Dollar-denominated sukuk from Gulf issuers are losing momentum, with geopolitical tension weighing heavily on market appetite. Fresh issuance is expected to stay muted as long as uncertainty tied to the Iran conflict lingers, while a growing number of regional issuers are being placed on negative rating watch.
Even as the external market cools, activity in local currencies is likely to gather pace. Deeper domestic capital markets in the Gulf, alongside Malaysia, Indonesia, and Turkey, are encouraging issuers to look inward. At the same time, a backlog of potential dollar sukuk deals is quietly forming, particularly among Islamic banks and corporate borrowers waiting for calmer conditions.
Outstanding sukuk rated by Fitch surpassed $240 billion by the end of the first quarter of 2026, with roughly 82% carrying investment-grade status. The year had begun on a strong note, but the outbreak of conflict shifted sentiment abruptly. March saw new dollar sukuk issuance effectively stall as investors retreated to the sidelines.
Globally, sukuk issuance across all currencies dropped 35.5% quarter-on-quarter to $71 billion in the first three months of the year. Dollar sukuk across key markets — including the Gulf, Malaysia, Indonesia, Turkey, and Pakistan — exceeded $20 billion in the quarter, marking a 9% increase from a year earlier but slipping 9% from the previous quarter. In contrast, dollar bond issuance climbed, rising 6% year-on-year and 21% quarter-on-quarter.
Total global sukuk outstanding moved past $1.1 trillion by the end of the quarter, a 15% annual increase. The instrument remains particularly significant in regional debt markets, accounting for 41% of outstanding capital market debt in the Gulf, 16% in ASEAN economies, and 8% in Turkey.
Risk premiums have widened notably since the conflict began. Spreads on many Gulf dollar sukuk and bonds have reached five-year highs, reflecting elevated caution among investors — though they remain below levels seen during the COVID-19 turmoil. The pressure has been most pronounced among speculative-grade sukuk, where sensitivity to risk sentiment is highest.
