FP’s Situation Report: The search for Hagel’s replacement begins; Obama could consolidate national security powers within the White House; Nuclear talk extensions give Iran/U.S. critics time to sabotage a deal; and much more.

By David Francis with Sabine Muscat

With Secretary of Defense Chuck Hagel gone, there are growing questions about who can pick up the pieces at the Pentagon. Showing Hagel the door was the easy part. Now, the White House has to find a new defense chief capable of leading the fight against the Islamic State. This person must also deal with a micromanaging White House and Republicans skeptical that enough is being done to defeat Islamic extremism.

FP’s Gopal Ratnam: "The Obama administration’s strategy for countering the Islamic State has lurched from focusing the fight first inside Iraq to figuring out how to expand the battle into Syria, where the militant group is headquartered — and trying to do both without getting involved in replacing Syrian President Bashar al-Assad or sending American ground troops into battle. To make matters even thornier, many U.S. allies in the Middle East haven’t fully signed on to the U.S. strategy of focusing primarily on the Islamic State; they’d prefer to see Assad driven from power as well. " More here.

Hagel split publicly with the White House on the Islamic State. After nearly two years, it’s clear that the job was never a good fit for him. Rumors of possible candidates include Michèle Flournoy, a former top Pentagon official who oversaw policy issues and would be the first female secretary of defense, and Ash Carter, the former deputy secretary of defense and a nuclear scientist. Democratic Sen. Jack Reed of Rhode Island, whose name emerged Monday as another possible contender, has already taken himself out of the running.

If President Barack Obama keeps the rest of his team, he’ll consolidate national security powers within the White House. Soon after Hagel announced his resignation, Obama met with his national security group to assure them of their importance to his foreign policy agenda. Hagel could be the sole casualty of this foreign policy shakeup.

The New York Times‘ Mark Landler: "Mr. Obama does not appear likely to replace his national security adviser, Susan E. Rice, who skirmished with Mr. Hagel over Syria policy and others. Nor is he mulling a change in his chief of staff, Denis R. McDonough, who has exerted heavy influence over foreign policy, at times acting almost as a shadow national security adviser." More here.

Former Defense Secretaries Leon Panetta and Robert Gates bristled at the insularity of Obama’s foreign policy teams. They, like Hagel, clashed with White House insiders who refused to heed outside advice. Now that Hagel is out of the picture, Obama is free to nominate a defense chief whose views are more in line with those of his inner circle. But he’ll have to convince Republicans to confirm his nominee.

More on Hagel’s departure below.

Nuclear talks between the West and Iran have been extended for seven months, giving critics time to sabotage a deal. By late Sunday, it was clear that no long-term compromise on Iran’s nuclear program would arrive by yesterday’s deadline. The P5+1 and Tehran managed to salvage a third extension, giving them until July 1 to come up with a comprehensive accord. However, there are growing concerns that the best chance for a deal has been squandered.

FP’s John Hudson: "[M]any members of Congress who opposed the talks from the beginning want to implement a new round of economic sanctions against Tehran, which would expressly violate the terms of the interim agreement between Iran and Britain, China, France, Germany, Russia, and the United States." More here.

Hard-liners in Iran also have a renewed opportunity to attack the deal. Reports prior to Monday’s deadline indicated that even if negotiators could come to agreement, Iran’s supreme leader, Ayatollah Ali Khamenei, would not have abided by its terms.

Welcome to Tuesday’s edition of the Situation Report.

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Who’s Where When Today

Hagel, Deputy Secretary of Defense Bob Work, and Chairman of the Joint Chiefs of Staff Army Gen. Martin E. Dempsey have no public or media events on their schedules. 

The U.N. Security Council meets on Syria this afternoon.

What’s Moving Markets

FP’s Keith Johnson on how there’s little economic relief for Iran: "The seven-month extension of nuclear talks between Iran and six world powers agreed to in Vienna means Iran can expect little relief from sanctions that have hamstrung its oil exports and whacked its economy. What’s more, even if Iran can secure some respite during the next round of talks, translating that into greater oil-sector earnings will be a tough slog, made all the harder by the sustained drop in crude oil prices." More here.

Oil prices drop further ahead of an OPEC meeting in Vienna later this week. Saudi Arabia signals that it is unlikely to cut production, reports the Wall Street Journal‘s Nicole Friedman. More here.

