Iraq’s High Risk, High Reward Effort to Control Iran-Backed Militias

Risk Outlook: October 6, 2026

Oct 06, 2026

Welcome to the Stepwise Risk Outlook, which highlights and contextualizes over-the-horizon developments in key regions of the world and industries of the global market. Today’s featured deep dive by Anni Coonan examines Iraq’s attempt to control Iranian backed militias.

Iraq’s High Risk, High Reward Effort to Control Iran-Backed Militias

By Anni Coonan

File:Raising flag of Iraq and Popular Mobilization Forces after defeating DAESH.jpg

^“^{Raising flag of Iraq and Popular Mobilization Forces after defeating DAESH}^{” by Mahmoud Hosseini is licensed under}^{CC BY 4.0}^.

September 30^th was a momentous day for the US-Iraq bilateral relationship: the US withdrew the last of its troops, and the Iraqi government had pledged to bring Iran-backed elements of the Popular Mobilization Forces (PMF) under full state control, at long last, by the same date. While the withdrawal of US forces grabbed the most headlines and closed another chapter in a military presence that began in 2003, the prospective reworking of the PMF (for which the deadline has now been extended to June 2027) could ultimately have the greater impact on Iraq’s domestic security landscape and the regional balance of power. The end of the US’ presence in Iraq will prove popular for Prime Minister Ali al-Zaidi’s government and potentially hand Baghdad stronger leverage in efforts to disarm Iran-backed militias, reducing operational risks in Iraq and Iranian regional influence writ large. On the other hand, the expected difficulty of reworking the PMF promises government instability, which could increase Iranian influence, damage US credibility in Baghdad, scuttle major US and multinational energy investments in Iraq and potentially prompt new Western sanctions, which the US has long avoided.

In today’s full analysis:

The Role of the PMF and Domestic Political Considerations
Prospects for PMF Reform
Implications for Regional Stability and Economic Interests

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Global

In the US, New York State has declared a statewide disaster emergency over a measles outbreak. According to the US Centers for Disease Control and Prevention, the US is having its worst year of infections since 1991. As of October 1, there have been 3,887 confirmed measles cases across 47 states. In 2025, there were 2,289 confirmed cases across 45 states. Measles is one of the most contagious human diseases known.

The surge in infections tracks with a dangerous upward global trend of the resurgence of the deadly but preventable disease. Between 2000 and 2024, the estimated number of measles cases worldwide decreased by 71%, from 38 million to 11 million, while measles-related deaths decreased by 88%, from 777 000 to 95 000. The decreases correlate with a steady increase in two-dose measles-mumps-rubella vaccine. Since then, Canada, Spain, Austria, Armenia, Azerbaijan, Uzbekistan and the UK have lost their elimination status. The US is now at risk of losing its status. To be considered measles-free by the WHO, a country must have no locally transmitted cases of the same strain for 12 months or longer.

Growing vaccine hesitancy and disruptions in immunization programs during the global pandemic are creating gaps in coverage. Measles spreads in areas where people are unvaccinated or under-vaccinated (missing one or both doses).

Read More: Reuters [paywall], Lancet, Reuters [paywall]

Europe

Spanish Prime Minister Pedro Sánchez has called a snap election on November 29 amid housing protests. Sánchez seeks to make the election a referendum on housing policy amid protests sparked by the eviction of an 87-year-old woman in Madrid. Spanish parliament rejected Sánchez’s proposed tenant protections after Junts, a pro-Catalan independence party, broke with the government’s support base and voted with the center-right People’s Party and populist right Vox party.

Sánchez faces an uphill battle. His Spanish Socialist Workers’ Party (PSOE) is polling around 26%, which is six points below his 2023 election result. The center-right People’s Party polls ahead at around 34% and Vox at 18%, which would give the political right a feasible path to a government coalition. However, Sánchez has defied expectations before, including in the previous 2023 election, when he cobbled together enough support for a minority government of the left and backed by Spanish decentralist parties. But a slew of corruption cases around Sánchez’s family and the fallout of the Ceuta mass migration wave in August could hurt him.

A right-wing government would likely shift Spain closer to the US. Sánchez is among the most critical European voices of the Trump administration, balking at increased defense spending commitments and seeking a cooperative orientation toward China. Sánchez also disrupted American overflight rights for the Iran war.

