RIYADH: S&P Global Ratings has cut its 2026 forecast for Middle East sustainable bond issuance to $15 billion-$20 billion, citing geopolitical volatility and weaker market conditions.
The ratings agency had previously projected issuance of $20 billion-$25 billion for the year. First-half 2026 issuance came in at $7 billion, down from $10 billion over the same period in 2025, even as the number of deals remained roughly steady year on year.
The pullback aligns with a broader tightening in regional debt markets. According to the International Monetary Fund’s April Regional Economic Outlook Update for the Middle East and Central Asia, external sovereign bond yields rose sharply for several economies after the war began, with Pakistan and Egypt climbing from roughly 8 percent to above 9 percent and Jordan rising from about 6 percent to nearly 7 percent by the end of March.
“Middle East sustainable bond issuance is continuing, but regional volatility is beginning to bite. Geopolitical risk and more restrictive market conditions than we anticipated have prompted us to lower our forecast for sustainable bond issuance,” the agency said in its latest report.
A strong start, then a stumble
The year began on solid footing, with roughly $5 billion in sustainable bonds issued in the first quarter — including $4 billion in January alone — but overall first-half issuance fell 24 percent compared with the same period last year.
S&P noted that the decline was still less severe than the more than 40 percent drop in total regional bond issuance, according to S&P Capital IQ data.
The April ceasefire between the US and Iran, followed by a memorandum of understanding in June, briefly reopened the market for issuers that had been preparing to access the market before conflict broke out in late February.
That window generated roughly $2 billion in sustainable issuance during the second quarter.
Banks carry the market
The UAE and Saudi Arabia continue to dominate the region’s sustainable bond market, together accounting for about 98 percent of issuance by value and 73 percent by volume, while rising activity from Qatar has offset a decline in Turkiye.
Financial institutions have driven most of the activity this year, issuing 80 percent of issuance by value and 87 percent by volume, as uncertainty pushed corporate and government-related issuers to the sidelines.
Sustainable bond issuance by nonfinancial corporations fell by more than 80 percent in the first half, with many companies turning instead to bank lending or private placements to refinance maturing debt.
Sustainable sukuk issuance, including banks’ Tier 1 instruments, totaled $2.1 billion in the first half of 2026, down from $5.1 billion a year earlier.
Its share of total sustainable issuance slipped to about 30 percent from 50 percent over the same period, as some GCC issuers turned to the conventional private placement market for its liquidity and speed.
Medium-term outlook
Despite the near-term slowdown, S&P said it expects demand to hold up over the medium term, pointing to national energy-transition strategies, the emergence of new instruments such as transition and blue bonds, and continued interest in sustainable sukuk.
Around $50 billion in Middle East sustainable bonds are due to mature between 2027 and 2030, which could drive a wave of refinancing if issuers choose sustainable debt to replace maturing bonds.
S&P’s base case assumes a gradual, incomplete recovery in regional energy flows through the second half of 2026, tempered by continued uncertainty over US-Iran negotiations, operational bottlenecks, logistical constraints, and periodic localized clashes.
The agency also said it now expects the US Federal Reserve to hold interest rates steady, rather than ease monetary policy as previously anticipated.
