Setting anything in the 20th Century is pretty unlikely for Assassin’s Creed; for one, widespread firearm use kind of renders melee combat obsolete. For another, adding vehicles to the series would create its own set of complications. Problems of creating a modern setting aside, though, the Spanish Civil War satisfies three major requirements of the series. Its cities and countryside were filled with beautiful landmarks just begging to be climbed, it’s a setting completely ignored by other games, and it presents a clear moral conflict tailor-made for the Assassins, with a loose underdog confederation of anarchists, republicans, and anti-fascists on one side, and a unified front of Nazi-backed (and possibly Templar-backed) fascists on the other, with a whole lot of brutality in between.
Riding through the Pyrenees with Basque saboteurs, skulking through bombed-out streets or scaling El Escorial as an Assassin in the shadows of the conflict is just a little bit irresistible, firearms be damned. Besides, the Spanish Civil War is notable in part because it wasn’t a completely mechanized war; sure, it was Germany’s test bed for World War II, but widespread use of horses, a relative scarcity of automatic weapons, and no shortage of amateur soldiers mean it could still feel period-accurate without having to sacrifice too much of AC’s traditional feel.