Middle East

Turkiye and Pakistan agreed to a military deployment in Saudi Arabia. Following a meeting in Riyadh, the three countries issued a statement pledging to provide “military forces and capabilities” quickly to the Kingdom to aid in defense and deterrence against rising Houthi strikes amid the new Saudi-backed offensive against the Iran-backed group in Yemen. No specifics have been given about the expedited deployments, although most helpful would be air defense systems and the troops to man them, given new Houthi airstrikes on Saudi airports and explosions heard over Riyadh.

The deployment will mark the first activation of the Mecca Agreement’s mutual defense pact, clarifying the limits of the commitment. The agreement has noticeably not been triggered amidst months of heavy airstrikes on Saudi Arabia by Iran; Pakistan has opted not to get involved in order to preserve its mediating relationship with Tehran, and both Pakistan and Turkiye have trade relationships with the country. For a defense deployment within Saudi Arabia against Yemen, the political stakes are much lower – especially as Saudi Arabia and Yemeni government forces appear to be winning, retaking Mokha, a key Bab al Mandeb chokepoint, late last night.

Asia-Pacific

Japanese Prime Minister Sanae Takaichi’s speech in the Diet on Monday highlighted the growing tension between Japan’s push for growth-enhancing fiscal spending and mounting market concerns over debt burden. Takaichi pledged to “control” bond issuance and respond quickly to market turbulence but offered few signs she intends to scale back spending or tax cuts. Among her legislative priorities is a two-year plan to cut the consumption tax on food items from 8% to 1% starting next April; however, uncertainty over how the government will make up the resulting revenue shortfall adds to concerns over Japan’s fiscal position and contributed to pressure on government bonds.

Takaichi is betting growth generated from government-led investment can improve Japan’s position by attracting private investment. Her administration plans to focus large, long-term investments toward growth and economic security priorities, including artificial intelligence and semiconductors, outlined in her five-year action plan. However, the strategy comes as Japan faces rising borrowing costs while its debt remains roughly double the size of its economy. The question remains whether Takaichi can generate enough growth from increased spending to offset the higher borrowing costs it risks creating.

Read More: Nikkei Asia [paywall], Financial Times [paywall], Japan Today

Americas

The separatist Parti Québécois party won Quebec’s provincial election on Monday. The party returned to power for the first time in 12 years and will form the next government of the Francophone province. Its leader, Paul St-Pierre Plamondon, is committed to holding a referendum on Quebec’s secession from Canada. The victory could set the stage for what would be the third independence referendum in Quebec. However, St-Pierre Plamondon has said such a vote would come only after US President Donald Trump leaves office in 2029.

The result is a test of unity for Canadian Prime Minister Mark Carney. Carney has sought to rally Canadians in a moment of national unity after US tariffs kicked off a trade war, raising fears of economic pain for Canadians. The vote in Quebec comes just two weeks before voters in Alberta will decide whether or not to host a referendum on independence. Parti Québécois fell short of an outright majority in Quebec and may struggle to stay in power for a full four years as a minority government. And despite St-Pierre Plamondon’s advocacy for independence, voters generally showed little interest in the proposal during the campaign, focusing more on cost of living, health care, housing and US tariffs.

Read More: New York Times [paywall], Al Jazeera, AP

Geoeconomics

Europe’s recovery is gaining momentum, but rising inflation and borrowing costs are making it harder to sustain. The eurozone’s composite purchasing managers’ index reached 53.1 in September, its strongest reading since April 2023, as manufacturing and services expanded. AI investment is supporting activity, while Germany’s defense and infrastructure spending is increasing. However, annual inflation climbed to 3.8% from 3.2% in August, driven by an 18.8% increase in energy prices. Core inflation, excluding food and energy, rose more modestly to 2.5%, indicating that the acceleration remains concentrated in energy. The euro fell as low as $1.116 on October 5, its weakest level in 17 months, as concerns about France’s finances compounded pressure from higher energy costs. A weaker currency could further increase the cost of dollar-priced imports, reinforcing the squeeze on households and businesses.

