With Eli Okun and Connor O’Brien

BUDGET TALKS INCH FORWARD, report POLITICO’s Sarah Ferris, Heather Caygle and Seung Min Kim: “Congressional leaders emerged from closed-door talks with Trump administration officials Wednesday claiming progress toward a budget deal but without any breakthroughs to announce — with less than three weeks to go before another government funding deadline…

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“Following the confab, Republicans from the House, Senate and White House issued a joint statement that highlighted their support for higher defense spending and criticized any effort by Democrats to insist on including protections for young undocumented immigrants in a budget deal.

“‘It is important that we achieve a two-year agreement that funds our troops and provides for our national security and other critical functions of the Federal government,’ they said. ‘It also remains important that members of Congress do not hold funding for our troops hostage for immigration policy.’”

“Democrats refrained from deriding their counterparts after the meeting.”

THE PENTAGON FINALLY GETS A POLICY CHIEF, report your Morning D correspondent and Connor O'Brien: “The Pentagon finally has a permanent policy chief after nearly a full year into the Trump administration.

“The Senate on Wednesday confirmed John Rood, 81-7, as undersecretary of Defense for policy following a bumpy confirmation process in which he faced concerns about how he might influence arms sales given his most recent role as a senior vice president for Lockheed Martin International. Rood will now draw on his experience in high-level arms control posts at the State Department and as a former staffer for then-Republican Sen. Jon Kyl of Arizona as he takes on the critical policy-making role.”

HAPPY THURSDAY AND WELCOME TO MORNING DEFENSE, where we're always on the lookout for tips, pitches and feedback. Email us at ghellman@politico.com, and follow on Twitter @greg_hellman, @morningdefense and @politicopro.

HAPPENING TODAY — OFFICERS TALK AIR SUPREMACY WITH MITCHELL INSTITUTE: Lt. Gen. Chris Nowland, the Air Force deputy chief of staff for operations, and Lt. Gen. VeraLinn “Dash” Jamieson, the Air Force deputy chief of staff for intelligence, surveillance and reconnaissance, participate in a panel at the Mitchell Institute on “Threats to Air Supremacy.”

— FORMER NSA OFFICIAL RECEIVES NATIONAL SECURITY MEDAL: The president is set to present the National Security Medal to Richard Ledgett this afternoon in the Oval Office. Ledgett retired as deputy director of the NSA last April after 29 years.

POLITICO's Josh Gerstein has more here.

AND NEXT WEEK — THE PENTAGON COMPTROLLER IS TO TESTIFY AT HASC ON DoD AUDIT EFFORTS, Connor reports: “Pentagon Comptroller David Norquist will testify next Wednesday on DoD efforts to conduct a long-awaited financial audit, the House Armed Services Committee announced [Wednesday].

“When he launched the audit last month, Norquist said it would become an annual practice starting in this 2018 fiscal year and with reports issued every Nov. 15.

“The comptroller, Defense Secretary Jim Mattis and other senior Pentagon officials have labeled the effort a top priority.”

HASC’s Subcommittee on Emerging Threats will hear next Tuesday from think tank experts on “China’s Pursuit of Emerging and Exponential Technologies.”

TOP DOC — PUTTING THE ‘SUB’ IN SUBCOMMITTEE: Three dozen House lawmakers are urging appropriators to back increased construction of attack submarines in a full-year defense spending bill.

In a letter to House Defense Appropriations Chairwoman Kay Granger (R-Texas) and ranking Democrat Pete Visclosky of Indiana, 36 lawmakers from both parties urged the panel to match the plan laid out in the National Defense Authorization Act, which authorizes multiyear procurement for up to 13 Virginia class subs and extra funding for a third sub in 2020.

“With demand for undersea capabilities growing and the shortfall in the fleet approaching fast, it is clear that Congress must ensure that production meets the needs of our combatant commanders,” the lawmakers said.

The letter was organized by HASC Seapower Subcommittee Chairman Rob Wittman (R-Va.) and ranking Democrat Joe Courtney of Connecticut as well as Emerging Threats ranking Democrat Jim Langevin of Rhode Island.

LAWMAKERS MOVE TO LIMIT TRUMP’S NUCLEAR AUTHORITY, reports Defense News: “U.S. lawmakers are offering legislation to limit President Donald Trump’s ability to launch a nuclear first strike after he heckled North Korea’s leader about the comparative size of his ‘nuclear button.’

“Democratic Sen. Ed Markey, of Massachusetts, and Rep. Ted Lieu, of California, have sponsored legislation that would require the president to receive congressional approval before initiating a first-use nuclear strike from the United States. The two took to Twitter to rally support for their legislation after Trump bragged in a tweet Tuesday evening that he had a ‘much bigger’ button than North Korean leader Kim Jong Un.”

The move comes as Trump shatters a decades-old nuclear taboo, writes POLITICO’s Michael Crowley.

But Americans should worry about Kim Jong Un’s mental state, not Trump’s, the White House says via POLITICO’s Louis Nelson.

— NORTH AND SOUTH KOREA TEST REVIVED HOTLINE, reports The Wall Street Journal: “North Korean and South Korean officials tested a special hotline for the first time in almost two years Wednesday, signaling a tentative thaw on the divided peninsula and highlighting possible differences between Seoul and Washington over how to deal with a nuclear-armed Pyongyang.

