Luxury stocks plummet amid Iran conflict

Luxury stocks were among the hardest hit sectors early on Tuesday, with European markets heading for another day of losses as the conflict in the Middle East escalated overnight.

Conglomerate shares LVMHGucci owner Keringand the British outerwear manufacturer Burberry They were among the worst performers, with losses so far this week close to 10% each. The broadest index of European blue chip stocks, Stoxx 600fell almost 3% on Tuesday, after falling 1.6% on Monday.

The Middle East has been an engine of growth in the sector, which is struggling against a difficult macroeconomic backdrop, and many of the once best-selling brands are struggling to resonate with consumers.

However, the region’s strength has not been enough to offset weakness elsewhere, especially in China, and industry giants such as LVMH and Kering are still struggling to get sales back on a positive path.

“The Middle East has been one of the few bright spots,” Morningstar analyst Jelena Sokolova told CNBC. “There’s an area that was small, but very, very vibrant, and it’s being affected now.”

The United States and Israel launched widespread attacks on Iran over the weekend that killed the country’s supreme leader, Ayatollah Ali Khamenei. Iran responded with retaliatory attacks and the conflict now engulfs the entire Middle East region with no clear end in sight.

US President Donald Trump has said the war could last four to five weeks, but could last “much longer.”

Actions of Richemontowner of Cartier, Van Cleef and Chloé, fell sharply on Monday and Tuesday, with relatively large exposure to the region.

But even with average Middle East revenue exposure in the mid-to-high single digits for luxury brands, the fallout could spread if a conflict lasts weeks or even months.

“If people don’t get back to normal and we have more problems when it comes to supplying oil and gas from the Gulf, then the likelihood of a global recession could be increasing, and that would definitely hurt discretionary sectors like luxury,” Bernstein analyst Luca Solca told CNBC.

If the war continues for another six months, during which oil changes significantly, “so it’s very bad news,” he added.

Luxury stocks are under pressure in times of heightened geopolitical and economic uncertainty because demand typically requires a context of “well-being” and consumer confidence, analysts say.

“Luxury demand is based on positive consumer confidence and a constructive view of future prospects, as well as the consumer experience, which is often less transactional and more emotional,” RBC Capital Markets analysts wrote in a note to clients on Monday. “Conflict, shock, uncertainty and fear do not help in this context and may have a short-term impact on luxury demand.”

The impact on overall asset prices remains to be seen, but moves so far indicate that an impact is expected, at least in the short term.

There are huge uncertainties about a possible end to the conflict and when it would be, Sokolova said, however, she also called the market reaction “exaggerated” given the relatively small proportion of sales coming from the region.

Attacks between the United States, Israel and Iran in the region have forced airlines to cancel thousands of flights. While some airlines said Monday they would resume a “limited number” of flights, planes remain largely grounded as the conflict enters its fourth day.

The timing of the attacks also coincides with Ramadan, meaning post-Ramadan travel may be disrupted if the conflict drags on. Travel from the Middle East after the month-long celebration is predominantly to Europe, RBC said.

“Given the timing of the Iran war conflict and the current suspension of commercial flights, there may be a reluctance on the part of Middle Eastern consumers to travel after Ramadan in 2026, which would likely negatively impact some of luxury consumption in Europe.”