Nathalie Mroue wasn’t immediately alarmed when she heard the boom of air-defence rockets intercepting Iranian missiles over Dubai this past weekend. The Lebanese-born co-founder of luxury brand consultancy Maison Pyramide had lived through conflict in her home country.
But later witnessing first-hand a high-altitude interception, followed by plumes of smoke rising from missile debris that struck the five-star Fairmont hotel in Dubai’s tony Palm neighbourhood, changed her calculus — as it did for many others in the United Arab Emirates.
“The first night was very scary because it was so unknown and unexpected for the UAE,” said Mroue, whose company works with LVMH and Kering labels across the region.
The UAE and neighbouring Gulf states have invested time, energy and vast sums of money to create a corner of the Middle East that is meant to be shielded, literally and figuratively, from the chaos that periodically engulfs the wider region. That sense of security was shattered in recent days following a barrage of Iranian missiles and drones launched toward the Gulf in response to the US-Israel attack on Tehran that began on Saturday.
The reverberations are now rippling through the luxury industry.
Dubai and Abu Dhabi have built a robust tourism economy and attracted legions of well-heeled Western and Middle Eastern expatriates. Dubai’s airport is the second-busiest in the world and handles more international passengers than any other, according to industry lobby Airports Council International.
That wealth, stability and flow of tourists have been a boon for global luxury brands. Most major luxury groups derive between 5 percent and 9 percent of their global revenue from the Middle East, according to Morningstar. While that lags behind Europe, the United States and China, luxury consumption in the region has been rising, helping to offset slower growth elsewhere during the industry’s long downturn following the post-pandemic boom.
“The Middle East has been one of luxury’s few bright spots over the past year, especially as demand from Chinese and American consumers has softened,” said Jelena Sokolova, a senior equity analyst at Morningstar.
Now, with Milan Fashion Week concluded and shows in Paris ramping up, an industry already trying to move past two and a half years of sluggish demand is contending with images of a burning five-star hotel in Dubai, Iranian drones hitting the US embassy in Riyadh, and American citizens being urged to leave the region.
Luxury stocks fell for a second straight session on Tuesday. LVMH has dropped 7.7 percent in the two trading days since the conflict began, while Kering is down 11 percent. Richemont, one of the groups most exposed to the Middle East, has slid nearly 10 percent.
The conflict has brought inbound tourism to a standstill, and multiple luxury brands closing stores across the region. While Western travellers may simply reroute trips and spend elsewhere, the war is also curbing purchases by residents and expatriates living in the Gulf. Compounding matters for brands, the escalation comes during Ramadan, traditionally the region’s peak shopping period.
It could also dent post-Ramadan travel to Europe and the US depending on how long the conflict lasts. President Donald Trump and senior officials have given conflicting signals on that front, with Trump saying on Monday the war could last for weeks, while also writing on Truth Social on Monday that the US had the capacity to to fight wars “forever” if needed.
“If the war remains relatively short, say the four to five weeks floated by [US President] Trump, then the impact will likely be contained,” Sokolova said. “But the situation is highly unpredictable and fluid.”
The fallout could extend well beyond the Middle East. Oil prices have shot up since the conflict began, and would raise inflation expectations if those gains are sustained. US stocks fell sharply on Tuesday in response before recovering much of their losses by late afternoon in New York.
Luxury relies heavily on a “feel-good” factor — buoyant consumer confidence and optimism about future prospects — according to analysts at investment bank RBC.
“Conflict, shock, uncertainty and fear are not helpful in this context and can have a short-term impact on luxury demand,” the bank’s analysts wrote in a note to clients.
Missile and drone exchanges are still ongoing across UAE. On Tuesday evening the US consulate in Dubai was hit by an Iranian drone, although the ensuing fire was put out by authorities, Reuters reported.
Nonetheless, the regional disruption has not halted movement and retail activity in its entirety. Dubai’s largest malls and a majority of stores still remain open, and the local government has sought to reassure residents and visitors, encouraging daily life to continue largely as normal, said Rania El Khatib, chief executive of Dubai-based athleisure and streetwear brand The Giving Movement.
“It really took about 24 hours for things to take a different shape with the government’s response,” El Khatib said. “The UAE president went to Dubai Mall yesterday, sat down with ministers and had coffee or dinner. Those are the kinds of gestures that put people at ease.”
While Mroue says she too now feels safer, her firm postponed or cancelled several Ramadan events this week, including one for British fragrance brand Jo Malone. Maison Pyramide has also shifted campaigns toward digital channels in recent days, while encouraging clients to communicate empathy and support to customers during the disruption. Still, she is wary that in a market that has become indispensable to global luxury houses, the industry is firmly in wait-and-see mode.
“This quarter we’ll definitely take a bit of a hit,” Mroue said. “But one week is one thing. Beyond that, it’s a whole different story.”
