EY india economy pulse sep2026

Navigating Global Headwinds: India’s Economic Pulse and Policy Resilience

​The global economy is facing moderation, with real GDP growth projected to ease to 3.0% in 2026 compared to the 3.5% average registered across 2024–25. Persistent geopolitical tensions in the Middle East, rising government bond yields, and elevated energy-related input costs continue to present downside risks worldwide. However, India continues to demonstrate strong domestic resilience. Driven by broad-based expansions across manufacturing, infrastructure investment, and domestic consumption, the Indian economy expanded by 7.8% in Q1 FY27, keeping the nation on track for near 7% growth for the full fiscal year.  

​1. Growth Snapshot: Strong Consumption and Investment Acceleration

​India’s macroeconomic momentum in the first quarter of FY27 reflects robust domestic fundamentals that have successfully cushioned the impact of external shocks.  

​Real GDP & GVA Growth: Real Gross Domestic Product (GDP) grew by 7.8% year-on-year in Q1 FY27, while real Gross Value Added (GVA) rose by 8.2%. Nominal GDP grew by 10.3%, implying a modest GDP deflator of approximately 2%.  

​Supply-Side Drivers: Real GVA expansion was powered by manufacturing (7.7%), electricity and utility services (8.9%), construction (8.1%), and professional/financial services (9.8%).  

​Capital Formation: Gross Fixed Capital Formation (GFCF) expanded by 11.9% (real terms) and 12% in Q1 FY27, outpacing baseline GDP growth. Industrial bank credit jumped 20% year-on-year as of July 2026, marking a decadal high.  

​Consumption Surge: Private Final Consumption Expenditure (PFCE) increased by 7.1% in real terms. Growth was reinforced by past GST rate rationalization, income tax rate cuts in 2025, consumer credit expansion of 16.2% as of July 2026, and an 11% YoY rise in gross center-state GST collections (April–August 2026).  

​2. Fiscal Trends: Buoyant Tax Revenues and Accelerated Capex

​The Central Government’s public finances exhibit strong revenue buoyancy alongside strategic front-loading of capital expenditure.  

​Tax Revenue Growth: Central Gross Tax Revenue (GTR) rose 11.4% to INR 12.18 lakh crore during April–July FY27. Direct tax collections showed exceptional strength, with Corporation Tax surging 20.8% to INR 2.40 lakh crore and Personal Income Tax rising 24.3% to INR 4.42 lakh crore.  

​Record Disinvestment Proceeds: Year-to-date disinvestment receipts reached INR 55,700 crore between April and July FY27, surpassing the full-year FY26 collection of INR 16,800 crore and exceeding full-year totals from the preceding five financial years.  

​Capex & Deficit Management: The Central Government accelerated capital spending by 29.9% (to INR 4.51 lakh crore) during April–July FY27. Despite higher capital deployments, the fiscal deficit was kept at INR 4.55 lakh crore—representing 27% of the annual budget target and reflecting a 2.8% contraction compared to the same period in FY26.  

​State Finances: Major state governments increased capital expenditure by 10.3% year-on-year during April–July FY27, led principally by Karnataka, Andhra Pradesh, and Maharashtra.  

​3. External Sector Dynamics: Capital Inflows, Forex Reserves, and Trade Imbalances

​India’s external sector displays a duality: strong foreign investment and remittance buffers on one side, counterbalanced by a widening non-oil merchandise deficit on the other.  

​Direct Investments & Remittances: Gross FDI inflows rose 14.9% to US30.7 billion in Q1 FY27 (up from US26.7 billion in Q1 FY26), while net FDI reached US7.8 billion[span_32](start_span)[span_32](end_span)[span_33](start_span)[span_33](end_span). Inward remittances surged 30% YoY, delivering net remittance inflows of US41.4 billion in Q1 FY27.  

