Islamic Finance in a War Economy
Performance, Resilience and Opportunity Amid the 2026 US-Israel-Iran Conflict
DOI:
https://doi.org/10.70009/jels.2026.3.1.5Keywords:
Islamic Finance, Sukuk, Takaful, GCC, war economy, geopolitical risk, Shari'ah-compliant investment, non-interest asset managementAbstract
On February 28, 2026, joint US-Israeli airstrikes on Iran, designated Operation Epic Fury, set off the most severe geopolitical disruption to global financial markets since Russia invaded Ukraine in 2022. Brent crude breached USD 116 per barrel within weeks. This paper examines what that shock did to Islamic finance: which segments held, which broke, and what the evidence means for practitioners managing Shariah-compliant portfolios. Data are drawn from Fitch Ratings, S&P Global, Invesco, the Islamic Financial Services Board, and primary market sources through end-April 2026. The picture that emerges is not one of uniform resilience or uniform fragility. GCC Islamic banks entered the conflict with Tier 1 capital ratios averaging 17.1% and emerged without a single Fitch-rated sukuk default. Investment-grade sovereign sukuk held their secondary market function throughout. At the same time, new dollar-denominated GCC sukuk issuance collapsed to zero in March 2026. ESG sukuk fell 63% year-on-year to USD 1.6 billion in Q1. UAE-listed takaful operators underperformed conventional insurance peers by 10.25 percentage points in the conflict's first forty days. The paper develops a comparative performance framework, a scenario stress-test, and a resilience heat map across Islamic banking, sukuk, takaful, Islamic equity, and Islamic FinTech. It closes with portfolio guidance for non-interest asset managers and identifies African Islamic finance and Islamic FinTech as structural diversifiers with limited Iran-conflict exposure.
References
Al Jazeera. (2025, June 16). What would an Israel-Iran war mean for the global economy? Al Jazeera. https://www.aljazeera.com
Al Jazeera. (2026, March 16). How badly has the Iran war hit the global economy? Al Jazeera. https://www.aljazeera.com
AlHuda Centre of Islamic Banking and Economics. (2026, January). Global Islamic finance set to hit $6 trillion in 2026. AlHuda CIBE.
Amal Invest. (2026). Best halal ETFs (Shariah-compliant) — performance, fees & top picks. Amal Invest. https://www.amalinvest.com
atlas-mag.net. (2026). GCC insurance and reinsurance market impact of Iran conflict. atlas-mag.net.
Business Research Insights. (2026). Global takaful insurance market report 2025-2035. Business Research Insights.
Central Bank of Nigeria. (2025). Non-interest banking statistics Q4 2025. CBN.
Charles Schwab. (2026, April). Iran war: Ceasefire offers relief, not resolution. Charles Schwab.
Coalition Greenwich. (2025, June). Unlocking growth: Islamic finance sees global expansion. Coalition Greenwich.
Cognitive Market Research. (2026). Takaful insurance market outlook 2025-2034. Cognitive Market Research.
Crowe UAE Academy / QIC Middle East. (2026, March). War exclusions and takaful policy responses [Webinar]. Crowe/QIC.
Eratalay, M. H., Cortes Angel, A. P., & Hacievliyagil, N. (2021). Islamic equity investments and the COVID-19 pandemic. Journal of Risk and Financial Management, 14(10), 484. https://doi.org/10.3390/jrfm14100484
Fisher Investments. (2025, June 23). A market perspective on Israel and Iran's latest conflict. Fisher Investments.
Fitch Ratings. (2025). Nigeria's Islamic finance industry to benefit from sovereign sukuk; new liquidity tools. Fitch Ratings. https://www.fitchratings.com/research/islamic-finance/nigerias-islamic-finance-industry-to-benefit-from-sovereign-sukuk-new-liquidity-tools-03-06-2025
Fitch Ratings. (2026a). Global Islamic banks hotspots April 2026. Fitch Ratings.
