Strait of Hormuz standoff puts supply of America's generic drug prescriptions at risk

An employee monitors bottles as they move along the drug production line inside the packaging unit at the Lupin Ltd. pharmaceutical plant in Salcette, Goa, India,

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The closure of the Strait of Hormuz by Iran is a military strategy with vast consequences for the global economy, not just in the form of higher oil prices, but with disruptions in supply chains involving metals and manufacturing, and farming and food prices. And at some point in the future, supply chain experts say, Iran’s attempt to choke of the strait will also hit American medicine cabinets. The only question is exactly how long existing stockpiles of prescriptions of generic drugs can last before the U.S.-Iran war becomes a significant health issue in the U.S.

The connection between a Middle Eastern sea chokepoint and a U.S. pharmacy counter is less obvious than it might seem — and more direct than most consumers realize. The U.S. gets nearly half of its generic prescriptions from India — roughly 47 percent by volume, according to Rohit Tripathi, vice president of industry strategy for manufacturing at RELEX Solutions, a Helsinki-based pharmaceuticals supply chain planning software company. India, in turn, depends on the Strait of Hormuz for around 40 percent of its crude oil imports. “That oil ultimately feeds into the petrochemical inputs used throughout pharmaceutical manufacturing. So even though American consumers are not buying medicines directly from the Gulf, they are still at the end of a supply chain that runs through it,” Tripathi said.

Multiple ingredients needed to manufacture many drugs in India often travel through Gulf logistics hubs first. Chemical inputs produced in China are commonly consolidated by distributors in places like Dubai and across the UAE before being shipped on to Indian drug manufacturers. “Even when ingredients move directly from China to India, production still relies heavily on petrochemical supplies from the Gulf,” said Steve Blough, chief supply chain strategist at Infios, a supply chain execution software firm. “Disruptions around the Strait of Hormuz could quickly ripple into global pharmaceutical supply chains and eventually affect U.S. consumers,” Blough said, adding that the situation could quickly manifest as shortages for critical medicines in the U.S. and higher costs.

“Fuel costs will effect the costs of everything, but the biggest effects will be on generics because they have the tightest margins,” said Mark Hahn,  former dean of the University of Las Vegas medical school and current chief of hematology. Hahn points to glycerin, a common medication ingredient that is petroleum-based, that could be impacted if oil supplies remained choked off. Acetaminophen, he points out, is traditionally manufactured from phenol, a chemical derived from petroleum.

“I worry about generic drugs in particular, which represent 90% of prescriptions filled in the U.S. and deliver thin profit margins for manufacturers,” said Dr. William Feldman, associate professor of medicine in the division of pulmonary, critical care, sleep medicine, clinical immunology & allergy at the David Geffen School of Medicine at UCLA. “India and China are the biggest suppliers of generic drugs to the U.S., and prolonged or widening conflict could raise costs for generic firms, leading to higher prices and/or shortages for patients,” he said.

U.S. Treasury Secretary Scott Bessent told CNBC’s Brian Sullivan on Monday morning that the U.S. is allowing Iranian tankers to transit the Strait of Hormuz to supply countries including India.

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Recent supply chain disruptions and freight rate increases are a warning sign, but not a red alert, according to Tripathi. “Early signals are already starting to show up in freight markets, with some reports of rising air cargo rates out of India and growing concern among manufacturers about potential inventory pressure,” he said. If the strait stays closed, “shortages will start to surface,” he said.

Air cargo rates from India have reportedly climbed 200 to 350 percent for some routes, according to Blough. Because most pharmacies and wholesalers operate on a just-in-time inventory model for generics, he warned that sustained disruption could start showing up for consumers within four to six weeks — first as shortages or delays for high-volume medications like diabetes drugs, hypertension treatments, statins, and antibiotics, and potentially extending to some temperature-sensitive therapies, including certain cancer treatments.

