LVMH CEO Arnault warns of ‘world catastrophe’ if Middle East conflict is not resolved

His comments came after the Iran war weighed on demand in the first three months of the year, halving the luxury giant’s sales growth.

“The world is now in a pretty serious crisis in the Middle East,” the longtime CEO told shareholders at the company’s Annual General Meeting in Paris. 

“Either it’ll be a world catastrophe with very serious and very negative economic impact – in which case, who can say how 2026 will unfold – or it will be resolved more rapidly in some shape or form that we all hope for, even if it doesn’t seem to be easy, in which case, business will recover and resume their normal course,” he said, according to a translation by LVMH. 

Organic sales at the world’s largest luxury company grew 1% in the first quarter. The Middle East conflict had a 1% negative impact on organic growth, LVMH said last week, effectively cutting quarterly growth in half.

If a solution can be reached between Iran, the U.S. and Israel, however, Arnault expects to see a return to growth in the second half of this year.

A ceasefire is currently in place but there’s little clarity on when or how the conflict could be brought to an end. Both the U.S. and Iran are using the Strait of Hormuz as a bargaining chip, as around a fifth of global oil normally comes through the narrow waterway. The effective closure of the strait has led to the “biggest energy security threat in history,” the head of the International Energy Agency told CNBC on Thursday.

Arnault’s comments come as many of LVMH’s peers also faced a hit to sales in March due to subdued activity in the Middle East, weighing on both quarterly earnings and shares.

The conflict comes at a particularly precarious time for the luxury sector, which had been largely expected to return to growth in 2026 after a year-long slump – a recovery that is now in jeopardy.

“The Middle East was one of the hot spots for growth… what I am hearing from our clients is that there is a double whammy of consumer sentiment declining, traffic declining, and spend declining,” McKinsey Senior Partner Gemma D’Auria told CNBC.

In the short term, brands will be impacted by the conflict, which is significantly reducing traffic in the region, D’Auria said. “It is yet to be seen whether this decline would be compensated for by Middle East clients shopping elsewhere outside of the Middle East.”

For many big luxury companies, the Middle East accounts for around mid-single-digits of total sales, with some, like Cartier-owner Richemont, having higher exposure to the region. Profitability, however, tends to be higher, making the impact on companies’ bottom line potentially more severe.

“LVMH saw improvement with Chinese consumers, but Kering didn’t see it yet for Gucci,” Sokolova told CNBC. “For Hermes, Asia excluding Japan slowed sequentially. So far, with real estate prices under pressure [in China], confidence in Chinese market remains subdued.”

Gucci-owner Kering said last week that retail revenue in the Middle East declined by 11% in the first quarter, following growth over the first two months of the year. With 79 stores in the region, the Middle East represents around 5% of its retail revenue.

Hermes — which has so far fared better than many peers as its ultra-wealthy clientele has proven more resilient — also significantly missed the mark on first-quarter sales. It said that “wholesale activity was significantly affected by lower sales to concession stores, particularly in the Middle East and in airports.”

Meanwhile, smaller peers Moncler and Brunello Cucinelli saw a lesser impact from the conflict. Moncler flagged that EMEA sales declined by 1% year-on-year, partly as a result of subdued tourism trends into the region.

In what D’Auria calls a “two-speed recovery,” some elite brands are thriving, while others, often catering to the middle-market for luxury, are lagging. The mid-market players are now having to strategically position themselves to capture consumers that were largely left behind due to price increases over recent years, she adds.

Arnault on Thursday emphasized LVMH’s aspiration to move further into the luxury jewelry business, which has held up better amid the sector’s slump as those consumers are typically wealthier and less price sensitive. The CEO wants his company to become “the leading jewelry brand” in five years’ time, betting on jeweler Tiffany to drive much of it.

Richemont, Prada, and Burberry have yet to report first-quarter earnings and comment on the impact of the Iran war on their businesses.

– CNBC’s Holly Ellyatt contributed to this report