How the war in the Middle East is affecting the luxury industry

The war in the Middle East is escalating, and the conflict seems destined to continue, impacting not only the region but also global markets such as the luxury industry. To assess the impact on fashion houses and luxury retailers, Business of Fashion spoke with industry sources from Beirut to Dubai – the latter being one of the most important markets for the luxury world. Despite the tense situation, global financial markets appear to maintain a positive tone for now, thanks to adjustments in oil production and global interest rate cuts: even though the price of oil rose by 5% in the 24 hours following, it stabilized around $75 per barrel. However, further escalation of the conflict, expected after the drone attack in Binyamina, could cause greater economic disruptions and jeopardize global financial markets. To ease market anxieties, as Reuters writes, is also the relative independence from the Arab oil sector: with the United States playing an increasingly prominent role as an oil producer, the world's sensitivity to supply disruptions from the Middle East is reduced. According to Mark Dowding, chief investment officer at BlueBay Asset Management, the influence of geopolitical tensions on asset prices becomes significant only when it directly impacts growth or inflation. The tragedies of war, however, have not yet affected the operations of fashion companies in the region. In Beirut, as BoF explains, brands like Elie Saab, Georges Hobeika, and Zuhair Murad are continuing to operate. Despite some logistical challenges, the sentiment of various Lebanese designers remains focused on optimism and the desire to provide the public and employees with a sense of normalcy.

Elsewhere, in the cities of the Arabian Gulf, such as Dubai and Riyadh, fashion events and operations continue without significant interruptions. In Dubai, for example, events like Christian Louboutin took place as scheduled, and the local consumption boom is expected to continue, as many affluent Lebanese and Syrians seek refuge in the city. Another event presented by Jimmy Choo is scheduled for late October. Indeed, as dramatic as the proportions of the conflict appear, and despite the rising cost of living, the luxury market in the Arabian Gulf has seen remarkable growth, with an overall valuation of $12.5 billion in 2023, and further expansion is anticipated. According to the report from the Chalhoub Group published in Arab News this summer, and thus with the conflict underway, the luxury market in the GCC (Gulf Cooperation Council) has grown twice as fast as the global average, driven by very high consumer confidence and significant economic reforms. The fashion sector accounts for $5.2 billion, while luxury watches are worth $5.1 billion. In particular, the fashion segment saw a growth of 10% in 2023, compared to a global growth rate of 4%, and maintained a good pace even in the first quarter of 2024. The beauty sector has also seen significant growth, with a 15% year-over-year increase in 2023 and a further 10% increase in the first quarter of 2024.

As conflicts increase in the Middle East, Dubai has capitalized on its position as a safe haven, effectively attracting flocks of wealthy individuals fleeing higher-risk areas. The city has seen an increase in luxury property values and an influx of tourists and new residents as AP News reported in August. Dubai International Airport recorded a record 44.9 million passengers just in the first half of 2024, and the city's population has grown from 3.2 million in 2018 to nearly 3.7 million in 2024, with projections to reach 5.8 million by 2040. Despite relatively positive economic prospects, this momentary situation, a further escalation of the conflict could jeopardize the resilience of the luxury market. Analysts warn that, while luxury demand in the region continues to grow, a potential decline in tourism or a direct impact on supply chains could seriously slow down growth. Additionally, with new luxury housing units under construction, there are fears that an oversupply could slow the real estate market in the medium term. Nonetheless, the luxury sector in the Gulf, led by Dubai and Saudi Arabia, remains resilient.

Things are quite different in Israel where, at the end of September, as the year-long war intensified and the country's credit rating was downgraded, Finance Minister Bezalel Smotrich stated that, although the economy was under pressure, it was showing resilience. “The Israeli economy is bearing the weight of the longest and most expensive war in the country's history,” Smotrich said on September 28, the day after Israeli airstrikes killed Hezbollah leader Hassan Nasrallah in Beirut. The Bank of Israel estimated in May that the costs arising from the war will amount to 250 billion shekels (about 66 billion dollars) by the end of next year, including military costs and civilian expenditures. These costs are expected to rise further as fighting with Iran and its proxies, including Hezbollah in Lebanon, intensifies: for example, Iranian missiles on October 1 caused between 39 and 52 million dollars in damages to real estate. Smotrich expressed optimism that the Israeli economy would recover once the war is over, but economists fear that the damages will last long beyond the conflict. According to CNN, the Lebanese economy, in turn, could contract by as much as 5% this year due to cross-border attacks between Hezbollah and Israel, according to BMI, a market research firm of Fitch Solutions. Economic projections for Israel are now declining. The widening of the conflict has made consumer demand highly unstable, while the tourism sector is expected to continue to be severely affected. The Israeli Ministry of Tourism estimated that the loss of revenue from foreign tourists amounts to 18.7 billion shekels (4.9 billion dollars) since the beginning of the war.