On February 28, the United States and Israel launched attacks on Iranian targets, killing Iran’s Supreme Leader Ayatollah Al-Khamenei and senior leaders, according to multiple reports. Iran retaliated with missile and drone strikes targeting Israel and U.S. bases in the Gulf Cooperation Council region, resulting in civilian casualties and infrastructure damage. This escalation has destabilized parts of the region and created ripple effects on the luxury economy, research from five sources indicates. The conflict has triggered a sharp sell-off in LVMH shares, with a 15% drop in March erasing nearly $40 billion in market value, while Hermès shares declined by about 20% over the same period, with the overall luxury goods industry losing over $100 billion in market capitalization.
The Middle East has become a promising growth engine for the global luxury sector, with the region accounting for an estimated 5% to 6% of global luxury spending, according to Thomas Chauvet, head of luxury goods research at Citi. Citi estimates show Richemont derives roughly 9% of its revenue from the Middle East, while Swatch Group counts on the region for around 10% of its revenue. LVMH reported 14% of its revenue came from 'other markets' including the Middle East in its 2025 annual results, and Kering said 9% of its 2025 revenue came from the 'rest of the world', including the Middle East, with sales stable and rising slightly in the Middle East. The region's strategic importance is greater than its sales share, with hubs like Dubai serving as crucial growth drivers, according to multiple reports. The Middle East also produces a significant portion of the world's crude oil and natural gas, with major producers including Saudi Arabia, UAE, Iraq, Kuwait, Qatar, and Iran, and the Strait of Hormuz is the primary export route for crude oil, condensate, refined products, and LNG from these Gulf producers.
Immediate impacts of the attacks include casualties, closed airspace, canceled flights, and warnings for travelers to leave, according to multiple reports. The exact number of casualties and extent of infrastructure damage from the attacks in the region remain unknown. In Bahrain, more stores were closed following the first attacks, with City Center Bahrain closing temporarily but since reopening. Most luxury companies are declining to comment on the situation, including whether their stores are open or closed, research from five sources indicates.
Luxury retailers are balancing safety with business continuity amid the turmoil. Dubai Mall, a key location for luxury spending in the Middle East, remains open, according to multiple reports. Dubai leaders have sought to reassure residents and visitors that they are safe to carry on as usual, with Crown Prince Sheikh Hamdan bin Mohammed Al Maktoum appearing at the mall last week. Chalhoub Group, the leading luxury retailer in the Middle East, says its risk and crisis management committee is fully activated and prioritizes safety and business continuity. Security concerns and logistical bottlenecks are disrupting the supply chain for high-value goods, research indicates.
Energy shipments from the Middle East have been at a standstill following Iran's threats to attack vessels in a critical trade waterway, according to multiple reports. This has triggered a global oil crisis, with oil prices soaring to close to $120 a barrel due to strikes and the closure of the Strait of Hormuz. About a fifth of the world's oil passes through the Strait of Hormuz, around 20 million barrels each day, according to the U.S. Energy Information Administration. Disruptions to shipping through the Strait of Hormuz can trigger supply shortages, insurance reactions, freight rate increases, and energy price volatility, research shows.
The blockade has led to a global oil shortage, affecting Gulf-reliant Asian countries like the Philippines and Indonesia, according to multiple reports. Gulf countries are a major source of oil for China, with Saudi Arabia and Iran accounting for more than 10% of imports each, according to the U.S. Energy Information Administration. China uses an estimated 15 to 16 million barrels of oil daily, mainly for transportation, various market analysts say. Russian oil accounts for nearly a fifth of China's energy imports, making Moscow its biggest oil supplier, research from five sources indicates.
China is feeling the strain as the world's largest buyer of oil but is in a better position due to years of statecraft preparation, according to multiple reports. Coal is the dominant source of power for most of China's electricity, and China is the world's largest coal producer, research indicates.
Geopolitical tensions introduce supply risk premiums into oil markets, driving volatility and price increases, research shows. Middle East conflicts can impact LNG supply chains, particularly exports from Qatar, creating market tightness and price pressure. Global energy markets dependent on imported fossil fuels are at the mercy of commodity markets due to the Middle East crisis, according to multiple reports.
The luxury sector faces significant financial fallout, with market experts warning that revenue in the region could plummet by as much as 50%, dampening recovery expectations for 2026. Erste Group Bank revised its EPS estimate for LVMH's 2026 fiscal year downward from $5.31 to $5.28 due to elevated costs and adverse currency effects, according to multiple reports.
Technical indicators show LVMH shares are trading near €456, hovering just above their 52-week low and more than 17% below the 200-day moving average, according to multiple reports. The RSI for LVMH stands at nearly 72, indicating a short-term overbought condition despite weak price levels. The average analyst price target for LVMH is over €620, but this upside is unlikely to provide support until geopolitical resolution, research shows.
Prolonged escalation could cause energy price spikes to spill over into core economic indicators like inflation, interest rates, trade balances, and GDP growth, according to multiple reports.
The U.S. hopes for a swift resolution, with negotiations beginning mediated by Oman, but Iran has declared 'total war' on Israel and the U.S., according to multiple reports.
Conflict in the Middle East is destabilizing parts of the region and creating ripple effects on the luxury economy, research from five sources indicates.
The duration of the conflict, extent of disruptions in the Strait of Hormuz, and outages at key infrastructure remain key unknowns, research indicates. Aftonbladet reports there is a decline after the Middle East crisis.