Despite the fixed income market in the Gulf Cooperation Council (GCC) region registering significant expansion at the beginning of 2026, fuelled by headwinds like robust government-backed offerings and a strong appetite for bonds, the ongoing Iran war has dented the Islamic banking industry. Several sukuk issuers are now on Rating Watch Negative (RWN) by Fitch Ratings.
According to a report from Kuwait Financial Centre “Markaz,” in the Q1 2026, the total value of bond and sukuk issuances reached USD 55.04 billion spread across 95 deals, registering a 5.64% increase compared to the tally registered in the same period in 2025.
Saudi Arabia led the Middle East’s Islamic banking landscape with USD 32.54 billion in offerings (59.1% market share), followed by the UAE (USD 13.57 billion), Qatar (USD 4.2 billion), Bahrain (USD 2.1 billion), Kuwait (USD 1.98 billion) and Oman (USD 650 million).
However, the ongoing geopolitical instability in the region has resulted in GCC sukuk issuers from Qatar and the UAE being placed on Fitch Ratings’ RWN list. The GCC issuers currently account for 3% and 4% of all rated sukuk volumes and instruments, respectively.
“War-related rating actions continued in April, with Ras Al Khaimah placed on RWN,” the Fitch report added.
“A re-escalation of hostilities to greater intensity than before the ceasefire or a more prolonged economic activity disruption would further test resilience and exert more pressure on ratings than it has to date,” Fitch noted.
On the brighter side for the Gulf’s Islamic banking industry, most sukuk issuers maintained a stable outlook at the end of Q1 2026, with Fitch assigning ratings to more than 35 sukuk, totalling over USD 15 billion.
According to Markaz data, the government was the largest bond and sukuk issuer, with offerings totalling USD 20.46 billion, followed closely by the financial sector (USD 19.45 billion) and energy (USD 5.52 billion).
“Investors demonstrated a strong appetite for conventional bonds, which hit USD 35.89 billion, representing 65.2% of the market, while sukuk issuances reached USD 19.15 billion. Large-scale offerings of more than USD 1 billion drove the volume, reaching USD 33.33 billion,” the Kuwait Financial Centre added.