GCC dollar bond, sukuk issuance slows amid Iran war uncertainty

March 16, 2026 (MLN): USD bond and sukuk issuance by governments and companies in the Gulf Cooperation Council (GCC) has slowed sharply since the outbreak of the Iran war, despite the region entering 2026 with strong credit fundamentals, according to Fitch Ratings.

Several planned deals have been postponed as issuers and investors assess the impact of heightened geopolitical tensions and market volatility.

The slowdown is significant for emerging markets debt activity because GCC borrowers have accounted for roughly 40% of all emerging-market USD issuance so far in 2026, excluding China.

Historically, debt capital market activity in the region has rebounded quickly once geopolitical tensions eased.

Fitch said a similar recovery is possible, although the ultimate impact on issuance will depend on how long the conflict lasts and how widely it spreads.

While borrowing costs have increased slightly since the war began, markets have not experienced broad-based selloffs.

The credit profile of the GCC sukuk market remains robust. Around 84% of Fitch-rated sukuk issued in the region were investment grade as of the end of 2025, up from 80% a year earlier.

More than 63% were rated in the “A” category, about 90% of issuers carried stable outlooks, and there have been no recorded defaults to date.

Fitch currently rates about 70% of outstanding GCC U.S. dollar sukuk.

Debt issuance from GCC countries was strong early in the year as issuers rushed to tap markets ahead of the seasonal slowdown during Ramadan.

By March 9, the region’s total debt capital market outstanding had reached approximately $1.2 trillion, marking a 14% increase compared with a year earlier.

About 63% of this debt is denominated in U.S. dollars. Sukuk have become an increasingly important component of the market, accounting for a record 41% of GCC debt capital market volumes.

The largest share of outstanding GCC debt comes from Saudi Arabia and the United Arab Emirates, followed by Qatar, Bahrain, Kuwait and Oman.

Globally, sukuk are also gaining traction in emerging markets. In 2025, sukuk represented about 16% of all emerging-market U.S. dollar debt issuance excluding China, compared with 12% in 2024.

Despite current volatility, GCC governments and companies continue to prioritize diversified funding sources and long-term financing strategies.

Many issuers plan their borrowing programs well in advance, particularly when facing large upcoming maturities, which helps reduce refinancing pressure.

Fitch’s base case assumes average Brent oil prices of about $70 per barrel in 2026 and $63 in 2027.

Analysis of the S&P MENA Sukuk Index and the S&P MENA Bond Index shows yields increased moderately after the conflict escalated on Feb. 28.

By March 10, the yield-to-maturity on the sukuk index had risen to 4.78%, compared with 4.46% before the conflict began. The bond index yield climbed to 5.01% from 4.73% over the same period.

Sukuk continue to trade at lower yields than conventional bonds in the region, reflecting strong and diverse demand, particularly from Islamic financial institutions.

However, yield increases have been more pronounced among non-investment-grade issuers. The S&P Global High Yield Sukuk Index rose to 6.61% by March 10, compared with 5.82% before the conflict.

Fitch noted that sukuk and conventional bond yields have moved almost in tandem over the past five years, with a correlation of 0.99, emphasizing the close relationship between the two markets.

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