During the first four months of 2026, Gulf Cooperation Council (GCC) countries experienced a notable 13.1% increase in Sukuk issuance. This growth was primarily fueled by robust local-currency borrowing in Saudi Arabia, even as the ongoing conflict in Iran casts uncertainty over the Islamic banking sector.
In its latest report, “Islamic Finance 2026-2027: Navigating Rough Waters”, S&P Global Ratings said overall global sukuk issuance rose 20% during the period, driven by activity in Malaysia, Turkey and Indonesia. The figures also highlight the growing importance of Gulf capital markets in the global Islamic banking and finance industry, with Saudi Arabia driving sukuk activity through the local-currency issuance route.
However, as per S&P, geopolitical tensions and the ongoing Middle East conflict are weighing on economic growth prospects across the region’s markets and may end up slowing Islamic finance industry growth in 2026.
“We expect the growth of the global Islamic finance industry to slow in 2026, to about 5%-10%, as a result of the Middle East war, following an expansion of 10.2% in 2025,” said Mohamed Damak, head of Islamic finance at S&P Global Ratings.
As per the rating agency, the Iran war has significantly affected the economic growth outlook in several core Islamic finance countries, reducing growth opportunities for banking systems and affecting debt capital market activity. Weaker growth across GCC countries would inevitably reduce growth opportunities for banks in the region, including Islamic lenders.
“The resolution of the Middle East war will determine whether or not this trend continues, as the GCC accounted for 45% of global sukuk issuance in 2025,” Damak added.
According to the S&P’s base-case scenario, if the United States and Iran reach a ceasefire agreement that eases the effective blockage of the Strait of Hormuz, it will allow meaningful energy product flows to resume by the end of May, although intermittent disruptions could continue. The agency believes that the gradual normalisation of oil and gas supply, trade and transportation flows will be necessary for Islamic finance growth to recover in 2027.