​Foreign Reserves & Currency Stability: Supported by US127 billion raised through Foreign Currency Non-Resident (FCNR) deposits and an RBI concessional swap window, India’s foreign exchange reserves reached a record high of US729.3 billion in August 2026. The Indian Rupee remained stable around INR 95/US$.  

​Private Equity & Portfolio Flows: Private Equity and Venture Capital (PE/VC) funding contracted by 42.3% during April–July FY27 to US19.6 billion amid heightened global uncertainty[span_40](start_span)[span_40](end_span)[span_41](start_span)[span_41](end_span). Net Foreign Portfolio Investment (FPI) recorded net outflows of US9.6 billion in Q1 FY27, pushing the overall Balance of Payments (BoP) into a US$8.1 billion deficit for the quarter. However, equity FPI flows turned positive in July and August 2026.  

​Trade Deficit Constraints: India’s non-oil, non-gems merchandise trade deficit widened by 33% to US58.7 billion (and total non-oil trade deficit expanded 31% to US70 billion) during April–July FY27. Electronics imports rose 44% to become the second-largest import category after crude oil, pushing the merchandise trade deficit with China up 28% to US$44.9 billion.  

​4. Inflation Dynamics and Commodity Volatility

​Price developments present a distinct divergence between consumer retail prices and wholesale producer input costs.  

​CPI vs. WPI Inflation: Consumer Price Index (CPI) inflation stood at a manageable 4.4% in July 2026, remaining well inside the RBI's target tolerance band. Conversely, Wholesale Price Index (WPI) inflation remained elevated at 9.8% in July 2026. The divergence stems from fuel excise duty cuts that insulated retail consumers, requiring businesses to absorb rising global energy and raw material costs.  

​Energy & Metals: Tensions in the Middle East pushed India’s crude oil basket price above US90/bbl in August 2026[span_56](start_span)[span_56](end_span). Metal markets diverged significantly: High-grade COMEX copper surged to US6.6/lb on AI-driven technology demand and supply chain bottlenecks, while steel and nickel remained range-bound.  

​Precious Metals & Agriculture: Safe-haven demand and global central bank purchases drove Gold to INR 175.2 thousand per 10 grams and Silver to INR 3,79,983 per kg in August 2026. Agricultural commodities saw upward pressure, with wheat prices reaching three-year highs alongside increases in corn and sugar prices.  

​5. Sectoral Health: Rural Revival, EV Adoption, and Clean Energy Transition

​High-frequency indicators across rural, urban, industrial, and digital sectors underscore a broad-based domestic expansion.  

​Rural & Urban Consumption: Rural economic sentiment strengthened, evidenced by a 22.3% growth in tractor registrations and a 21.4% increase in two-wheeler registrations during April–August FY27, alongside a 28.4% drop in MNREGA work demand. Urban demand remained strong, with passenger vehicle registrations up 25.1%. Electric vehicle adoption accelerated rapidly, with electric two-wheelers up 70.3% and electric passenger vehicles surging 53.1%.  

​Industrial Output & Capacity Utilization: Industrial growth (IIP) stood at 6.7% in July 2026. Manufacturing capacity utilization hit a multi-year high of 75.6%. Capital goods production maintained double-digit growth for the fourth consecutive month, rising 14.5% in July 2026, while Consumer Durables grew 10.5%.  

​Energy Transition: Power consumption grew 10% during April–August FY27 due to peak summer demand. Renewable energy generation grew 12.5% during April–July FY27, expanding its share in India's total power generation mix to 19.8%.  

​Digital Infrastructure: Digital payments continued their trajectory, with UPI maintaining a 90% share of total digital retail payment values. FASTag issuance achieved a 25%+ two-year CAGR, driving national highway toll revenues to INR 7,143 crore in July 2026.  

​6. Capital Markets, Banking, and Policy Outlook

​India’s monetary and financial sector metrics remain firmly structured to support ongoing growth requirements.  