The longer the war lasts, there is a real likelihood that consumer and health system will see price increases and disruptions of the supply chain, said Amanda Chawla, senior vice president and chief supply chain and post acute care officer at Stanford Health Care. It is not only drugs she is worried about. Beyond acetaminophen and antibiotics, she said insulin syringes, hand sanitizers, nitrile exam gloves, and ointments that require petroleum or petroleum by-products in manufacturing for production are at risk. As the price of oil increases, that will translate to the cost production of such goods.

The sea-freight picture carries its own complications with shipping delays not only increasing the cost and time needed to move finished medicines. While some shipments use sophisticated cryogenic containers, many still rely on cooler-style packaging that requires ice or battery-powered fans to be replenished every few hours to prevent a cold-chain failure. Refrigerated “reefer” containers operate on strict transit timelines, and with canceled sailings and diverted routes, some containers are stuck at origin ports while others are stranded at diversion hubs that may not have the power capacity to keep large volumes of refrigerated cargo running. Empty containers are also becoming trapped in the Middle East, preventing them from returning to Asia to load new shipments. Container shortages typically associated with supply chain disruptions mean Indian exporters may have to compete for limited cargo space.

“That creates a cascading problem: full containers can’t move, in-transit cargo must stay cold, and manufacturers may struggle to secure the specialized equipment needed to ship the next batch of medicines,” Blough said. Some carriers may even declare force majeure, relieving them of liability for delays or damage tied to the disruption.

From India to Ohio, no reason for supply panic today

The central question when it comes to health care supply is one of timing. Most manufacturers and distributors currently hold 30 to 60 days of buffer stock, according to Tripathi, so the first two to four weeks may feel manageable. The products most vulnerable once that buffer runs thin would likely be everyday generics where supply chains are already tight and margins are thin — common antibiotics like amoxicillin, blood-pressure medications such as metoprolol, diabetes drugs like metformin, statins, and common painkillers.

But in Germantown, Ohio — population around 5,000, half a world away from the smoldering refineries and sinking ships in the Strait of Hormuz — a one-screen theater shows recent releases, a colorful barber pole beckons customers for a haircut, and the mood at the Germantown Pharmacy where prescriptions are filled far from the chain giants remains calm. Pharmacist Katie Perry, who owns the pharmacy, says it is business as usual. She pointed to the nation’s strategic national stockpile as a backstop and noted that Covid helped many pharmacists build resiliency into their supply chains. If a drug isn’t available from one source, there is usually enough redundancy built in to procure it from another.

Within the India-based drug manufacturing industry, the current message is that patients should not be living in fear of a supply panic. Kathleen Jaeger, the U.S. spokesperson for the Indian Pharmaceutical Alliance, a trade organization representing India’s generic drug industry, says consumers should not expect to see empty medicine cabinets in the short term. “There is no risk today. People will watch and be mindful, but when you realize this industry has gone through Covid, the Red Sea issue, and Ukraine, everyone is doing their very best to manage these disruptions,” she said. Most companies, she notes, have three to six months’ worth of medication stockpiled. “Companies plan extensively for disruption,” she added.

The major Indian generic manufacturers — including Indian Pharmaceutical Alliance members Sun Pharma, Dr. Reddy’s Laboratories, and Lupin, which together account for a significant share of U.S. generic prescriptions — have not issued independent statements on the conflict, deferring instead to the trade group’s reassurances. Jaeger stressed the importance of lasting public-private partnerships in helping to bring some Indian drug companies production to the U.S., and some Indian companies have begun to invest more in reshoring initiatives. Lupin announced plans to invest $250 million to build a new production facility in Coral Springs, Florida, focused on respiratory drugs.

Perry said customers are not expressing concerns about war-related shortages. “They are way more concerned about the war between PBMs, pharmacies, and consumers,” she said, referring to the complicated reimbursement rates pharmacy benefit managers set for local pharmacies, which directly impact prices. Perry, who is also an advisory board member of the School of Pharmacy at Cedarville University, has seen supply shocks before. A fire at a wholesale location last year forced her to resource product from elsewhere. “Crazy things happen every day,” she said. “Those things can always happen.”

For now, the pills are on the shelves. The question experts are watching is how long that holds. “The region is a critical transit point for pharmaceutical cargo,” Blough said.

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