Iran war clouds sukuk market outlook as issuance slows, risks rise

The Iran war is beginning to weigh on global sukuk markets, with issuance slowing and risk perceptions rising, though the extent of the impact will depend on how long and how widely the conflict spreads, Fitch Ratings said.

“The Iran war’s short-term effect on global sukuk market activity, pricing and liquidity will depend on the conflict’s scope and duration,” Fitch said, adding that the impact will vary by credit rating, country, sector and issuer fundamentals.

Longer-term effects will hinge on post-war sentiment, while past conflicts suggest issuance typically rebounds quickly once tensions ease.

Issuance slows, pipeline builds

Fitch said global sukuk activity showed signs of strain in March after a strong start to the year.

“The global sukuk market experienced a notable slowdown in dollar issuance during March following strong activity in the first two months of 2026, though local-currency sukuk activity continues and the pipeline for dollar sukuk is building,” said Bashar Al Natoor, global head of Islamic finance.

Global sukuk issuance fell 35.5% quarter-on-quarter to $71 billion in the first quarter of 2026. Dollar sukuk issuance in core markets exceeded $20 billion, up 9% year-on-year but down 9% from the previous quarter.

Total outstanding sukuk surpassed $1.1 trillion, with a significant share concentrated in the Gulf Cooperation Council, ASEAN and Turkiye. In emerging markets, sukuk accounted for 13% of all dollar debt issuance in the first quarter, excluding China.

Credit risks emerge

Fitch said credit fundamentals remain broadly stable, but risks are beginning to build.

“Global sukuk credit fundamentals remain broadly resilient, with more than 80% still investment-grade, and most issuers still maintaining Stable Outlooks,” Al Natoor said.

“However, the uptick in Rating Watch Negative actions signals evolving regional risks.”

Fitch revised Indonesia’s outlook to Negative from Stable, while the number of sukuk issuers on Rating Watch Negative increased in the GCC.

The record of no sovereign sukuk defaults remains intact, with the Maldives, rated ‘CC’, repaying its sukuk.

Yields widen

Yields on many GCC U.S. dollar sukuk and bonds have widened to five-year high spreads since the war began, reflecting higher risk perceptions, although they remain below peaks seen during the COVID-19 pandemic.

Speculative-grade sukuk yields have risen more sharply, while investment-grade sukuk have remained more liquid and seen less severe declines in liquidity.