FP’s Daniel Altman on why Beijing’s interest rate cut is a red flag for economists: "Slowing growth in China raises the potential for instability and discontent. China’s working-age population of 920 million may already be declining as its population ages, but there are still about 15 million Chinese youths reaching working age every year. Of these, perhaps 7 million are college graduates who face a job market that doesn’t necessarily value their education and skills." More here.

Hagel

FP’s David Rothkopf on why Obama’s closing foreign policy circle is a dangerous development: "Hagel’s alienation, the tension between him and the White House, and the military leadership’s burgeoning frustration with the false starts, half-measures, and micromanagement that have marked the administration’s Iraq and Syria campaigns are signs of much deeper problems that lie within the way the president himself operates and, from a process perspective, from the way that his National Security Council (NSC) operates." More here.

The Wall Street Journal‘s Kristina L. Peterson on Congress and the Pentagon: "Republican lawmakers on Monday called for a broad re-examination of U.S. national-security policy as part of the confirmation process for a successor to Defense Secretary Chuck Hagel, criticizing the White House’s approach as uncertain and shifting." More here.

NBC News’ Perry Bacon Jr. on behind-the-scenes tension between Hagel and the White House: "‘He had a crappy relationship with Susan Rice,’ said Steve Clemons, a foreign policy expert and the founder of the American Strategy Program at the New America Foundation, referring to clashes Hagel had with the national security advisor." More here.

The Guardian‘s Trevor Timm: "Hagel’s replacement remains an open question, but one thing’s for sure: it’ll be someone pushing for more war, not less…. Flournoy, a favorite of defense contractors, has seemingly never met a military intervention she didn’t like — and that didn’t require more troops." More here.

The Wall Street Journal‘s Gerald F. Seib on how a changing world doomed Hagel: "The arc of Mr. Hagel’s tenure at the Pentagon serves as a kind of metaphor for Mr. Obama’s second term, at least on the national-security front. The second term was to be marked by the final and complete exit from Iraq and Afghanistan, followed by a decidedly un-George-Bush-like resistance to the constant temptation to jump back into Middle East conflicts." More here.

Writing for Foreign Policy, Peter D. Feaver on how Hagel ended up the scapegoat: "In an administration rife with internal conflict and finger pointing, he sometimes pointed the finger at others, but more often the fingers — especially White House fingers — were pointed at him." More here.

Hagel’s heartfelt farewell message to the troops he leaves behind: "The world is still too dangerous, the threats too numerous, for us to lose focus. And even as I promised the President my full support going forward, so, too, do I promise that I will work hard to support you right up until my last day in office. I owe you that." More here.

The Hill‘s Kristina Wong, on one of Hagel’s earliest critics: "Sen. John McCain (R-Ariz.) said Monday that outgoing Defense Secretary Chuck Hagel was ‘very, very frustrated’ as a member of the Obama Cabinet." More here.

Did a White House official troll John McCain with Chuck Hagel tweets? The Washington Post‘s Dan Lamothe: "The White House’s deputy press secretary took to Twitter on Monday, seemingly defending the resignation of Defense Secretary Chuck Hagel by highlighting a number of old tweets in which Sen. John McCain, R-Ariz., and others questioned whether Hagel was capable of doing the job." More here.

Writing for Foreign Policy, Michael J. Green on how Hagel’s exit changes the Asia pivot: "Whatever caused the president to sack Hagel, it cannot have been Asia strategy. And that will leave friends in the region wondering exactly how much the White House really cares about Asia after all." More here. 

The National Journal‘s George E. Condon Jr. on how Hagel was doomed from the start: "Even during his two terms representing Nebraska in the Senate, Hagel was never really a member of the club. He only occasionally toed the GOP line, often strayed from party orthodoxy, and reveled in being called a maverick." More here.

Defense News‘s John T. Bennett on problems with moving a new nominee in Congress: "The U.S. Senate, with a scant amount of days left this session and a busy agenda, will leave the nomination of a new defense secretary to the next Congress, according to a senior Senate source." More here.

Iran

The New York Times‘ Peter Baker, David E. Sanger, and Michael R. Gordon on a deal slipping away: "If anything, the last few weeks underscored a larger conclusion about the negotiations: If the deal had been left to Mr. Kerry and Mr. Zarif, and to their respective teams, it probably would have happened. The two men have developed a strong working relationship, and the flare-up in Oman a couple weeks ago underscored how much each wanted to get to a deal but could not." More here.

