Yields on Gulf sovereign and corporate debt have surged to their widest spreads in five years as the war involving Iran drives a sharp reassessment of regional risk, according to Fitch Ratings.

The agency said that “many GCC US dollar sukuk and bond yields have widened to five-year high spreads since the start of the war in Iran, reflecting higher risk perceptions”. The change exceeds volatility seen during other recent geopolitical and trade-related shocks, although it remains below the extremes recorded during the Covid-19 pandemic.

Data compiled by S&P indices show a marked repricing across regional fixed income markets. The yield to maturity on the S&P MENA Sukuk Index rose by 69 basis points over the past month to 5.15% as of March 27, while the corresponding bond index climbed by 64 basis points to 5.37%. pressure was most acute in riskier segments, with “yield widening… most pronounced among speculative-grade issues”, and the S&P GCC High Yield Sukuk Index jumping by 194 basis points to 7.76%.

Despite the sell-off, sukuk have continued to outperform conventional bonds. Fitch noted that “MENA sukuk continues to trade tighter than MENA bonds, reflecting sustained demand, especially from Islamic banks”, underlining the resilience of Sharia-compliant instruments even during periods of stress.

Market conditions have also shifted in primary issuance. “Dollar DCM issuances have been subdued, but there has been some activity in alternative funding channels such as syndicated loans and certificates of deposit,” Fitch said, pointing to a temporary pivot away from capital markets as borrowing costs rise.

The widening in spreads has outpaced previous episodes of regional instability, including tariff tensions in 2025 and earlier military escalations involving Iran and Qatar. However, Fitch noted that “the pandemic remains the most disruptive event in recent history”, when spreads widened far more sharply across both investment-grade and high-yield segments.

Liquidity has weakened since the onset of the conflict, although Fitch said conditions “remain at broadly similar levels to each other on average”. The agency added that around 84% of rated GCC sukuk remain investment grade, with 90% of issuers carrying stable outlooks and no defaults recorded.

Looking ahead, Fitch said “pricing and liquidity will depend on the war’s scope and duration”, with outcomes varying across credit profiles and sectors. Over the longer term, “effects will depend on post-war market sentiment, activity, and accessibility”, although the region’s strong investor base and track record of market recovery could help stabilise funding conditions once tensions ease.