For the global luxury sector, the Middle East had become something of a saving grace in the years since Covid. As China stalled and Europe flatlined, Gulf consumers, both at home and traveling abroad, quietly became the industry’s most reliable growth engine. Then, on Feb. 28, U.S.-Israeli strikes on Iran changed the calculus overnight.
A new report from Bernstein, published Thursday, puts hard numbers around what brands are now navigating. According to Bernstein’s analysis, the Middle East accounts for roughly 6 percent of global luxury sales, closer to high-single digits for the major houses given their skew toward high-net-worth clients, and was the fastest-growing geography in fiscal 2025, expanding 6 percent to 8 percent organically against a sector that was essentially flat. But that momentum has now hit a wall.
“The Middle East was one of the few genuinely positive stories the sector had going into 2026,” said Luca Solca, senior research analyst at Bernstein and the report’s lead author. “The timing of this disruption is particularly uncomfortable.”
A different story in different markets
The picture is more nuanced than a blanket regional crisis, with the situation changing day by day. Reports from retailers in the region indicate Saudi Arabia is very strong, with business running largely uninterrupted since the conflict began. Turkey is also holding firm. Notably, jewelry has proven more resilient than fashion across the board, buoyed in part by rising gold prices as investors seek safe haven assets amid the uncertainty. Malls in the UAE have remained open, as have most luxury boutiques since the beginning of the war. It is the smaller Gulf states where disruption has concentrated most acutely. Bahrain has emerged as the most volatile market for store operations with the most store closings, being managed on a strict day-by-day basis, followed by Qatar and Kuwait.
The UAE and Saudi Arabia together account for more than half of the luxury store base across the Middle East and have remained largely operational. Yet the UAE’s position is more complicated than open stores alone suggest. The country has absorbed the highest volume of Iranian missile and drone strikes of any nation in the conflict, targeted more heavily than Israel itself. Debris from intercepted missiles has caused damage across Dubai and Abu Dhabi, including areas around Palm Jumeirah and the Burj Al Arab hotel. A fire broke out at Jebel Ali port.
The practical consequence for luxury is significant: While boutiques may be open, the tourists who animate them are not coming. Prada’s management, cited in the Bernstein report, noted that UAE retail breaks down as roughly one-third locals, one-third expats and one-third tourists under normal conditions. That tourist third has effectively vanished. GIven estimates are that the UAE currently accounts for 60 percent of the Middle East luxury retail operations, even a small dent in sales could have big impact.
The airport dimension carries particular weight. Bernstein calculates that airport doors account for 9 percent of the regional retail network among the brands it tracks. Dubai International, the world’s second-busiest airport with a 92 percent international passenger mix, was among the most profitable single locations in the world for several luxury houses before the conflict. The news that those stores have largely reopened will come as meaningful relief, but restoring passenger volumes is a separate and slower challenge.
The Bulgari Pavilion at Dubai Watch Week
Courtesy
Bernstein estimates that regional sales in March will halve overall, driven primarily by the collapse of tourist traffic, producing a roughly 100 basis-point headwind to first-quarter 2026 results. The firm considers that impact largely priced into luxury stocks following the sector-wide sell-off since late February.
The Travel Multiplier
The secondary effects on European flagships are also worth watching. Bernstein’s report notes that 30 percent of global luxury sales occur while people are traveling, and according to Global Blue data cited in the report, Gulf nationals had risen to become the third-largest spending nationality globally by tax-free expenditure by 2024, up from eighth in 2019. The channel was already under pressure. “Tourist spend had already been in reverse, with fewer Americans buying in Europe given the weaker dollar,” Solca said. “The war is likely to further exacerbate that.”
On a timeline, he is specific about when the calculus changes. “My hunch is that the global economy can stomach the war without much damage to yearly GDP growth if the conflict lasts two months or less,” Solca said. “Beyond this duration, and with a persistently high oil price, we would need to tune down discretionary spend assumptions for fiscal 2026.”
Longer term, one structural shift the conflict may accelerate is the growing primacy of Saudi Arabia. “I think this will happen irrespective of the war,” Solca said. “KSA will become more important in relative terms to its neighbors,” a view supported by Bernstein’s data showing Zegna and Brunello Cucinelli were both planning new Riyadh openings this year, and the Saudi Fashion Commission continuing to build a domestic luxury ecosystem under Vision 2030.
For now, the sector watches and waits, monitoring daily store status reports from Bahrain to Kuwait, and finding cautious encouragement where it can, not least in the news that Dubai’s airport boutiques are open once again.
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