Writing for Foreign Policy, Jeffrey Lewis on why the extension is a death sentence for a deal: "After an entire year of negotiation, the two parties were unable to even announce a ‘framework’ measure that might have put the broad outlines of a deal in place while providing for an additional period to work out the complex details." More here.

Islamic State

Reuters reports that U.S. allies conduct 24 strikes on Islamic State in Iraq, Syria: "In a statement on Monday, the U.S. military said the strikes in Syria near the border town of Kobani and Raqqa took out three of the militant group’s fighting positions, targeted several staging areas and hit one of its headquarter buildings." More here.

McClatchy’s Susannah George on the Islamic State’s tougher tactics in Iraq’s Anbar province: "A recent Islamic State offensive in Iraq’s Anbar province suggests that the extremist organization is changing tactics, relying less on local Sunni Muslim tribes for support and carrying out what one coalition strategist called a ‘counterinsurgency campaign’ intended to undercut any U.S.-led effort to enlist tribes against it." More here.

Defense News‘s Burak Ege Bekdil: "Turkey and the US have narrowed their differences and agreed to train and arm opposition fighters in Syria." More here.

From the BBC: "A group of seven Yemenis and a US military expert who were taken hostage by a group linked to al-Qaeda have been freed by Yemeni Special Forces." More here.

Afghanistan

Reuters’s Doina Chiacu on the changing U.S. role in Afghanistan: "The role of U.S. troops in Afghanistan will shift in 2015 to training Afghan security forces and counter-terrorism activities, White House spokesman Josh Earnest said on Monday." More here.

Afghanistan’s intelligence agencies blame the Pakistan-based Haqqani network for Sunday’s suicide attack that killed more than 60 people at a volleyball game in the Eastern province of Paktik, Al Jazeera reports. More here.

Reuters reports on a suicide attack that killed two American soldiers in Kabul: "‘It was a magnetic bomb,’ said Interior Ministry spokesman Sediq Sediqqi. ‘It was either attached to the vehicle belonging to the foreigners or it was planted and detonated remotely.’" More here.

Israel

Senator Elizabeth Warren (D-Mass.) arrived for meetings in Israel. Politico‘s Jonathan Topaz speculates that this foreign trip reflects her rising status in the Senate. More here.

Russia

Bloomberg’s James G. Neuger and Volodymyr Verbyany on an uptick in attacks by pro-Russian separatists in Ukraine: "Three Ukrainian soldiers were killed by separatists over the past 24 hours, [NATO] said on Facebook [yesterday]. In Donetsk, 12 citizens were wounded by shelling over the weekend, the city council said on its website." More here.

FP’s David Francis says NATO’s response to Russia is beginning to take shape. At a recent press conference, NATO Commander Lt. Gen. Ben Hodges revealed "important new details about Operation Atlantic Resolve, NATO’s plan to check Russian aggression in Eastern Europe. Since the NATO summit in September, NATO officials have said little about how they would realize their vision for the response team." More here.

Bloomberg’s James G. Neuger, Volodymyr Verbyany, and Daryna Krasnolutska on a possible NATO bid from Ukraine: "Ukraine will decide whether to join NATO in a referendum at the end of this decade once it moves from ‘empty declarations’ and completes ‘real’ policy changes needed for membership, President Petro Poroshenko said." More here.

Ferguson

FP’s David Francis: "Armed members of the National Guard could end up quelling racially charged protests that could turn violent after a Ferguson, Mo. grand jury on Monday refused to indict 28-year-old white police officer Darren Wilson in the death of Michael Brown, an unarmed 18-year-old black civilian shot and killed by Wilson last summer." More here.

NSA

FP’s Elias Groll on the NSA getting caught with a hand in the cookie jar: " With U.S. policymakers engaged in negotiations with their European counterparts over a possible trade deal, EU officials have all but certainly become a target for American surveillance." More here.

Revolving Door

From Defense News: Louis Chenevert, chairman and CEO of United Technologies, plans to retire, according to a company statement released Monday. More here.

And finally, four hidden messages inside a sculpture on the grounds of the CIA headquarters in Langley have puzzled the agency’s employees for 25 years. The artist Jim Sanborn has now provided a clue about how to read the last of the four messages that has not yet been deciphered. Julie Bort reports for Business Insider. More here.