Iran war poses challenges to high-margin Middle East car market

European luxury and high-performance brands such as Porsche, Mercedes-Benz, BMW, Rolls-Royce and Ferrari all have had thriving businesses in the Middle East market that, in terms of volume, is less than a fifth of the United States but that punches above its weight in terms of profits.

“The Middle East has recently become one of the highest-margin structural growth regions for premium automakers,” said Metzler Research analyst Pal Skirta.

Those automakers have been faced with declining market share in China and tariffs in the United States, two countries that are among the most important luxury buyers in the world. That has increased the importance of profitable centers like the Middle East as automakers.

The Middle East region, depending on which countries are included, has an annual volume of about 3 million vehicles.

Iran is the biggest market in the region, making up 38% of its total, according to Bernstein Research. Two of the top three biggest sellers are domestic car brands Iran Khodro and SAIPA, which only sell in Iran. Other high-volume brands include Japanese carmaker Toyota, Korea’s Hyundai, and Chinese maker Chery.

Luxury demand is higher in nearby Gulf markets such as Saudi Arabia and the United Arab Emirates — which have a high concentration of wealthy buyers with money to spend, according to GlobalData analyst Vivek Sharma. The UAE alone typically exceeds 300,000 vehicles annually in sales and a relatively high share of that, or about 20%, is premium imports, according to GlobalData.

The ripple effects of the Iran war across the region threaten these automakers.

Volkswagen Group CEO Oliver Blume said in mid-March that the conflict in the region could weaken premium auto demand, especially for VW Group’s Porsche and Audi brands.

Porsche told CNBC in an email that it is “continuously assessing the current situation and possible influences on the company.”

It also said the “current situation in the Middle East could have a negative impact on supply chains and demand in the future.” Porsche doesn’t have any commercial activities in Iran itself.

The automaker has grown in the region over the last half decade or so — both in terms of how many cars it sells and how much money it makes per vehicle. Porsche made 28% more money per car sold in 2025 in the region than it did in 2020, Skirta told CNBC.

As of 2024, the Porsche 911 — which in the U.S. starts at $135,000 — is now 20% of the brand’s total sales in the region, and its ultra-high-end customization business, called Sonderwunsch, grew by roughly 125% between 2020 and 2024.

Meanwhile, BMW Group’s Middle East region deliveries rose by around 10% year-on-year in 2025, according to GlobalData. High-performance and high-priced models, such as BMW M variants, saw growth of around 38%.

Mercedes-Benz also confirmed that its sales in the Middle East have been seeing double-digit growth. It is one of the world’s strongest markets for high-end vehicles such as the AMG G 63, which has a starting price of approximately $200,000. 

Over the past two years, roughly, Mercedes-Benz has expanded its presence in the UAE, Saudi Arabia, Kuwait and Qatar.

Mercedes-Benz told CNBC via email that “it is still too early to draw reliable conclusions or identify clear trends – this also applies to any potential reluctance by customers in the Middle East (or elsewhere) to buy cars. However, we are closely monitoring the dynamic development of the conflict as well as the overall market situation. In principle, we are always prepared to respond flexibly to different market situations.”

Ultra-high-end vehicles also have a robust market in the region.

Ferrari shipped 626 vehicles in 2025 to the Middle East, a notable amount for a low-volume automaker. That’s more than it sent to the UK, Switzerland and France, according to the company.

And in 2024, the region was the world’s largest for customized Rolls-Royces, by average value per car.

GlobalData said after the start of the war that it expects the luxury vehicle segment in the Middle East to grow at around a 7% to 8% compound annual growth rate, potentially reaching close to 300,000 units by 2033.

There are two main threats, said Metzler analyst Skirta. In the short term, conflicts could restrict travel or mobility, which might weigh on showroom traffic and sales. Longer term, weaker asset prices or financial market volatility could depress weather and reduce spending on high-ticket items.

“Ultimately, the impact on the automotive sector will depend heavily on the duration and intensity of the conflict,” he said.

Watch the video to learn more.