​Monetary Policy & Yields: The RBI Monetary Policy Committee kept the policy repo rate unchanged at 5.25% in its June 2026 meeting. Improved systemic liquidity saw 10-year G-sec yields ease to ~6.95% by August 2026.  

​Domestic Investment Capital: Domestic retail investors continued to act as a major market stabilizing force, with monthly Systematic Investment Plan (SIP) contributions climbing to an all-time high of INR 23.3 thousand crore. Bank credit expansion accelerated to 19.3% in July 2026—a three-year high.  

​Strategic Policy Interventions: To address supply chain vulnerabilities and structural import dependencies highlighted by the electronics trade deficit, the government has accelerated key industrial initiatives. Programmes including Semicon 2.0, Mobile Manufacturing PLI 2.0, the Electronic Component Manufacturing Scheme, the Urea Policy, and Samudra Manthan aim to strengthen domestic manufacturing ecosystems and bolster long-term economic self-reliance.  

​Supported by sustained capex momentum, robust domestic demand, and targeted industrial policies, India’s economic fundamentals remain solid, positioning the nation to deliver near 7% real GDP growth in FY27.  

World debt gdp ratios

 

Higher Ed Accountability Overhaul: Inside the New STATS and "Do No Harm" Rule

 On June 29, 2026, the U.S. Department of Education issued a final rule establishing a new accountability framework for postsecondary education programs under the Working Families Tax Cuts Act. Replacing outgoing Financial Value Transparency and Gainful Employment (FVT/GE) regulations, the Student Tuition and Transparency System (STATS) and Earnings Accountability rule holds all postsecondary programs—across all sectors, credential levels, and tax statuses—accountable for delivering a financial return on investment for their students.  

​The "Do No Harm" Earnings Benchmark

​Under the new framework, every postsecondary program must demonstrate that its graduates financially outperform individuals who never pursued that level of higher education.  

​Undergraduate Programs: The median annual earnings of completers are compared to the median annual earnings of working adults aged 25–34 with only a high school diploma.  

​Graduate Programs: The median annual earnings of completers are compared to the median annual earnings of working adults aged 25–34 holding a bachelor's degree.  

​Evaluation Window: Earnings are measured four years after completion (an increase from three years under previous regulations) using state or national baseline comparison data.  

​Metric Simplification: The rule eliminates the redundant debt-to-earnings test from previous regulations, relying instead on the single earnings test alongside new federal borrowing caps for graduate programs.  

​Direct Loans, Pell Grants, and Accountability Sanctions

​Programs that consistently fail to meet the earnings standard face severe financial and operational consequences.  

​Loss of Direct Loan Eligibility: A program that fails the earnings test in two out of three consecutive years is classified as a "low-earning outcome program" and loses eligibility to participate in the Direct Loan program.  

​Loss of Full Title IV Aid: An institution with low-earning outcome programs will lose all Title IV eligibility (including Pell Grants) if more than 50% of its Title IV students are enrolled in low-earning programs, or if more than 50% of its Title IV funds are disbursed to students in those programs.  

​Mandatory Student Disclosures: Institutions must issue formal warnings to current and prospective students if a program is at risk of losing aid eligibility, and provide lifetime Pell Grant usage updates to students upon every disbursement.  

​Institutional Options, Delays, and Protections

​To accommodate transitional challenges, the Department provides specific off-ramps after a program's initial failure, alongside targeted delays and exemptions:  

​Voluntary Direct Loan Opt-Out: After a first-year failure, an institution can voluntarily withdraw the program from Direct Loans for at least five years, which preserves Pell Grant eligibility and avoids administrative capability sanctions.  

​Orderly Program Closure: An institution can initiate a Secretary-approved teach-out plan for current students, maintaining Title IV eligibility for up to three award years or the duration of the teach-out.  

​Take No Action: An institution can choose to remain subject to the earnings test, but a second failure in the following two years triggers immediate low-earning designation without further off-ramp options.  

