By Islamic bonds are proving easier to trade than conventional debt across three of the Gulf’s biggest sukuk markets. Fitch Ratings said sukuk liquidity in Saudi Arabia, Oman and Bahrain has now edged close to pre-war levels and is outperforming conventional bonds, even as the region’s debt markets as a whole remain constrained by months of conflict involving Iran, Israel and the United States.
Key takeaways
- Sukuk outperformed conventional bonds in Saudi Arabia, Oman and Bahrain, with liquidity scores nearing pre-war levels, Fitch Ratings said.
- The median liquidity score across Fitch-rated sukuk hit 64 as of August 4, up from a trough of 55 in March but still below the pre-war reading of 68.
- The recovery is uneven: sukuk and bonds carry identical liquidity scores in Qatar and the UAE, while in Kuwait, conventional bonds are actually more liquid than sukuk.
A Fragmented Recovery Across the Gulf
Fitch’s data, drawn from Bloomberg’s LQA liquidity scoring system, shows a debt market that is healing but far from uniform. In US dollar-denominated paper, sukuk and bonds both carried average liquidity scores of around 50 as of August 12, according to the ratings agency. Investment-grade sukuk fared considerably better, averaging a liquidity score of 69, versus just 40 for non-investment-grade paper, a gap that has widened since the conflict began in the spring.
Saudi Arabia, Oman and Bahrain stood out as the markets where sukuk liquidity has recovered fastest relative to conventional bonds. Fitch said liquidity in those three markets is now close to where it stood before the war began, a notable contrast with Kuwait, where bonds have held up better than sukuk, and Qatar and the UAE, where the two asset classes are now roughly on par.
Why Investment Grade Matters More Than Ever
The split between investment-grade and non-investment-grade paper points to a broader flight to quality across Gulf debt markets this year. With the region absorbing the economic weight of a regional war for close to five months, investors appear to be rewarding stronger sovereign and quasi-sovereign issuers with tighter spreads and easier trading, while lower-rated names have struggled to attract the same buying interest.
That dynamic has played out against a backdrop of continued heavy issuance. Global sukuk sales rose almost 15 percent in the first half of 2026 to $129 billion, driven by strong local-currency activity in Saudi Arabia and Qatar, and S&P Global Ratings still expects full-year issuance of between $270 billion and $280 billion, roughly in line with pre-war forecasts.
What It Signals for Gulf Borrowers
For sovereign and corporate treasurers across the GCC, the data offers a mixed but broadly reassuring signal. Saudi Arabia in particular has leaned on sukuk issuance throughout 2026, from retail savings products aimed at citizens to large corporate financings, and stronger liquidity makes it easier and cheaper for both the government and Saudi companies to keep tapping the market. Oman and Bahrain, both smaller and more rating-sensitive borrowers, benefit even more directly from any narrowing of the liquidity gap with conventional debt.
The picture is less clean in Kuwait, where the underperformance of sukuk relative to bonds suggests investors still see limited depth in the country’s Islamic debt market compared with its conventional one. For Qatar and the UAE, rough parity between the two asset classes suggests investors are treating them as close substitutes, a sign of market maturity that smaller Gulf sukuk markets have not yet reached.
Fitch cautioned that liquidity is likely to stay constrained across the board as long as regional tensions persist, meaning the gap between investment-grade and weaker credits, and between the Gulf’s more developed sukuk markets and its smaller ones, could remain wide well into next year.
For more on how Gulf debt markets have held up through the conflict, read: UAE Bond Sales Hit Record Pace in 2026, Even With a Regional War Underway.
Sources: Zawya (Reuters), Zawya, Arab News.