S&P Global Ratings has lowered its forecast for sustainable bond issuance in the Middle East for 2026, projecting a range of $15 billion to $20 billion, down from a previous estimate of $20 billion to $25 billion. The revised outlook reflects increased geopolitical volatility and tighter market conditions, according to the agency’s midyear sustainability insights report.

Through the first half of 2026, sustainable bond issuance in the region totaled approximately $7 billion, compared with $10 billion in the same period last year. While issuance volume remained relatively stable year-on-year, the total value of issues declined by 24 percent. This fall was less severe than the more than 40 percent drop observed in total bond issuance over the same timeframe, based on data from S&P Capital IQ.

The year began strongly, with nearly $5 billion of sustainable bonds issued in the first quarter alone, including $4 billion in January. A ceasefire between the United States and Iran in April, followed by a memorandum of understanding in June, provided a boost to the market. Issuers who had been preparing prior to a regional conflict that broke out in late February contributed an additional $2 billion in the second quarter.

S&P outlined a base-case scenario anticipating a gradual but incomplete recovery of energy flows in the second half of the year, tempered by ongoing uncertainty surrounding US-Iran negotiations, along with operational bottlenecks, logistical challenges, and occasional localized clashes. The ratings agency also expects the shipping and insurance sectors to maintain a cautious stance until a final peace agreement is reached. Additionally, the outlook now assumes the US Federal Reserve will hold interest rates steady, revising away from an earlier forecast of monetary easing.

The United Arab Emirates and Saudi Arabia remain dominant players in the regional sustainable bond market, together accounting for about 98 percent of issuance by value and 73 percent by volume. Qatar’s issuance growth has offset a decline from Türkiye. Banks have been the principal issuers, responsible for 80 percent of issuance value and 87 percent of volume. In contrast, sustainable bond activity among non-financial corporations dropped by over 80 percent in the first half of 2026, as these entities favored bank loans or private placements to refinance existing debt.

Sustainable sukuk issuance, including Tier 1 bank sukuk, fell to $2.1 billion in the first half of 2026 from $5.1 billion in the same period last year, data from Environmental Finance showed. The decline was linked to reduced hydrocarbon output and slower non-oil sector growth, alongside a broader regional shift toward conventional private placements due to their greater liquidity, simplicity, and faster execution. As a result, sukuk’s share of overall sustainable issuance dropped to roughly 30 percent in the first half of 2026, down from about 50 percent a year earlier. Nonetheless, S&P expects sustainable sukuk issuance to continue in Gulf Cooperation Council countries throughout 2026 and beyond.

Looking ahead, S&P maintained a positive medium-term outlook for the Middle East sustainable bond market. Key drivers include national strategies targeting energy transition and renewable energy goals; growth in emerging bond categories such as transition and blue bonds; and sustained interest in sustainable sukuk. The firm noted that roughly $45 billion to $50 billion in sustainable bonds will mature between 2027 and 2030, which could trigger significant refinancing activity as issuers seek to replace maturing debt with sustainable instruments.