US-Iran escalation disrupts vital trade corridors, leaving Indian pharma on edge

On February 28, coordinated US and Israeli strikes on Iran resulted in the death of Iranian supreme leader Ayatollah Ali Khamenei. The conflict has since widened.

• India pharma faces supply chain risks from Middle East conflict
• Rising energy and shipping costs threaten drug production
• Firms rely on inventory buffers but fear prolonged disruption

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The pharmaceutical sector is bracing for another round of supply‑chain disruption as escalating conflict in West Asai threatens to push up logistics and energy costs, industry executives told Moneycontrol.

The sector is experiencing COVID‑19 like uncertainty, Indian Pharmaceutical Alliance secretary general Sudarshan Jain said. “We are facing a Covid pandemic kind of uncertainty,” he said, pointing to rising risks around shipping routes and energy prices. “The big question is logistics and energy costs.”

Manufacturers are counting on buffer stocks to manage delays. “We keep a lot of inventory, three–six months,” Jain said, noting that lessons from the pandemic and past Red Sea disruptions have made companies more cautious.

India exported $30.47 billion worth of pharmaceuticals in FY25, with around $1.75 billion tied to the Middle East and North Africa (MENA) region, making the current instability particularly worrying.

India's low cost but high volume life-saving medicines are critical for health systems of many countries in the region.

Another industry executive, who declined to be named, said the fallout extends beyond finished drug shipments.

India relies on China for many active pharmaceutical ingredients (APIs) but depends heavily on Europe for high‑end key starting materials (KSMs) and specialty chemicals.

“Potential delays in these imports can stall the production of complex generics and value‑added medicines,” the executive said.

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A weakening rupee and rising crude prices are also pushing up costs of petrochemical‑derived solvents and chemical intermediates, inputs that are essential to drug manufacturing.

For API makers, power accounts for as much as 25 percent of production costs, making them extremely sensitive to energy price spikes. The industry is also preparing for a sharp jump in cargo prices. Air‑freight rates for emergency medical supplies have already risen 3x to 5x, the document noted.

The current crisis stems from a dramatic escalation on February 28 when coordinated US and Israeli strikes on Iran resulted in the death of Iranian supreme leader Ayatollah Ali Khamenei. Iran retaliated with attacks on US military facilities and commercial hubs across the UAE, Saudi Arabia, Bahrain, Kuwait and Qatar, leading to the shutdown of the strategically vital Strait of Hormuz. Oil prices surged 10 percent following the strikes.

With the Strait of Hormuz compromised and the Red Sea still unsafe due to Houthi attacks, shipping firms have begun rerouting vessels around the Cape of Good Hope. This detour adds 15–20 days to transit times between Asia and Europe. War‑risk insurance premiums and freight surcharges have risen sharply as a result, raising fears of delayed shipments and higher input costs for Indian drugmakers.

Industry leaders worry that prolonged disruption could choke supplies of crucial ingredients, inflate manufacturing costs and slow production of vital generics. For now, companies are leaning on their inventory buffers, but many warn that the situation could worsen if geopolitical tensions continue to escalate.