Fitch Ratings. (2026b). GCC dollar sukuk issuance to remain subdued if Iran war continues. Zawya/Fitch.
Fitch Ratings. (2026c). GCC sukuk liquidity shows mixed impact as Iran conflict weighs on markets. Arab News.
Fitch Ratings. (2026d). Islamic syndicated financing to maintain momentum on post-war market sentiments. Arab News.
IBS Intelligence. (2026, April). GCC Islamic banks show resilience amid geopolitical tensions. IBS Intelligence.
ICD-LSEG. (2024). Islamic finance development report 2024. Islamic Corporation for the Development of the Private Sector.
IFN Africa. (2026). Africa Islamic finance annual report 2026. Islamic Finance News.
IMARC Group. (2026). Takaful market size, share, trends and forecasts 2024-2032. IMARC Group.
International Banker. (2026). GCC Islamic banking resilience review 2026. International Banker.
International Finance Magazine. (2026, March 18). Middle East tensions: Fitch issues outlook for sukuk issuances. International Finance Magazine.
International Journal of Accounting and Economics Studies. (2025, October). Resilience of Islamic and conventional banks in the GCC during systemic crises. International Journal of Accounting and Economics Studies.
Invesco US. (2026, April 9). Markets and the Middle East: Impacts to asset classes. Invesco.
Islamic Finance News (IFN). (2026, April). IFN annual guide 2026 and daily news service. Islamic Finance News.
Islamic Financial Services Board (IFSB). (2025, September). Islamic financial services industry stability report 2024. IFSB.
Jawadi, F., Jawadi, N., & Louhichi, W. (2014). Do Islamic stocks outperform conventional stock sectors during normal and crisis periods? Pacific-Basin Finance Journal, 28, 1-17. https://doi.org/10.1016/j.pacfin.2013.08.003
London Stock Exchange Group (LSEG). (2026, January). Tracking the rise of Islamic finance. LSEG.
Mohindru, S. C. (2026, March). War risk insurance cost off highs but still elevated in Persian Gulf. S&P Global. https://www.spglobal.com/energy/en/news-research/latest-news/shipping
MSCI. (2026, March). MSCI World Islamic Index; MSCI USA Islamic Index; MSCI EM Islamic Index. MSCI.
Nigerian Exchange Group / FMDQ. (2025). Sukuk issuance and outstanding data 2017-2025. NGX/FMDQ.
Oxford Economics. (2026, April). Iran conflict 2026: Economic impact of US, Israel & Iran tensions. Oxford Economics.
Research and Markets. (2025). Global Islamic FinTech market report 2021-2025. Research and Markets.
RIA Advisors. (2026, February). The Iran-Israel conflict and the likely impact on the market. RIA Advisors.
S&P Dow Jones Indices. (2026). Dow Jones Islamic Market World Index and US Index factsheets. S&P Global.
Securities and Exchange Commission Nigeria. (2021). Rules on issuance of sukuk. SEC Nigeria.
Standard Chartered Saadiq. (2025, December). Global Islamic finance assets to surpass USD 7.5 trillion by 2028. Standard Chartered.
The Asset. (2026, March 16). GCC bond, sukuk issuances plunge amid Iran war. The Asset.
Valecha, V. (2026, April 21). Risk repriced: How UAE-listed insurers are faring in the Iran war. Century Financial / AGBI.
Wiley Online Library. (2026, January). Geopolitical risk and bank stability in the MENA region. Wiley Online Library.
World Economic Forum. (2026, April). The Strait of Hormuz and global insurance market disruption. WEF.
Zawya / IFN. (2026, April). Dollar GCC ESG sukuk issuance stalls over geopolitical tensions. Zawya/Islamic Finance News.
Downloads
Published
Data Availability Statement
NA
Issue
Section
Categories
License
Copyright (c) 2026 Zakari Ahmadu (Author)
This work is licensed under a Creative Commons Attribution 4.0 International License.
