Oil price rebound stalls five‑year sukuk growth streak
Moody’s Investors Service said on September 7 that the rebound of crude oil to roughly $72 a barrel has halted the five‑year run of rising global sukuk issuance. The agency forecast that 2021 issuance will be flat or slightly lower, landing between $190 billion and $200 billion, down from the record $205 billion reached in 2020. The slowdown is not caused by weak demand for Islamic bonds but by the improved fiscal position of Gulf Cooperation Council governments, which have benefited from higher oil revenues.
When oil prices rise, the budget gaps of GCC states shrink, reducing their need to borrow. Data for the first half of 2021 illustrate this shift: worldwide sukuk sales rose 3 % to $102 billion, yet that headline figure hides a divided market.
Southeast Asian issuance jumped 22 %, while Gulf issuance fell 19 %. The decline was especially sharp in the United Arab Emirates and Bahrain, where issuance dropped 65 % to just $4 billion in the same period. Moody’s noted that the steepest drop came from sovereign and quasi‑sovereign issuers—the same entities that had tapped the sukuk market heavily during the pandemic to cover emergency spending.
As the crisis eased, those borrowers stepped back. The agency summed up the effect with the statement: “Reduced issuance from GCC governments partly offset the stronger activity in the corporate sector.” Corporate sukuk activity in the Gulf did increase, but not enough to compensate for the sovereign retreat, which remained the main factor limiting overall growth.
Consequently, the expansion of the global sukuk market has been carried by Southeast Asia. Malaysia and Indonesia drove the 22 % rise in their region’s volumes, reflecting their continued large financial needs for infrastructure and social programmes. Malaysia remains the world’s largest sukuk market and has long used Islamic bonds to finance its budget deficit; that pattern persisted through the first half of 2021.
Indonesia followed a similar approach, relying on sukuk to fund its own deficit. The contrast with 2020 is stark.
Last year, both Gulf states and Southeast Asian nations issued heavily as pandemic‑related revenue shortfalls pushed governments everywhere to borrow. In 2021, the Gulf has pulled back while Southeast Asia has kept issuing. Brent crude roughly doubled from its March 2020 low to the $72 level, giving Gulf finance ministries breathing room that they used to step away from the debt market. Whether that breathing room will last is uncertain.
If oil prices stay near current levels, Gulf issuance could remain subdued; if prices fall, the borrowing spigot might open again. Moody’s report does not predict which direction the market will take; it simply observes that the oil‑price effect is real and measurable at present.
For the sukuk market as a whole, the flat year marks a pause rather than a reversal. Corporate issuers in the Gulf remain active, and Southeast Asia continues to grow. Although the 2020 record may be difficult to surpass, the market is not fundamentally contracting—it is simply not expanding.
After five consecutive years of growth, 2021 represents a year of standing still, a development that Moody’s attributed directly to the rebound in crude oil prices.
