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Damage avoidance frames debt issuance

22 April 2026

 

It is still early days, but Gulf fixed-income markets appear to have averted the worst of the conflict, with limited selloffs witnessed during the first six weeks of the Iran war.

This reflects a strong tailwind for GCC debt capital markets (DCM) in 2026, for both conventional and sukuk (Islamic bonds) – even if geopolitical turmoil may upend issuers’ best-laid plans. 

Issuers started this year on the front foot, with Fitch Ratings recording $1.2bn in outstanding issuance as of 9 March, an increase of 14% in year-on-year terms, almost two-thirds of which is denominated in US dollars. 

Those issuers were taking a long-lens view of their funding priorities looking forward. Despite that, there is a strong sense that Gulf markets have been hit harder than other emerging markets by the Iran conflict. For example, in the first trading week after the US-Israel attacks on Iran on 28 February, Asian investors were reducing their exposure to Gulf sovereign and corporate paper.

Pressure on sukuk

The impact on the sukuk market has been particularly pronounced. According to Fitch Ratings, the global sukuk market experienced a notable slowdown in dollar issuance during March, following strong activity in the first two months of 2026.

“If you look at the numbers for the first quarter of 2026 overall, the volume of sukuk issuance is slightly up, but the volume of issuance in FX [foreign exchange] is definitely down,” says Mohamed Damak, senior director, financial services at S&P Global Ratings.

“And the volume of issuance in FX in March was supported by some transactions that were announced before the start of the war.”

If there is a much more protracted conflict or with a much more severe implication on the economy, there could be a much more severe implication on the overall volume of issuance in the GCC. But the numbers as of the end-March indicate this is still not yet fully visible.

“The drop in the volume of issuance in FX is just 12% compared with March 2025, and the overall volume of issuance in local currency and foreign currency is still up by 2.3% year-on-year,” says Damak.

Strong foundations

Last year proved an active one for Gulf DCM issuance. Overall, GCC countries accounted for 35% of all emerging market dollar debt issuance in 2025 (excluding China). According to Kuwait-based Markaz, primary debt issuances of bonds and sukuk in the GCC amounted to $189.47bn, through 515 issuances, up 28.13% on 2024.

“Prior to the conflict, GCC DCMs were performing strongly and building clear momentum,” says Bashar Al-Natoor, global head of Islamic finance at Fitch Ratings. “Most GCC issuers maintained robust market access throughout 2025 and into early 2026.”

Combined GCC issuance in January and February 2026 reached about $73bn, marking a 14.5% increase from the previous year, according to Fitch. “Sovereign and quasi-sovereign issuers remained foundational to the GCC DCM, but corporate and institutional participation was steadily rising, driven by favourable financing conditions,” says Al-Natoor.

Kingdom equation

Saudi Arabia made an auspicious start to 2026, raising $11.5bn on international markets in January, in a sale that was three times oversubscribed. 

Saudi debt issuance forms part of the kingdom’s wider plans for increased borrowing, framed not just to plug a widening fiscal deficit, but also to take on a greater burden of debt repayment. The kingdom’s outstanding central government debt portfolio reached SR1.52tn ($405.15bn) by the end of 2025, about one-third of GDP. 

The kingdom’s National Debt Management Centre’s long-term plan envisages 45%-60% of borrowing from domestic and international DCM, the latter comprising about $14bn-$20bn. 

The Public Investment Fund sold $2bn of bonds on the London Stock Exchange in January, an issuance that was more than five times oversubscribed. In 2025, monthly Saudi debt issuance averaged $6.4bn a year, more than double the figure seen two years earlier. 

Saudi banks’ interest in bonds is driven by a need to support loan activity, with credit outpacing deposits. Issuing bonds will help close a rise in the loan-deposit ratio, which is well above 100%. 

“You would expect to see probably a lower level of issuance in Saudi Arabia, where the banks were contributing to a significant amount of issuance. They will probably see lower landing growth this year, which could result in lower overall refinancing needs,” says Damak. 

The UAE is another prominent Gulf issuer that entered 2026 with a robust pipeline of DCM activity in the works. 

Last year, issuance of $47.71bn absorbed a quarter of all GCC issuance, a 24% increase on 2024. That put it comfortably ahead of Kuwait on $23.7bn, and Qatar on $22.47bn, although one of the fastest increases in DCM issuance last year was from Bahrain, which raised $11.24bn, a 63% increase on the previous year.

UAE DCM was expected to exceed $350bn this year, notes Fitch Ratings, supported by strong sukuk issuance and the need to diversify funding sources. Dollar sukuk issuance in the UAE last year grew on 21.4% in 2024.

Ceasefire dependency

Much will inevitably hinge on the evolution of the Iran conflict. Here, it may pay to take the long-lens view, say analysts. “The liquidity declines observed in the Middle East and North Africa and GCC sukuk are unlikely to be permanent,” says Fitch’s Al-Natoor. 

“As stability returns and the ceasefire holds, liquidity is expected to gradually recover, although the pace of recovery will be heavily dependent on investor confidence and sentiment.”

Al-Natoor emphasises that the market itself has not undergone a structural transformation. Instead, some investors have repriced risk and adjusted premiums to reflect heightened geopolitical uncertainty. 

“This distinction matters, as the underlying fundamentals of GCC credit remain intact, with the majority of issuers holding stable outlooks. Notably, the number of GCC issuers placed on Rating Watch Negative increased during this period, reflecting elevated uncertainty.”

Rating Watch Negative flags that the rating is under review and could be resolved either by affirmation or downgrade, depending on subsequent developments.

“Perceptions and risk appetite may take time to recalibrate,” says Al-Natoor. 

“Despite that, there has been some private placement activity during this period, which hints that investors may be selectively engaging with the market while monitoring developments. 

“If current stability is sustained, a broader return to public markets could follow.”

This reinforces the sense that it is the sustainability and longevity of the ceasefire that will be decisive in shaping both the pace and strength of market recovery. 

Fitch Rating’s base case leans towards gradual recovery in GCC DCM markets, both sukuk and conventional, rather than sustained structural damage. 

“The fundamentals remain solid, but longer-term effects will ultimately depend on post-war sentiment and market access,” says Al-Natoor. 

“We continue to see subdued dollar-denominated issuance, although some local currency activity persists.” 

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James Gavin

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    In a region where geopolitical turbulence has amplified by an order of magnitude, Jordan is managing to stand out as a beacon of relative stability, with the Hashemite kingdom’s banking sector acting as a case in point.

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    So long as the regional conflict persists, banks will be inclined more towards caution than exuberance in their lending approaches. And yet that strong and stable inclination may be what serves them best in a notably turbulent year in the Middle East’s recent history.

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