The ongoing conflict involving Iran is introducing a wave of short-term uncertainty across the global sukuk market, with significant implications for issuance volumes, pricing structures, and overall liquidity. According to a recent analysis by Fitch Ratings, the extent of these disruptions is primarily tied to the scale and duration of the military engagement. The rating agency pointed out that the impact will not be uniform, as it is expected to vary significantly across different nations, industrial sectors, and individual issuer credit fundamentals. While the immediate outlook is clouded by tension, historical data suggests that sukuk issuance traditionally experiences a sharp rebound once regional geopolitical pressures begin to subside.
Bashar Al Natoor, the Global Head of Islamic Finance at Fitch, observed that while the first two months of 2026 saw robust activity, there was a noticeable deceleration in dollar-denominated sukuk instruments during March. Despite this slowdown in international markets, local-currency sukuk issuance has remained relatively stable, and the pipeline for new dollar-denominated offerings continues to show signs of life. Additionally, Islamic syndicated financing is gaining more traction as an alternative funding route. Currently, the credit fundamentals of the broader market appear resilient, with more than 80% of issuers retaining their investment-grade status and the majority maintaining a stable outlook.
However, the landscape is not without its warning signs, as evidenced by an increase in Rating Watch Negative actions, which reflect the evolving risks within the region. In the first quarter of 2026, global sukuk issuance plummeted by 35.5% on a quarter-on-quarter basis, totaling approximately 71 billion dollars. While dollar-denominated sukuk in core markets exceeded 20 billion dollars—representing a 9% year-on-year increase—it still faced a 9% decline compared to the previous quarter. The total outstanding global sukuk volume has now surpassed 1.1 trillion dollars, with the highest concentrations found in the Gulf Cooperation Council, ASEAN countries, and Turkiye. In emerging markets outside of China, sukuk accounted for 13% of all dollar debt issuance during the first quarter.
The conflict has also prompted specific rating adjustments, such as Fitch revising Indonesia’s sovereign rating outlook from Stable to Negative. Across the GCC, an increasing number of sukuk issuers have been placed on Rating Watch Negative. Despite these rising pressures, the market’s record of zero sovereign sukuk defaults remains unblemished, highlighted by the Maldives successfully meeting its repayment obligations despite its speculative-grade rating. Meanwhile, the outbreak of hostilities has driven yields on many GCC dollar bonds and sukuk to five-year highs, signaling heightened risk perceptions among global investors. While speculative-grade instruments have seen the sharpest yield spikes, investment-grade sukuk have managed to retain better liquidity, though market participants remain on high alert as the regional situation develops.
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