​Key Exemptions & Adjustments

​Tipped Occupations Delay: Programs preparing students for predominantly tipped professions (such as cosmetology, barbering, and massage therapy) receive a one-year delay before failing consequences take effect to allow earnings data to reflect the Act's "No Tax on Tips" policy.  

​Non-Participating Institutions: Programs are exempt from losing Pell Grants if the institution has not participated in Direct Loans for the past five years or agrees to prohibit Direct Loans for five years.  

​Appeals & Re-entry: Institutions have 30 days to appeal an earnings failure based on calculation errors. Programs losing eligibility must wait at least two years and pass the earnings test before seeking re-entry.  

​Streamlined Reporting and Rollout Timeline

​While imposing stricter accountability, the final rule reduces institutional reporting requirements by approximately 30 percent by removing redundant data points captured in other federal databases.  

​The implementation roadmap unfolds over the coming award cycles:

​July 1, 2026: Key provisions of the final rule take effect, with early implementation permitted for institutions.  

​October 1, 2026: Deadline for institutions to submit their initial STATS program and student outcome data.  

​Early 2027: The Department will calculate initial earnings tests applying to the 2027–2028 award year.  

​2028–2029 Award Year: The earliest period in which non-compliant programs could face formal loss of Direct Loan eligibility following two consecutive test failures.  

​This new regulatory regime shifts the focus of higher education oversight squarely onto economic value, ensuring that federal student aid funding is tied directly to measurable financial returns for students and taxpayers.  

Iran Update, October 1, 2026

 OCTOBER 1, 2026

The Institute for the Study of War (ISW) and The Critical Threats Project (CTP) at the American Enterprise Institute are publishing updates Monday through Friday to provide analysis on the war with Iran and the broader Middle East. Weekday updates cover events from the past 24-hour period, whereas weekend updates are abbreviated and cover the Houthi-Saudi conflict and major breaking developments related to the war with Iran.

ANALYST NOTES

Data Cutoff: 2:00 PM ET

Researchers

• Benjamin Schmida, Middle East Researcher

• Adham Fattah, CTP Iran Analyst

• Bailey Pasternak, Middle East Researcher

• Nidal Morrison, Middle East Researcher

• Katherine Wells, CTP Iran Analyst

• Annika Ganzeveld, CTP Middle East Portfolio Manager

Key Takeaways

1. Houthi forces temporarily disrupted a section of the Yemeni government-aligned forces' primary ground line of communication (GLOC) between Taiz City and Aden City on October 1 as part of their effort to isolate Yemeni government-aligned forces in Taiz City.

2. The Houthi attack demonstrates the group's ability to render the wider GLOC inoperable, which could impose multiple dilemmas on Yemeni government-aligned forces. Houthi forces simultaneously continue to advance in northeastern and northwestern Taiz Governorate, which could further threaten the Taiz-Aden GLOC.

3. Iranian officials are likely threatening to attack US targets outside the Middle East to deter the United States from resuming military action against Iran. These threats follow US President Donald Trump's recent warning that the United States could resume military action against Iran after the US midterm elections in November.

4. A senior Iranian delegation comprised of individuals close to Iranian Supreme Leader Mojtaba Khamenei visited southern Lebanon on October 1. The delegation included Islamic Revolutionary Guard Corps (IRGC) officer Brigadier General Hossein Yekta, who has played a significant role in internal security activities and recruitment. His inclusion in the delegation is notable given Hezbollah's growing unpopularity in parts of southern Lebanon and its ongoing attempts to reconstitute its military capabilities.

