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

LVMH CEO Bernard Arnault warned on Thursday of a “global catastrophe” if the conflict in the Middle East is not resolved.

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

“The world is now in deep trouble in the Middle East,” a longtime executive told shareholders at the company’s Annual General Meeting in Paris.

“It could be a global crisis with a very bad and very bad economic impact – in that case, who can say how 2026 will happen – or it will be resolved quickly in a certain way or in a situation that we all hope for, even if it does not seem easy, if so, the business will recover and resume their normal course,” he said, according to the version of LVM.

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 US and Israel, however, Arnault expects to see a return to growth in the second half of this year.

A ceasefire is in place for now but there is little clarity on when or how the conflict will end. Both the US and Iran use the Strait of Hormuz as a bargaining chip, as about a fifth of the world’s oil usually comes through the narrow waterway. The successful closure of the strait has led to “the biggest energy security risk 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 sales slump in March due to lower activity in the Middle East, which weighed on revenue and quarterly dividends.

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

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

In the short term, products will be affected by the conflict, which significantly reduces traffic in the region, said D’Auria. “It remains to be seen whether this decline will be offset by Middle Eastern customers shopping elsewhere outside the Middle East.”

For many major luxury brands, the Middle East accounts for almost one-third of total sales, and others, such as the owner of Cartier. Richemonthigh exposure in the region. Profits, however, tend to be higher, making the impact on a company’s bottom line worse.

Morningstar analyst Jelena Sokolova said the broader luxury recovery appears to be progressing well, “but at a soft and uneven pace.”

The luxury sector had started to show signs of recovery after a year-long slump caused by demand from Chinese consumers, which had previously been one of the main drivers of the sector’s growth.

“LVMH has seen improvement in Chinese consumers, but Kering has not yet seen it in Gucci,” Sokolova told CNBC. “For Hermes, Asia excluding Japan is declining in sequence. So far, real estate prices under pressure [in China]Confidence in the Chinese market remains low.”

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

Hermes – which has fared better than many peers so far as its wealthiest customers have proved resilient – also missed the mark in first-quarter sales. It said “retail operations were significantly affected by lower retail sales, particularly in the Middle East and airports.”

Meanwhile, younger peers Moncler again Brunello Cucinelli he saw little effect from the conflict. Moncler flagged that EMEA sales were down 1% year-on-year, partly due to trends in travel trends in the region.

In what D’Auria calls a “two-speed recovery,” some elite brands are thriving, while others, which often cater to the middle market for luxury, are lagging behind. Mid-market players now have to position themselves strategically to capture consumers who have been left behind by price increases in recent years, he adds.

Arnault on Thursday emphasized LVMH’s desire to move forward in the luxury jewelry business, which has fared better amid the sector’s downturn as those buyers tend to be wealthier and more price-sensitive. The CEO wants his company to be the “best jewelry brand” in five years, betting on jeweler Tiffany to drive most of it.

Richemont, Pradaagain 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