A version of this article first appeared in CNBC's Inside Wealth newsletter with Robert Frank, a weekly guide for high-net-worth investors and consumers. Register to receive future issues, directly to your inbox.
Top luxury stocks have fallen 15% or more since the war with Iran began, and sales in the increasingly important Middle East market could fall by half, according to analysts.
Actions of LVMH and Hermes are down approximately 16% and 20%, respectively, this month, while the S&P 500 has fallen less than 6%. Actions of ferrari They are also down 15% and the company announced that it would temporarily suspend deliveries to the Middle East. Bentley, Maserati and other high-end car companies are also halting deliveries due to safety and logistics risks.
“At the moment we have no impact from a production standpoint,” Bentley CEO Frank-Steffen Walliser said on the company's recent investor call. “But I'm sure people in the Middle East have other thoughts than looking for a new Bentley right now.”
For luxury investors and companies, the Iran war has highlighted the growing importance of the Middle East to the global luxury industry and high-net-worth economy. While the region represents a relatively small proportion of total luxury sales, its growth has become critical to the industry.
The region was the fastest-growing luxury market in the world last year, recording growth of between 6% and 8% compared to flat growth globally, according to Bernstein luxury analyst Luca Solca. The Middle East now accounts for around 6% of global luxury sales, on track to potentially rival Japan, which accounts for around 9% of global sales, according to Solca.
Dubai, in the United Arab Emirates, has been the biggest driver of growth, accounting for around 80% of the UAE's growth, which in turn accounts for more than half of luxury growth across the region, according to research by Morgan Stanley.
The problems in the Middle East come at a critical time for the luxury industry. After two years of stagnant sales, the industry was betting on a recovery in 2026. The Chinese market has been showing slight improvements in sales after years of declines. The American luxury consumer remains strong thanks to growing wealth from artificial intelligence and stock markets. And Europe remained stable, helped in part by spending from tourism.
A research note from UBS luxury analyst Zuzanna Pusz and her teams said investor sentiment in luxury is “the most bearish in years.” While investors had been betting on a recovery earlier in the year, “heightened geopolitical uncertainty is likely to weigh on near-term gains and delay the long-awaited inflection in fundamentals.”
Stock price movements have already wiped out roughly $100 billion in market capitalization from major luxury companies, with LVMH and Hermès losing more than $40 billion in value each.
Solca said that if sales in the Middle East fall by half in March, which he described as a worst-case scenario, quarterly growth would fall by about 1 percentage point for many luxury companies.
However, he said the drop could be milder. While the region's stores and malls may be virtually empty, many luxury companies still make sales by individually contacting key customers and delivering products to their homes. Solca also said that the rich who left Dubai can continue spending on luxury in other countries.
“Most of the companies we've been talking to are not really pointing to a disastrous downturn in the Middle East,” Solca said. “At the end of the day, if this were limited to the month of March, it would largely be a non-event.”
Other factors that contributed to Dubai's recent success – no income taxes, stable governments and sunny beaches – remain intact. The city's millionaire population has doubled since 2014 to more than 81,000, according to Henley & Partners. An estimated 9,800 millionaires will move to Dubai in 2025, bringing in $63 billion in wealth, more than any other country in the world, according to Henley. Most of Dubai's rich come from the United Kingdom, China, India and other parts of Europe and Asia.
Still, Dubai's safety reputation has been shaken. The Middle East's luxury market relies heavily on wealthy tourists, who may avoid the region long after a possible ceasefire.
According to Morgan Stanley, around 60% of luxury spending in the UAE comes courtesy of tourists, of which 60% are Russian, Saudi, Chinese and Indian visitors. Of the remaining 40% spent by UAE residents, about half comes from foreign UAE residents, who may also change their plans to stay in the region long-term.
Higher oil prices could also affect sales of luxury goods. Analysts say aspirational luxury consumers, who are more sensitive to inflation and economic downturns, could reduce spending with higher gasoline prices and food costs. At the same time, wealthy consumers could be spooked by the volatility of stock markets. Since the spending of the rich depends more on stock markets and the so-called wealth effect, a fall or even stagnation in stocks could cause a pullback.
“Higher oil prices could cause a downward adjustment in global stock markets and that would be very bad,” Solca said. “Consumer sentiment of people with wealth in the stock market would be hurt.”
