The Iranian Arena — Monthly Review (August–September 2026)

Executive Summary

Recent international media reports indicate that Iran has resumed assembling ballistic missiles in underground facilities using components manufactured before the war. According to US and Middle Eastern officials cited in the reporting, production is taking place on a more limited scale than before the war and includes both liquid-fueled and solid-fueled missiles. This development does not negate the Israeli-American damage inflicted on production plants, fuel infrastructure, and storage facilities, but it signals Iran’s intention to attempt a gradual restoration of offensive capabilities.

At the same time, CSIS published satellite-imagery analysis indicating that construction and fortification activity continues at Pickaxe Mountain: a new security wall has been completed, tunnel entrances have been modified, access roads have been upgraded, and sustained logistical activity has been observed. The International Atomic Energy Agency stated on September 10 that it had identified construction activity at the site, but did not determine what is taking place inside the underground complex, to which its inspectors have no access.

The past month also posed a further test of Iran’s commitment to Hezbollah. On September 10, the IDF destroyed Hezbollah’s underground tunnel and command infrastructure on the Ali al-Taher Ridge, built over two decades with Iranian funding and direction. Despite earlier reports that Hezbollah had pressured Iran to respond, no identifiable direct Iranian response explicitly linked to the destruction of this strategic infrastructure had been documented as of this writing. Iran continued to attack US targets in the Hormuz area and in Jordan, and apparently activated the Houthis in Yemen and Shiite militias in Iraq to open a new front against Saudi Arabia and its ability to export oil globally.

Against the backdrop of these military developments, Iran has faced an unprecedented economic crisis and monetary squeeze over the past month. The effectiveness of the US naval blockade has led to an almost complete paralysis of oil exports, soaring inflation, and a doubling of domestic fuel prices, all of which threaten internal stability.

Nuclear Program: Unusual Activity at Pickaxe Mountain?

Pickaxe Mountain stands out as a site where systematic external activity has been observed after the damage to Iran’s principal nuclear facilities at Natanz, Fordow, Isfahan, and Arak. CSIS assessed that imagery captured between June and September 2026 indicates a transition to the third phase of development at the site, which is suspected of being a new uranium-enrichment facility.

Phase 1, from 2020 to April 2024, was characterized by intensive construction and the site’s initial establishment. Phase 2, from April 2024 to January 2026, was relatively stable, with fewer observable changes across the facility apart from modifications noted late in 2025. During Phase 3, from January 2026 to the present, however, change-detection analysis using SAR radar identified heavy simultaneous use of all roads leading to the site, alongside an increase in hardened surfaces near the approaches. According to the CSIS report, Phase 3 displays the highest level of such activity since the facility’s initial construction. It indicates increased use of the site rather than new excavation. The researchers stressed, however, that satellite imagery cannot establish whether centrifuges, enriched uranium, or equipment for nuclear weaponization have been moved to the site.

Rafael Grossi, Director General of the IAEA, confirmed that the agency is monitoring movement and construction but presented no evidence of active enrichment or military nuclear activity at the site. Therefore, the available evidence supports only the conclusion that Iran is rebuilding and expanding underground infrastructure with potential future nuclear use, not that it has certainly resumed an enrichment or weaponization track there.

From Tehran’s perspective, the value of Pickaxe Mountain lies in creating a protected recovery space that is more difficult to monitor and more difficult to strike.

Missile Array: Limited Recovery, Not a Return to Previous Readiness or Production Capacity

The Wall Street Journal report of September 10 on new missile-assembly activity requires context. According to the report, Iran is not rebuilding its entire production chain, which was heavily damaged during Operation Roaring Lion. Instead, it is using pre-manufactured components held in stock, assembling missiles in underground facilities, and producing them at a lower rate than before the war.

Accordingly, the claim that the report proves a full recovery of Iran’s missile array is exaggerated. The report provides no data on the number of missiles assembled, the monthly assembly rate, engine inventories, solid-fuel production capability, or the operational status of damaged production lines. Conversely, the report indicates the regime’s intention to begin a gradual process of rebuilding offensive capabilities despite Iran’s severe economic conditions. Iran’s current missile stockpile has been substantially depleted, but it remains capable of striking US bases, energy facilities, and regional states, including Israel.

Iran still possesses liquid-fueled missiles, which require preparation and fueling close to launch and are therefore more exposed to intelligence collection and pre-launch strikes. It also possesses solid-fueled missiles, which can remain launch-ready longer and be fired in a relatively short time. The assembly of both types, according to the report, is taking place on a limited scale.

Economic Crisis: Currency Collapse, Oil Blockade, and Cost-of-Living Squeeze

During the past month, from mid-August to mid-September 2026, Iran’s economic distress worsened sharply. The renewed US naval blockade in the Persian Gulf led to an almost complete halt in Iranian oil exports from the Kharg terminal, reduced export volumes to negligible levels, and created accumulating stockpiles that could not be sold.

As a result of the loss of critical oil revenues and the tightening of sanctions under the US operation known as Economic Outcast, the Iranian rial reached a historic low in the free market, reaching roughly two million rials per US dollar in late August. Annual inflation rose to 84.4 percent in August, while basic food prices increased sharply: vegetable-oil prices rose by 383 percent, eggs by 294 percent, and chicken by 177 percent. Iran’s poverty line passed 70 million tomans per month, while the minimum wage remained below 25 million tomans.

The burden was compounded on September 8 by the regime’s decision to double the gasoline price above the monthly quota, from 50,000 to 100,000 rials per liter. The measure raised concerns in Iran of a deep social shock and an additional inflationary wave, further narrowing the regime’s economic and political room for maneuver.

