S&P Global Ratings said sukuk issuance markets have so far remained largely resilient despite the ongoing war in the Middle East, with total global issuances rising to $62.4 billion in the first quarter of 2026, compared with $52.6 billion in the same period last year. The agency noted that foreign currency sukuk accounted for nearly 20% of total issuance during the period.
At the Gulf level, S&P observed a modest increase in overall issuance volumes, even as foreign currency-denominated sukuk saw a slight decline. The agency expects this slowdown in external currency issuance to persist until greater clarity emerges on the duration and economic impact of the conflict on regional markets.
S&P warned, however, that geopolitical tensions could introduce risks to sukuk performance, particularly those linked to physical assets. It said its baseline scenario assumes a peak in hostilities followed by a gradual easing of disruptions, including reduced risks around the Strait of Hormuz, although residual impacts could last for months.
The agency added that sukuk exposures tied to physical assets could face repayment risks if those assets suffer damage. It currently rates more than $180 billion in sukuk globally, with over half originating from the Gulf Cooperation Council.
S&P identified the risk of partial or total loss of underlying assets as a key rating consideration, noting that geopolitical events could weaken issuers’ ability to meet obligations on time, including periodic profit distributions and principal repayments.
Under its methodology, sukuk ratings may differ from those of the issuer’s other debt if asset-level risks are deemed material. While sukuk issued by financial institutions typically exclude such risks due to asset safeguards, corporate and sovereign sukuk may retain some exposure.
The agency said that although the probability of total or partial asset loss remains low, it has reviewed underlying structures to identify higher-risk exposures and has excluded certain sukuk linked to assets outside the Gulf Cooperation Council region.
S&P also highlighted cases where sukuk are backed by land assets, noting that the likelihood of total loss in such cases remains remote. However, it pointed to a small portion, around 3% of rated sukuk, linked to commercial real estate assets such as shopping malls, which could face higher risk in the event of regional escalation.
It added that diversification of underlying assets and geographic spread continue to support credit resilience in many structures, while legal frameworks typically require adequate insurance coverage for underlying assets to mitigate potential losses.
Despite the risks, S&P concluded that sukuk remain broadly stable, though ongoing geopolitical uncertainty could influence investor sentiment and future issuance trends
