According to a recent report by Fitch Ratings, geopolitical instability in the Middle East is expected to stifle US dollar-denominated sukuk issuance in the GCC as more regional issuers face potential credit downgrades. While dollar-based activity stalled in March following market volatility triggered by the Iran conflict, domestic-currency sukuk are expected to grow in markets like Malaysia, Indonesia, Turkey, and the GCC as local financial ecosystems mature.
Despite the recent cooling, the long-term outlook shows a growing pipeline of dollar sukuk from Islamic banks and corporations. By the end of Q1 2026, Fitch-rated outstanding sukuk reached $240 billion, with a significant 82% maintainng investment-grade status. On a global scale, the total outstanding sukuk market has expanded to $1.1 trillion, a 15% increase year-over-year, and continues to represent a major portion of the debt capital markets in the GCC (41%) and ASEAN (16%) regions.
The impact of the ongoing conflict is most visible in pricing and volume. Global sukuk issuance across all currencies dropped over 35% compared to the previous quarter. Furthermore, risk perceptions have spiked, pushing GCC dollar sukuk and bond spreads to five-year highs. While these spreads remain lower than those seen during the COVID-19 pandemic, the widening has been particularly sharp for speculative-grade instruments, reflecting a cautious shift in investor sentiment.
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