Ali al-Taher Ridge: A Test Not Met by a Direct Iranian Response

On September 10, the IDF completed the destruction of Hezbollah’s strategic infrastructure on the Ali al-Taher Ridge: a network comprising tunnels, command centers, weapons depots, and underground living spaces intended to support rocket, missile, and UAV operations as well as attacks against IDF forces and Israeli communities in the Galilee.

The infrastructure effectively served as Hezbollah’s southern-front command center.

Two principal tunnel systems, measuring more than two kilometers in length, were destroyed as part of a complex of eight tunnels in the Beaufort area. The combined length of the eight tunnels was approximately 5.5 kilometers. More than 1,100 tons of explosives were used to destroy the Ali al-Taher infrastructure, and the force of the explosion was equivalent to a 4.1-magnitude earthquake on the Richter scale.

The site was a joint Iranian-Hezbollah strategic asset for control of southern Lebanon in terms of funding, planning, and purpose. The absence of an Iranian response is highly significant. It appears to indicate Tehran’s desire, at this stage, to avoid renewing direct fighting with Israel.

Before the demolition, reports emerged that Hezbollah had pressured Iran to intervene and that discussions were under way in Tehran over a possible response. After the demolition, Hezbollah had not opened a broader campaign, and Iran had not opened a direct front against Israel. Lebanese figures opposed to Hezbollah described the event as a “military and reputational blow” to the entire Shiite-Iranian axis.

Iran faced three unfavorable options: refraining from a response, a limited response through Hezbollah, or a direct Iranian response. Restraint erodes the credibility of its commitment to its proxy; a limited response does not reverse the loss of the infrastructure; and a direct response could open a window for broader Israeli and American action in Iran against the missile array, the Islamic Revolutionary Guard Corps, energy infrastructure, and perhaps elements of the nuclear program.

Hormuz: Maritime Pressure Continues

On September 8, US Central Command said it had destroyed five Iranian oil tankers after Islamic Revolutionary Guard Corps ballistic-missile launches had twice targeted a US vessel in the preceding two days. On September 10–11, two vessels were reportedly struck near Oman. UKMTO stated that four unidentified airborne objects hit the two ships and a fire broke out on one of them.

Diplomatic efforts to create a new arrangement for the Strait of Hormuz made no progress. Oman announced on September 14 that it was postponing a meeting between Iran and Gulf states intended to discuss a new shipping route. Iran’s Foreign Ministry spokesperson linked the delay to developments in Yemen, while Bahrain opposed participation in any forum that did not clearly uphold freedom of navigation under international law.

The Houthis and Iraq: Pressure on Saudi Arabia Beyond the Gulf

The Yemeni arena changed the conditions under which the Hormuz issue is being discussed. According to reports from September 11–14, the Houthis seized areas along Yemen’s Red Sea coast, including Mokha, Dhubab, and Perim Island, also known as Mayyun, at the entrance to the Bab al-Mandab Strait. The advance gave the Houthis effective control over a significant portion of Yemen’s Red Sea coast and the adjacent maritime zone.

The Houthis claimed that they had seized 5,400 square kilometers across six districts in Taiz and Hodeidah.

At the same time, a UAV attack struck Saudi Arabia’s East-West oil pipeline, Petroline, connecting Abqaiq to Yanbu. According to reports, the pipeline can carry 5–7 million barrels per day. It currently serves as Saudi Arabia’s principal export route bypassing the Persian Gulf and the Strait of Hormuz.

American and Saudi reporting attributed the UAV launch to Maysan Province in southern Iraq, an area where pro-Iranian Iraqi Shiite militias operate. Iraq’s government subsequently announced the closure of three border crossings with Iran — Shalamcheh, Al-Sheeb, and Mandali — and a halt to official trade with Iran.

What appears to have occurred was a combined attack on Saudi Arabia’s ability to export oil: from Yemen, through the Houthis’ new control over Bab al-Mandab; and from Iraq, against a strategic pipeline that enabled Riyadh to bypass both Hormuz and Bab al-Mandab.

External Support: Imagery from China

On September 12, the Wall Street Journal reported that US intelligence officials linked high-resolution commercial satellite imagery, which Iran purchased from Chinese entities before and after the July 17 attack on Muwaffaq Salti Air Base in Jordan, to the planning of the strike that killed three US servicemen. Beijing denied the allegation that it was militarily involved in the event.

The report demonstrates how commercial services can improve Iran’s ability to collect target intelligence. The Islamic Revolutionary Guard Corps is exploiting a combination of “commercial” satellite imagery, the remaining available missile stockpile, and regional proxies in an effort to continue projecting power across the region.

Conclusion

Iran is not rapidly returning to the production capacity and deterrence capabilities available to it before the war, but it is not paralyzed either.

The attempt to recover a limited number of missiles, construction activity at Pickaxe Mountain, the combined attack on Saudi Arabia, offensive activity in Hormuz and against US bases in Jordan, and the use of intelligence services from China – and Russia – indicate an ability to adapt and achieve partial recovery. Conversely, the absence of a direct Iranian response to the destruction of Ali al-Taher exposed the cost of escalation for Tehran and the gap between its commitment to proxies and its willingness to absorb direct risk.

The open question is whether Iran will continue to prefer indirect responses and the rebuilding of underground capabilities, or whether declining revenues caused by the disruption of oil exports, mounting economic distress, and continued maritime pressure will ultimately push it toward a more direct and intense response against Israel or the United States.

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