Toplines

Houthi forces temporarily disrupted a section of the Yemeni government-aligned forces' primary ground line of communication (GLOC) between Taiz City and Aden City on October 1 as part of their effort to isolate Yemeni government-aligned forces in Taiz City. Houthi forces detonated an improvised explosive device (IED) on the Hijat al Abd road in al Muharraqah Village, Lahij Governorate, on October 1, which temporarily disrupted the main supply route (MSR) that connects Taiz City and Aden City, according to multiple Yemeni sources and geolocated imagery. [1] Two anti-Houthi Yemeni sources reported that Houthi forces infiltrated al Muharraqah and the nearby Najd al Bard area, detonated an IED on the Hijat al Abd road, and then withdrew after Yemeni government-aligned forces and local fighters repelled them. [2] The Houthis have consistently sought to sever the Taiz-Aden GLOC in recent weeks. Yemeni government-aligned forces repelled an attempted Houthi advance to capture a nearby section of the Hijat al Abd road on September 24, for example. [3]

The Houthi attack demonstrates the group's ability to render the wider GLOC inoperable. The Hijat al Abd road lies north of a second, longer MSR. The Houthi IED attack will likely force Yemeni government-aligned forces to temporarily rely solely on this longer southern MSR south of al Turbah while the northern MSR is repaired. Reliance on the southern MSR, as opposed to both the northern and southern MSRs, will likely temporarily constrain Yemeni government-aligned forces' resupply and reinforcement efforts amid heavy fighting across Taiz Governorate. Both the southern and northern MSRs connect to key intersections. Successful Houthi attacks on the intersections or parts of the GLOC where there are no feasible alternative routes would render the wider GLOC inoperable.

Assessed Control of Terrain in Taiz and Lahij Governorates

(As of October 1, 2026 at 2:00 PM ET)

• Map Callouts:

  • Houthi forces advanced eastward toward Jabal Habashi from the Bani Baraki Village, Taiz Governorate.

  • Houthi forces advanced southwestward into al Salaf Village, which supports a broader Houthi offensive effort on the Samah axis.

  • Houthi forces detonated an improvised explosive device (IED) on the Hijat al Abd road in al Muharraqah Village, Lahij Governorate, on October 1, which temporarily disrupted a portion of the primary GLOC between Taiz City and Aden City.

• Map Contributors: Daniel Mealie, David Schulert, Megan Ewert, Nathaniel Kramer, Carolyn Weinstein, Eliana Ornelas, Samuel McRee, Natalie Mesplay, James Thompson, Mikayla Green, Christopher Dayton, Brian Carter, Nick Carl, Annika Ganzeveld, Kelly Campa, Carolyn Moorman, Katherine Wells, Ria Reddy, Ben Rezaei, Ben Schmida, Nidal Morrison, Adham Fattah, Parker Hempel, William Doran, and Bailey Pasternak.

The Houthis do not have to capture or control the intersections to effectively sever the Taiz-Aden GLOC, because sustained Houthi fire on the intersections or other sections of the GLOC could make the route too dangerous to use. Houthi severance, capture, or effective control of the intersections would effectively encircle Yemeni government-aligned forces defending Taiz City, as the intersections are located on the sole GLOC through which government forces can resupply and reinforce forces in the city. A DC-based Yemeni analyst assessed on September 10 that alternative GLOCs through mountain routes present greater challenges for resupply and reinforcement efforts. [4] Long-term Houthi control of the Taiz-Aden GLOC would likely force Yemeni government-aligned forces in Taiz City to surrender or retreat. The Houthis' severance of the Taiz-Aden GLOC would impose multiple dilemmas on Yemeni government-aligned forces, such as improving the Houthis' ability to threaten the Yemeni government's capital in Aden City, as ISW-CTP has previously assessed. [5]

Houthi forces simultaneously continue to advance in northeastern and northwestern Taiz Governorate, which could further threaten the Taiz-Aden GLOC. Geolocated imagery on October 1 indicates that Houthi forces advanced southwestward into al Salaf Village, Samah District. [6] This advance supports a broader Houthi offensive effort on the Samah axis. This offensive could put further pressure on the Taiz-Aden GLOC, given that al Salaf is less than 10 kilometers northeast of the GLOC. Separate geolocated imagery on October 1 indicates that Houthi armored forces advanced eastward toward Jabal Habashi from the Bani Baraki Village, Taiz Governorate. [7] Bani Baraki lies approximately 15 kilometers west of the Taiz-Aden GLOC. The Houthi advances come amid reports from multiple Yemeni government-aligned sources of intensified fighting on multiple fronts in Taiz Governorate. [8] A Yemeni military source told Saudi media on October 1 that Yemeni government-aligned forces inflicted at least 80 casualties on Houthi fighters during fighting across several axes in Taiz Governorate. [9] ISW-CTP is unable to confirm these casualty figures.

