As signs grow that the war among the United States, Israel and Iran will drag on, warnings are emerging that the economy of Dubai in the United Arab Emirates (UAE), the Middle East's largest consumer hub, is on high alert.
On the 19th (local time), the Dubai Mall beneath the Burj Khalifa skyscraper appeared to remain quiet. This shopping mall, which houses many luxury brands such as Rolex, Hermès and Ferragamo, has usually been packed with tourists flocking to buy luxury goods, but as the war enters its third week, the number of customers is rapidly declining.
Dubai had previously emerged as the most powerful consumer growth engine in the Middle East. According to Morgan Stanley, half of all luxury sales in the Middle East come from the UAE, with a large share of flagship stores concentrated in Dubai. In particular, luxury stores such as Chanel, Gucci and Saint Laurent are clustered around key shopping hubs the Mall of the Emirates and the Dubai Mall, and the two malls have attracted more than 140 million visitors annually.
However, as Dubai's core competitive edge—its image as a "safe haven"—has wavered, the city appears to be facing a pullback in consumption. Following the seven-star hotel "Burj Al Arab" and Jebel Ali Port, a fire also broke out at Dubai International Airport due to attacks originating from Iran, and as foreign tourists quickly departed, the city once called a "playground for billionaires" is on track toward desolation.
In fact, Dubai's consumer base consists of wealthy residents and tourists. As of last year, one out of nine Dubai residents bought luxury goods every quarter, a level of purchasing power considered higher than New York, London, Paris and Singapore. Tourists are also a key pillar driving consumption, and Dubai has recently shown rapid growth, with annual visitors exceeding 20 million.
As a result, the luxury industry has taken a direct hit to sales. Bernstein Research projected that due to a sharp drop in foreign visitors, March luxury sales in the Middle East will fall to about half compared with before the start of the war. Luca Solca, a Bernstein analyst, said, "If the war ends quickly, the damage will be temporary," but warned, "If it drags on, recovery will be difficult."
The Middle Eastern market accounts for a limited share of the global luxury industry, but it has recently been credited with serving as a "growth pillar" offsetting slower demand in Asia and Europe. According to the Chalhoub Group, the largest luxury distributor in the Middle East, the Gulf region's luxury market is worth about $13 billion in 2024, up 6% from the previous year.
Large-scale investments have followed amid growth expectations. About $50 billion has been injected into the "Dubai Square" project, an ultra-large integrated shopping city slated to open in 2028, and at least three new shopping malls are reportedly in the pipeline for Dubai. LVMH, which has expanded investments in stores, airport duty-free shops and resorts by building ties with the Dubai royal family, is also said to be fleshing out plans to open the top-tier luxury hotel "Cheval Blanc."
UAE leaders are scrambling to calm nerves. President Mohammed bin Zayed Al Nahyan and Crown Prince Sheikh Hamdan bin Mohammed Al Maktoum visited the Dubai Mall earlier this month, greeting employees and dining with them, and posted the scenes on social media (SNS) as they moved to defuse the situation. News outlets are reportedly being advised by authorities to minimize coverage of damaged sites.