“The reactivation of the telephone link across the demilitarized zone — severed by the North in 2016 — came as South Korea’s government moved swiftly to follow-up on a New Year’s Day suggestion by North Korean leader Kim Jong Un that he would be open to talks. North Korea dialed the South and the call lasted about 20 minutes, according to the South’s unification ministry.”

On Thursday, Trump suggests in a tweet he's responsible for the thawing of North and South Korean diplomatic relations, via POLITICO.

Still, he watches from the sidelines as the Koreas begin to talk, writes The New York Times.

China welcomes the Korea’s “positive” moves to use next month’s Winter Olympics in the South as an opportunity for talks, via The Associated Press.

But, in South Korea, the head of U.S. forces there warns against getting hopes up over the moves, Reuters reports.

And is there really any hope of a breakthrough? An AP Q&A.

THE WHITE HOUSE SEIZES ON IRAN PROTESTS TO TARNISH THE NUKE DEAL, writes POLITICO’s Matthew Nussbaum: “The White House has seized on anti-government protests rocking Iran as glittering vindication of its criticisms of the Obama administration’s approach to the leadership in Tehran.

“President Donald Trump and other senior administration figures are loudly cheering the Iranian demonstrators, sensing an opportunity for both an international win and a chance to make up for what they have long declared one of President Barack Obama’s great failures.

"Trump, especially, has been eager to use his support for the protesters as a cudgel against one of his favorite targets, the Iran nuclear deal.

“‘The people of Iran are finally acting against the brutal and corrupt Iranian regime,’ Trump wrote on Twitter on Tuesday. ‘All of the money that President Obama so foolishly gave them went into terrorism and into their ‘pockets.’ The people have little food, big inflation and no human rights. The U.S. is watching!’”

Iran says Trump’s “absurd tweets” have incited disruption, via the AP.

And Iran’s regional enemies watch the unrest, searching for leverage, writes the AP.

— THE U.S. EYES MORE IRAN SANCTIONS OVER THE PROTEST CRACKDOWN, Reuters reports: "The United States aims to collect 'actionable information' that could allow it to pursue sanctions against Iranian individuals and organizations involved in a crackdown on protesters, a senior U.S. official said on Wednesday.

"The move is part of an effort by President Donald Trump’s administration to swiftly side with anti-government protesters who have rattled Iran’s clerical leadership, including at the United Nations and through Trump’s own proclamations of support."

Iran’s economy is already struggling, despite sanctions relief, fueling unrest, writes the WSJ.

In three provinces with protests, Iran deploys its Revolutionary guards to quell “sedition hotbeds,” Reuters adds.

Tehran, though, remains notably quiet, writes the NYT.

And three Iranian intelligence agents are killed in the western city of Piranshahr, Reuters also reports.

WAR REPORT — A U.S. DRONE STRIKE IN SOMALIA DESTROYS AN EXPLOSIVES-LADEN VEHICLE, reports the AP: “The U.S. military says it has carried out a drone strike in Somalia that killed two al-Shabab extremists and destroyed a vehicle carrying explosives, ‘preventing it from being used against the people in Mogadishu.’

“The U.S. Africa Command statement says the airstrike occurred early Tuesday about 50 kilometers (31 miles) west of the capital. It says no civilians were killed. Mogadishu is frequently targeted by the al-Qaida-linked al-Shabab. The extremist group was blamed for the October truck bombing that killed 512 people in the capital.”

Meanwhile, Somalia’s prime minister sacks three ministers as the country continues battling an Islamist insurgency, Reuters adds.

MAKING MOVES — TRUMP TAPS PENTAGON INSIDER TO LEAD AIR FORCE ACQUISITION, Connor reports: “President Donald Trump [Wednesday] tapped two men for senior Pentagon acquisition jobs, including William Roper to head Air Force acquisitions. Roper has led the Pentagon's Strategic Capabilities Office since 2012. Earlier, he had worked at the Missile Defense Agency as acting chief architect and at MIT's Lincoln Laboratory. His new post hasn't been filled on a permanent basis since 2015.

“Trump also picked Kevin Fahey to be assistant Defense secretary for acquisition. Fahey is vice president for combat vehicles and armaments at the consulting group Cypress International. He had been executive director of systems engineering and integration in the Army's acquisition arm.”

And Roper’s impending nomination puts the Strategic Capabilities Office’s future in question, writes Defense News.

SPEED READ

— Pentagon contract protests aren't frivolous, a Rand study finds: Bloomberg

— Boeing seeks Embraer control, with defense safeguards: Bloomberg

— Trump might get pushback from Germany on NATO spending after all: Defense News

— A Turkish banker is convicted in a plot to evade Iran sanctions: NYT

— Turkey seeks to detain 70 officers suspected of coup links: AP

— At least seven Russian planes reported destroyed by shelling at Syrian air base: Reuters

— The Army identifies the Green Beret who died in Afghanistan on New Year’s Day: Stars and Stripes

— Can the Army reinvent itself in 2018? Breaking Defense

— An Army audit claims ‘ineffective marketing programs’ have wasted millions in taxpayer dollars each year: Adweek

— The Army is mum on ‘administrative action’ taken against a general accused of sexist comments: Stars and Stripes

— In the wake of water deaths, the Marine Corps may add swim skills to cutting score: Military.com

— The Marine Corps plans to cut its infantry assaultman job to build up other roles: Military.com

— The VA announces reforms to move faster on unpaid bills: Military Times

— James Risen dishes on his time as a national security reporter with the NYT: The Intercept

— They risked their lives to help U.S. troops. Now they’re driving for Lyft to get by: The Washington Post