Iranian officials are likely threatening to attack US targets outside the Middle East to deter the United States from resuming military action against Iran. Three senior Iranian officials and an "insider" familiar with discussions told Reuters on October 1 that Iranian decision-makers are reviewing plans to expand potential targets beyond US assets in the region to possibly countries outside the region if the United States renews strikes on Iran. [10] The sources' decision to reveal these plans to Western media and condition the potential expansion of targets on the resumption of US strikes indicates that the regime is very likely attempting to use these public threats to deter the United States from resuming military action against Iran. This report follows US President Donald Trump's recent warning that the United States could resume military action against Iran after the US midterm elections in November. [11] English-language regime media separately circulated comments from a senior Islamic Revolutionary Guards Corps (IRGC) Aerospace Force officer that Iran has developed the ability to hit moving targets with long-range ballistic missiles. [12] The regime's circulation of the officer's comments in English may be part of the regime's information operation to deter the United States from striking Iran. [13]

A senior Iranian delegation comprised of individuals close to Iranian Supreme Leader Mojtaba Khamenei visited southern Lebanon on October 1. [14] IRGC officer Brigadier General Hossein Yekta participated in the visit. Yekta, who served in the same battalion as Mojtaba during the Iran-Iraq War, is involved in IRGC recruitment and indoctrination activities. [15] Yekta has played a significant role in Iranian internal security activities. Yekta publicly expressed support for using lethal force against protesters during the regime's violent crackdown on the Winter 2025-2026 protests in Iran, for example. [16] The delegation also included Alireza Panahian, an ultra-hardline cleric who similarly served in the same battalion as Mojtaba during the Iran-Iraq War. [17]

The Iranian delegation's visit to Lebanon comes amid a time of unprecedented Hezbollah weakness. Hezbollah has lost numerous fighters, weapons, and infrastructure in southern Lebanon since it went to war with Israel in March 2026. [18] The group continues to lack experienced commanders and a charismatic leader, increasingly relying on Iranian guidance. [19] Hezbollah is also increasingly unpopular in southern Lebanon, where it has traditionally maintained strong support. [20] It is possible that this Iranian delegation traveled to Lebanon to support Hezbollah's ongoing reconstitution efforts. Yekta's background as a recruiter and an internal security official is notable given Hezbollah's unpopularity in parts of southern Lebanon and its ongoing attempts to reconstitute its military capabilities. [21]

US and Partner Military Operations

Nothing significant to report.

Iranian Strike Campaign

Assessed Iranian War Aims:

• Secure international recognition of Iranian control over the Strait of Hormuz

• Degrade the US ability and willingness to continue the war

• Restore deterrence vis-à-vis the United States and its regional partners

• Divide the United States and Israel from the Arab states

Nothing significant to report.

US-Iran Negotiations

Nothing significant to report.

