A version of this article first appeared in CNBC’s Inside Wealth newsletter by Robert Frank, a weekly guide for high-net-worth investors and consumers. Sign up to receive future editions directly to your inbox.
Major luxury goods stocks have fallen more than 15% since the start of the Iran war, and sales in the increasingly important Middle East market could be halved, analysts said.
shares of LVMH and hermes They are down about 16% and 20%, respectively, this month. S&P500 The decline was less than 6%. shares of ferrari Sales have also fallen by 15%, and the company announced it will temporarily suspend deliveries to the Middle East. Bentley, Maserati and other luxury car companies have also halted deliveries due to safety risks and logistical reasons.
“There is no production impact at this time,” Bentley CEO Frank Steffen Walliser said on a recent investor call. “But I’m sure people in the Middle East are thinking about other things than looking for a new Bentley at the moment.”
For investors and luxury goods companies, the Iran war has highlighted the growing importance of the Middle East to the global luxury goods industry and wealthy economies. Although the region accounts for a relatively small share of overall luxury goods sales, its growth has become important to the industry.
The region was the world’s fastest-growing luxury market last year, posting 6-8% growth compared to flat global growth, according to Bernstein luxury analyst Luca Sorca. According to Solca, the Middle East currently accounts for about 6% of global luxury sales, potentially matching Japan, which claims about 9% of global sales.
Dubai, United Arab Emirates, is the biggest driver of growth, accounting for around 80% of the UAE’s growth and more than half of the UAE’s overall luxury goods growth, according to Morgan Stanley research.
The Middle East issue comes at a critical time for the luxury goods industry. After two years of stagnant sales, the industry was betting on a recovery in 2026. The Chinese market has seen some improvement after years of declining sales. Thanks to increased wealth from artificial intelligence and the stock market, U.S. luxury consumers remain strong. In addition, sales in Europe remained steady, supported by expenditures from tourism.
Investor sentiment for luxury goods is “the most bearish in years,” according to a research note by UBS luxury goods analyst Zussanna Pusch and her team. Investors had been betting on a rebound at the beginning of the year, but “heightened geopolitical uncertainty is likely to weigh on near-term returns, delaying a long-awaited shift in fundamentals.”
Stock price fluctuations have already wiped out about $100 billion from the market capitalization of major luxury companies, with LVMH and Hermès each losing more than $40 billion in value.
Solka said if sales in the Middle East were to halve in March, which he described as the worst-case scenario, quarterly growth for many luxury goods companies would fall by about 1 percentage point.
Still, he said the decline could be more gradual. While the area’s stores and shopping malls may be mostly empty, many luxury companies are still selling to their top customers by reaching out to them individually and delivering goods to their homes. Solka also said wealthy people who leave Dubai may continue spending on luxury goods in other countries.
“Most of the companies we’ve talked to don’t really point out the dire decline in the Middle East,” Solka said. “At the end of the day, if this had been contained by March, this would have been almost no problem.”
Other factors that contributed to Dubai’s recent success remain in place, including its income tax exemption, stable government, and sunny beaches. The city’s billionaire population has doubled since 2014 to more than 81,000, according to Henley & Partners. An estimated 9,800 billionaires will move to Dubai in 2025, bringing with them $63 billion in wealth, Henry said. This is more than any other country in the world. Most of Dubai’s wealthy people come from the UK, China, India, and other parts of Europe and Asia.
Still, Dubai’s reputation for safety and security is shaky. The Middle East’s luxury market relies heavily on wealthy tourists, who may avoid the region even after a possible ceasefire.
Around 60% of luxury spending in the UAE comes from tourists, with 60% coming from Russia, Saudi Arabia, China and India, according to Morgan Stanley. The remaining 40% will be spent by UAE residents, and about half will be by expatriates living in the UAE, who may also change their plans to stay in the region long-term.
Rising oil prices could also put pressure on sales of luxury goods. Analysts say luxury-oriented consumers, who are sensitive to inflation and economic slowdowns, may cut back on spending due to soaring gas and food prices. At the same time, wealthy consumers may be spooked by a volatile stock market. Spending by the wealthy is highly dependent on the stock market and the so-called wealth effect, so a decline or even flatness in stock prices could cause a decline.
“A rise in oil prices could prompt a downward correction in global stock markets, which is very bad. Consumer sentiment among people who have wealth in the stock market will be hurt,” Solka said.
