Dollar sukuk issuance from the Gulf Cooperation Council (GCC) is likely to remain subdued until volatilities in the Middle East persist, with issuers on “rating watch negative” rising in the region, Fitch Ratings said in a report.

Local-currency sukuk supply is likely to rise in the GCC, Malaysia, Indonesia, and Turkey amid deeper local market development, the rating agency said in a report. 

Moreover, the dollar sukuk pipeline is also building up, including from Islamic banks and corporates.

Fitch-rated sukuk crossed $240 billion outstanding at the end of the first quarter of 2026, with around 82% investment-grade.

After strong market activity in the first two months of 2026, the Iran war triggered uncertainty and weakened investor sentiment.

New dollar sukuk issuances were at a standstill in March, Fitch said.

Global sukuk issuance (all currencies) fell 35.5% quarter-on-quarter (QoQ) to $71 billion in the first quarter of 2026.

Dollar sukuk in the core markets of the GCC, Malaysia, Indonesia, Turkey, and Pakistan crossed $20 billion in the first quarter, up 9% year-on-year (YoY) (YoY) but down 9% QoQ. However, dollar bonds rose 6% YoY and 21% QoQ.

Global outstanding sukuk crossed $1.1 trillion at the end of the first quarter, up 15% YoY. Sukuk’s share of outstanding debt capital markets was high in the GCC (41%), ASEAN (16%), and Turkey (8%). 

Many GCC US dollar sukuk and bond spreads have widened to a five-year high since the war began, Fitch said. This reflects higher risk perceptions, but remains below COVID-19 pandemic-era levels.

The spread widening was most pronounced among speculative-grade sukuk, the rating agency said.

(Editing by Seban Scaria seban.scaria@lseg.com)