Iranian Domestic Affairs

Iranian security forces clashed with fighters in Sistan and Baluchistan Province on September 30 and October 1, highlighting the ongoing threat that anti-regime militant groups pose to the regime. Regime media reported on September 30 that an unspecified number of gunmen killed a Law Enforcement Command (LEC) officer in Rask, Sistan and Baluchistan Province. [22] Regime media separately reported on October 1 that the IRGC Ground Forces killed six unidentified fighters and seized several explosive devices during a security operation in the Manzil-e Ab area in Zahedan, Sistan and Baluchistan Province. [23]

British Prime Minister Andy Burnham stated on September 30 that there are "strong indications that Iran played a part" in the incident at Royal Air Force (RAF) Fairford on September 27. [24] Sky News reported on October 1 that British police arrested a dual British-Iranian national in London on suspicion of preparing "terrorist acts" at RAF Fairford. [25] The Iranian Foreign Affairs Ministry called Burnham's comments "false accusations" and summoned the UK ambassador to Iran for consultations. [26]

Lebanon

Hezbollah is attempting to obtain assurances from the Syrian government that Syria will not interfere with Hezbollah's affairs while also likely attempting to undermine Lebanese government-Syrian relations. Hezbollah's success in these efforts would support Hezbollah's cross-border smuggling operations between Lebanon and Syria. Hezbollah and Syrian government officials secretly met in Turkey on an unspecified date in September, according to six unspecified US, Lebanese, and Syrian sources speaking to Reuters on October 1. [27] Neither the Lebanese government nor any party in the reported talks has commented on the meeting at the time of this writing. The Syrian delegation reportedly pledged to not intervene militarily in Lebanon to disarm Hezbollah, according to Reuters sources. [28] The Syrian delegation asked Hezbollah to stop conducting cross-border smuggling operations and supporting militant cells in Syria, to which Hezbollah did not agree. [29] Hezbollah reportedly pledged to "not interfere in Syria's affairs," however. [30] Hezbollah will almost certainly not accept Syria's demands because Hezbollah is actively attempting to reconstitute its military capabilities, in large part by smuggling weapons into Lebanon from Syria. [31] Hezbollah is also very likely training and equipping Syrian Assadist insurgents to prevent Syrian government forces from disrupting Hezbollah's military activities. [32]

Hezbollah is likely attempting to undermine Lebanese government-Syrian relations by participating in secret talks with the Syrian government, regardless of whether or not Hezbollah can receive assurances that Syria will not intervene in Hezbollah's affairs. The Lebanese government seeks to disarm Hezbollah, strip the group of the ability to conduct foreign policy on behalf of Lebanon, and remove Hezbollah and Iranian influence from Lebanon. [33] The Lebanese government has also worked to establish closer bilateral security ties with Syria in recent months, including cooperation and intelligence sharing on cross-border smuggling. [34] Hezbollah's meeting with Syrian officials treats Hezbollah as a legitimate Lebanese state actor, regardless of whether the Syrian government views Hezbollah in that way, which could negatively impact Lebanese government-Syrian relations. Hezbollah has an incentive to disrupt Lebanese government-Syrian relations, including border security cooperation, to sustain cross-border smuggling operations.

Iraq

Iraqi Prime Minister Ali al Zaydi formally announced on October 1 that Iranian-backed Iraqi militias must disarm by June 30, 2027. [35] This announcement follows Zaydi's recent trip to the UN General Assembly (UNGA), during which he discussed militia disarmament with US Secretary of State Marco Rubio on September 21. [36] Zaydi may have also discussed militia disarmament with Iranian President Masoud Pezeshkian during their September 23 meeting, given the Iranian regime's opposition to disarmament. [37] The new disarmament deadline is consistent with Zaydi's remarks to the New York Times (NYT) on September 21, during which he outlined a two-phase plan to disarm the militias by June 2027. [38] He stated at the time that the Iraqi federal government would release the plan's full details on September 30, but Iraqi Foreign Minister Fuad Hussein announced on September 30 that the Iraqi government will release a draft disarmament plan with "specific timeframes" in the "coming days." [39]

The Iraqi federal government's delay in releasing the full details of the disarmament plan suggests that it has yet to finalize a disarmament agreement with some Iranian-backed Iraqi militias. An informed source told Iraqi media on October 1 that an unspecified militia demanded the formation of a "new ministry" during recent negotiations with the Shia Coordination Framework committee tasked with negotiating with the militias, which indicates that the committee has not yet negotiated a final agreement. [40]

