According to analysts, the escalation near Iran at the start of 2026 has caused the market to reassess the geopolitical premium in the region’s debt. Sovereign 10-year bonds in countries involved in the conflict have risen by 5–15 basis points amid U.S. and Israeli strikes and Tehran’s countermeasures. According to Teniz Capital, regional yields have risen by 3–30 basis points since the start of the year. The average yield in the Gulf Cooperation Council (GCC) countries stands at 4.2–4.7%, while Israel’s yields are at 4.2–4.5%. The market sees a 20–30% chance of a prolonged conflict with oil supply disruptions, which has pushed regional bond yields up by 5–10 basis points after news from the Strait of Hormuz.
Analysts also assessed the sukuk market. Sukuk are Islamic financial instruments similar to bonds but structured to comply with Sharia law. In 2025, global sukuk issuance reached a record $150–160 billion. The Gulf Cooperation Council (GCC) markets led the way, with Saudi Arabia and the UAE contributing the largest share through both conventional and sustainable issuances. The sukuk market started 2026 on solid footing, demonstrating resilience amid rising geopolitical tensions in the Middle East, including U.S. and Israeli actions against Iran. Yields have increased moderately year-to-date by 5–10 basis points, while spreads to conventional bonds have tightened by 2–5 basis points, reflecting strong demand from Islamic financial institutions and crossover investors.
The resilience of sukuk is supported by their structural advantages and diversified funding base, making them a stable option during periods of market volatility. Analysts project total returns of 4–6% over the next 6–12 months under a limited-conflict scenario. Among the structural and market factors underpinning sukuk stability, investment bank analysts highlight oil and diversification – in particular, rising oil prices partially offset geopolitical risks, supporting the fiscal stability of GCC countries.
Part of their stability comes from the diversified economies of the region, with 70–75% of GDP coming from oil. The backing of sukuk by tangible assets such as infrastructure and real estate also reduces their correlation with sovereign debt cycles. Teniz Capital analysts note that, in stress scenarios, sukuk have historically experienced drawdowns 10–20% smaller than conventional bonds.
In addition, sukuk benefit from a stable investor base, with market resilience supported by Islamic financial institutions, which account for 40–50% of issuances, and crossover investors, whose net inflows have reached $20–30 billion year-to-date, in contrast to outflows seen across emerging markets. According to the investment bank’s analysts, sukuk are widely used as high-quality collateral within the banking systems of Gulf Cooperation Council (GCC) countries, enabling central banks to contain yield spikes during periods of volatility.
ESG-driven investment trends are also supporting the resilience of Islamic securities, with the green sukuk segment projected to reach $25 billion in 2026, attracting premium capital and providing partial insulation from geopolitical risks. As of March 1, 2026, performance indicators point to contained volatility: sukuk indices, including the Bloomberg GCC Sukuk Index, have declined by 0.5–1% year-to-date, compared with losses of 1–2% across the broader emerging markets Islamic debt segment.
Teniz Capital investment bank analysts continue to monitor developments in the Middle East and the evolution of U.S.–Iran relations, tracking key macroeconomic indicators such as GCC GDP growth, net investment inflows, and rating changes. Oil prices also remain a key factor: Brent crude below $65 per barrel creates fiscal pressure for regional economies, while prices above $80 per barrel provide economic relief.