France’s debt pressures are complicating the ECB’s effort to contain inflation without undermining growth. French 10-year government bond yields approached 5% last week, up from 3.2% before the Iran war, while the government faces a parliamentary battle over €43 billion in spending cuts and tax increases to address a deficit projected at 5.4% of GDP. Higher refinancing costs could absorb more revenue, while fiscal restraint would weaken demand. The ECB has already raised its deposit rate twice this year to 2.5%, but chief economist Philip Lane said on October 5 that rising market interest rates and reduced fiscal support could limit the need for further tightening. Its continuing quantitative tightening (allowing bonds to mature without replacing them) also leaves private investors to absorb more government debt. Former ECB executive board member Lorenzo Bini Smaghi has called for pausing that process to reduce market pressure while retaining interest rates as the main instrument for controlling inflation.

Read More: Reuters [paywall], Financial Times [paywall], Eurostat, Financial Times [paywall], Reuters [paywall], Financial Times [paywall], ECB

Disruptive Technology

US-based startup Reflection AI released Beam, an open-weight model comparable in capability to China-based Z.ai’s GLM 5.2. Beam reportedly performs well on advanced reasoning tasks, including for coding and agentic applications, with three to four times less inference compute cost, making it a potentially cost-efficient offering for business customers to customize their own AI applications. Beam’s capabilities allegedly surpass Thinking Machines Lab and France-based Mistral, thereby providing an open-weight alternative competitive to China’s offerings. The US may be interested in promoting Beam as the basis for exporting AI applications to allies or offering the basic code for sovereign AI systems that comply with US regulations.

Read More: TechCrunch, Semafor, Bloomberg [paywall]

Energy

The US and Russia are looking at a deal to sell the assets of a major Russian company in any future agreement to end the war in Ukraine. Russian president Vladimir Putin reportedly raised the prospect of Russian company Lukoil’s global assets during his last discussion with US envoys Steve Witkoff and Jared Kushner. According to reporting, Putin broached the topic as a way of proving that the US and Russia can do business even after everything that has happened between the US and Russia.

Lukoil owns a large portfolio of assets globally spanning oil fields, refineries, and gas stations. Numerous bidders have expressed interest in buying up parts of Lukoil’s global assets, but any potential sale would require political approval from both Washington and Moscow. At the moment, the leading bidder is a consortium that involves the US development finance corporation and several figures from the Middle East. Another group had initially agreed to buy the assets earlier this year but had its bid stall.

Read More: New York Times [paywall], Reuters [paywall]

Transnational Crime and Corruption

German authorities charged the country’s former foreign intelligence chief with treason for passing top secret intelligence to consulting clients, including foreign powers. August Hanning was President of the German Federal Intelligence Service (BND) from 1998 to 2005 and State Secretary of the Federal Ministry of the Interior from 2005 to 2009. For years after leaving government service, Hanning allegedly paid a longtime aide to pass intelligence documents to him and used them for briefings to consulting clients, including foreign intelligence officials.

Hamburg investigators reportedly opened the investigation in May 2026 after local police found intelligence files in Hanning’s home during a search in September 2025. Hanning had reportedly already come under investigation by Latvian police after a Latvian bank he was a board member of went bankrupt in 2019. The allegations against Hanning disrupt ongoing efforts to strengthen the BND’s legal ability to conduct espionage.

Read More: Financial Times [paywall], New York Times [paywall], Der Spiegel

Defense

Germany will provide Ukraine with another $1.1 billion in military support. Germany’s Chancellor Friedrich Merz announced the aid during a surprise visit to Kyiv. Berlin’s new aid package for Ukraine includes turbojet-powered drone interceptors, standoff weapons and space-based technology. Merz brought a significant delegation of business officials with him, who also signed 14 agreements totaling around €6.6 billion. The deals included agreements with defense companies for air defense interceptors, radars, and further deliveries of drone interceptors.

Germany’s aid package will fund tens of thousands of interceptor drones. One of the big industrial winners from Berlin’s new aid is the German defense technology company Quantum Systems; the aid will pay for drones developed by a joint project between Quantum Systems and Ukraine’s WIY Drones. The drones will be manufactured in Ukraine. Quantum Systems also signed a memorandum with Ukraine’s Fire Point defense company, which is one of the country’s leaders in defense technology. Beyond Quantum Systems, a number of German defense companies will receive orders from the new aid and deals as Germany looks to boost its defense industrial capacity, partner with Ukraine in defense technology, and build out its military capabilities.