Some Iranian-backed Iraqi actors may pressure the Iraqi federal government to stop storing its oil sale revenue in a New York Federal Reserve account to limit US leverage over Iraqi economic and political affairs. The Central Bank of Iraq has managed an account at the New York Federal Reserve on behalf of the Iraqi Finance Ministry since 2003 that holds the Iraqi federal government's revenue from oil exports in US dollars. [41] Iranian-backed Iraqi militia Asaib Ahl al Haq's political wing, Sadiqoun, issued a statement on October 1 that implicitly criticized how the United States uses dollar shipments as a "pressure tactic" to influence Iraqi politics. [42] Iranian-backed Iraqi actors have previously called for an end to US "hegemony" over the Iraqi economy, but Sadiqoun's statement appears to mark the first time since 2023 that an Iranian-backed Iraqi militia specifically criticized US control over Iraq's oil revenues. [43] The United States has recently used its control over dollar shipments to pressure the Iraqi government to curb Iranian influence in Iraq and disarm Iranian-backed Iraqi militias. [44] The United States also fully withdrew its forces from Iraq on September 30, which was one of Iranian-backed Iraqi actors' primary objectives under their broader objective to remove US influence from Iraq. [45] Iranian-backed Iraqi actors may devote more energy toward pressuring the Iraqi government to reduce economic dependence on the United States following the US military withdrawal to further remove US influence from Iraq.

Arabian Peninsula

The Saudi-led coalition announced on October 1 that the Houthis conducted a drone attack targeting the Taibah power distribution station in Madinah in western Saudi Arabia on September 29. [46] The coalition said that the attack damaged one transformer but did not disrupt the wider electricity network. [47] Houthi media denied that the Houthis conducted the drone attack. [48] The attack on the power distribution station demonstrates the Houthis' willingness to target Saudi civilian infrastructure serving domestic electricity needs, which would mark an expansion beyond previous strikes that primarily focused on state oil infrastructure and Saudi military infrastructure. [49]

Saudi and Yemeni government-aligned forces continued to strike Houthi military and communications infrastructure in northwestern and southwestern Yemen. A Yemeni government-aligned airstrike targeted a Houthi ammunition depot in Al Talh, Saada Governorate, on September 30. [50] Houthi media reported several Saudi airstrikes on communications infrastructure in Saada Governorate on October 1. [51] These strikes may have been intended to degrade the Houthis' ability to attack Saudi Arabia given their concentration in northwestern Yemen. Houthi military spokesperson Brigadier General Yahya Saree claimed that Saudi forces conducted 47 airstrikes on October 1 that targeted communications and civilian infrastructure. [52] Likely Saudi airstrikes also targeted a Houthi ammunition depot in Mocha Port, Taiz Governorate, in southwestern Yemen on September 28, according to geolocated satellite imagery. [53]

Houthi Attacks in Saudi Arabia and Saudi and Yemeni Government-Aligned Forces Strikes in Yemen

(As of October 1, 2026 at 2:00 PM ET)

• Map Callouts:

  • A Houthi drone struck the Taibah power distribution station in Madinah on September 29, according to the Saudi-led coalition.

  • Saudi and Yemeni government-aligned forces struck Houthi ammunition depots in al Talh on September 30 and Mokha on September 28.

• Map Contributors: Daniel Mealie, David Schulert, Megan Ewert, Nathaniel Kramer, Carolyn Weinstein, Eliana Ornelas, Samuel McRee, Natalie Mesplay, James Thompson, Mikayla Green, Christopher Dayton, Brian Carter, Nick Carl, Annika Ganzeveld, Kelly Campa, Carolyn Moorman, Katherine Wells, Ria Reddy, Ben Rezaei, Ben Schmida, Nidal Morrison, Adham Fattah, Parker Hempel, William Doran, and Bailey Pasternak.

ENDNOTES

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