah has long insisted that sanctions would never force Iran into suspending its uranium enrichment program, which Western nations suspect is a guise for developing nuclear weapons capacity. Ayatollah Khamenei and his subordinates contend that Iran is enriching uranium to produce energy and for medical purposes, and that sanctions are a form of economic warfare.]

By Rick Gladstone

Iran’s supreme leader spoke out publicly for the first time on Wednesday about the country’s foreign-exchange problems, describing the mass protest in Tehran last week over the plummeting Iranian currency as an anomaly that the West had gleefully but foolishly misinterpreted as a harbinger of crisis.

In a speech reported by Iranian news services, the supreme leader, Ayatollah Ali Khamenei, also exhorted Iranians not to fear the intensifying regimen of Western sanctions over Iran’s disputed nuclear program. Many outside economists have said the sanctions — which have targeted Iran’s oil and banking sectors — have played an important role in weakening the rial, the national currency.

The rial has lost roughly 40 percent of its value against the dollar this month and is down 80 percent against the dollar for the year.

“The issue of sanctions is not a new issue and has existed since the victory of the Islamic Revolution,” the ayatollah said in his speech in North Khorasan Province. “But the enemies are making efforts to blow the issue of sanctions out of proportion, and, unfortunately, certain people inside are assisting them.”

The remarks by Ayatollah Khamenei, who has the final word on affairs of state, appeared to reinforce his policy of absolute defiance in the face of Western pressure, and offered a hint that some officials in Iran are ambivalent about that strategy.

The ayatollah has long insisted that sanctions would never force Iran into suspending its uranium enrichment program, which Western nations suspect is a guise for developing nuclear weapons capacity. Ayatollah Khamenei and his subordinates contend that Iran is enriching uranium to produce energy and for medical purposes, and that sanctions are a form of economic warfare.

But it was not until Wednesday that he expressed an opinion about the Oct. 3 confrontation in Tehran between the police and Iranians trying to sell rials to black-market money traders for dollars and other foreign currencies. The panicky selling had been one of the most visible signs of worsening inflation and a lack of economic confidence.

The ensuing violence was said to lead to at least two dozen arrests and galvanized thousands to march to the capital’s politically influential Grand Bazaar. Many of the merchants there closed for the day to express their anger over the rial’s plummeting value.

The protest over the rial crisis was widely interpreted in the United States and Europe as signaling a profound new problem for the Iranian leadership, which has since cracked down on foreign-exchange speculators but does not appear to have a longer-term solution.

Ayatollah Khamenei said the protest was nothing more than a pretext to disturb the peace. “For about two or three hours, a number of people set some garbage cans on fire on two Tehran streets, and immediately officials of certain countries flouted diplomatic protocol and childishly expressed delight,” he said.

Addressing Western countries, he said, “Your problems are much more complicated than Iran’s problems because your economy has stagnated.”

He dismissed Western leaders’ suggestion that the sanctions would be eased if Iran agreed to suspend its uranium enrichment. “Now they claim that if the Iranian nation ignores its nuclear energy, the sanctions will be lifted,” he said. “They are telling a lie. They make decisions against the Iranian nation due to their long-cherished hostility.”

@ The New York Times