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Moody’s Expects Surge in Oil to Dampen Islamic Bond Sales

Moody’s Expects Surge in Oil to Dampen Islamic Bond Sales

Surging crude is expected to lower oil-rich Gulf nations’ need to sell Islamic bonds, according to Moody’s Investors Service.

“We expect higher oil prices will lead to lower sukuk issuance in 2022, largely driven by lower financing needs” in the six-member Gulf Cooperation Council countries, analyst Ashraf Madani wrote in a report.

Higher oil has pushed crude above the break-even level for almost all the Gulf producers, raising the prospect of significant budget surpluses for even the weakest economies. Oil has rallied more than 30% since Russia’s invasion of Ukraine, and many traders and banks are betting prices will keep climbing.

Saudi Arabia, which needs oil at about $72 a barrel to balance the books, already said it expects to record a surplus this year. For the United Arab Emirates, that figure is about $67 a barrel. The GCC comprises Saudi Arabia, the UAE, Kuwait, Qatar, Oman and Bahrain.

Sales of Islamic bonds, or sukuk, dropped 12% to $181 billion last due lower sovereign funding needs among oil producing countries in the Middle East and Indonesia, according to Moody’s. The rating agency expects issuance to further drop this year to $160 billion to $170 billion.

Moody’s also said:

  • “The economic recovery in key Islamic finance markets will boost credit growth and demand for Shariah-compliant products and we expect Islamic banks’ asset growth to continue to outperform their conventional peers”
  • Takaful premiums are likely to keep growing moderately in the next 2-3 years, helped by rising demand for medical insurance as more GCC, African and Southeast Asian countries introduce compulsory health cover

©2022 Bloomberg L.P.