Navigating Geopolitical Uncertainty: The Impact of Regional Conflicts on Indonesian Corporate Sukuk

ABSTRACT

Purpose — This paper investigates the impact of geopolitical uncertainty and regional conflicts on the performance of Indonesian corporate sukuk within Islamic investment portfolios, while considering the roles of global and domestic risk factors such as oil price volatility, economic policy uncertainty, and key macroeconomic fundamentals.

Design/Methodology/Approach — A quantitative causal research design was employed using the Generalized Method of Moments (GMM) framework to capture both short-run dynamics and long-run relationships while addressing potential endogeneity issues. The model incorporates lagged dependent variables to measure dynamic effects and utilises monthly time-series data processed through EViews 12.

Findings — The GMM results indicate that geopolitical risk exerts a significant negative effect on Indonesian corporate sukuk issuance in the long run, suggesting that heightened geopolitical tensions discourage corporate entry into the Islamic debt market. Global economic policy uncertainty, world oil prices, money supply, and the Indonesian rupiah exchange rate all have significant positive effects, highlighting the role of global uncertainty, commodity price movements, domestic liquidity, and currency dynamics in supporting sukuk issuance. Inflation, while negative as expected, is statistically insignificant in both the short and long run. The estimated error-correction term is negative and significant, confirming the existence of a long-run equilibrium relationship and indicating a moderate speed of adjustment from short-run deviations back to equilibrium.

Originality/Value — This study is among the first to integrate geopolitical risk, global policy uncertainty, oil price volatility, and macroeconomic fundamentals into a unified time-series GMM framework for analysing corporate sukuk issuance. It extends the literature by combining long-run cointegration and short-run dynamics in an emerging Islamic capital market context, offering valuable insights for policymakers, corporate issuers, and Islamic portfolio managers.

Research Limitations/Implications — The scope is limited to Indonesian corporate sukuk; future research could adopt a panel approach across multiple countries to generalise findings.

Practical Implications — The results can guide corporate issuers, regulators, and portfolio managers in formulating strategies to stabilise sukuk markets under volatile global and domestic conditions.

Social Implications - Stable sukuk markets under geopolitical uncertainty can strengthen public trust, expand access to ethical investments, and support inclusive economic development through Islamic finance.

Keywords — Geopolitical Risk, Regional Conflict, Corporate Sukuk, Economic Policy Uncertainty, Emerging Market

Article Classification — Research paper