Impact of the Russia Ukraine war on the pharmaceutical sector

While the ongoing Russian-Ukrainian war has had geopolitical and security repercussions not only in the region but even beyond, the economic and trade fallout has been no less profound. As the West imposes harsh sanctions on Russia, oil and gas prices have tended to soar with attendant implications for the global economy. At the same time, disruptions in the supply chain of other commodities and raw materials have had consequences not only for industry and manufacturing, but also for end consumers.

How does the war cast its shadow over the global economy as well as the Indian economy? In particular, what is its impact on the global pharmaceutical industry as well as the Indian pharmaceutical industry?

Bad forecasts for the global economy

There is no doubt that a war raging in one of the most resource-rich regions is likely to wreak havoc on the global economy. With trade and commerce disruptions, financial exchanges, population movements (a refugee crisis already underway), food shortages and inflation, the global economy is eyeing a downturn just when it appeared to be recovering of the crisis caused by the pandemic. The fact that Russia and Ukraine are key suppliers of wheat and corn as well as metals such as titanium and palladium has adverse consequences in terms of food availability as well as increased automobile manufacturing costs. , smartphones and airplanes. Russia is also a dominant producer of aluminum and nickel, essential inputs for modern manufacturing. According to one estimate, due to the war, global GDP is expected to decline by 0.5% in 2022 and nearly 1% by 2023, which could result in a 3% rise in global inflation in 2022 and around 2% in 2023. .

Unfavorable outlook for Indian economy: heavy reliance on imports for some commodities

Similarly for India, a rise in commodity prices is likely to increase the burden of imports and the current account deficit while leading to a depreciation of the rupee and high domestic inflation. Although the country’s direct trade exposure to Russia, Ukraine and Belarus is limited, at 1% of total exports and 2.1% of total imports, it is largely dependent on a range of imports . For example, more than 11% of India’s imports of edible oils and fertilizers come from these countries. Similarly, Ukraine and Russia supply more than 90% of India’s sunflower oil imports.

The implications for global pharma

As far as the global pharmaceutical industry is concerned, the impact of the war on the global pharmaceutical industry was limited to the investments and operations of pharmaceutical manufacturers, as well as the business interests of exporters in Russia, Ukraine and in other CIS countries, a phenomenon that may well be short-lived. term and temporary. It is also because Russia and Ukraine are largely pharmaceutical importing countries, which means that the global pharmaceutical industry is not very dependent on this region for essential raw materials and supplies. Indeed, several global pharmaceutical companies have reduced their activities in Russia. Yet the argument that the pharmaceutical industry depends on oil and gas not only for transportation and logistics, but also that a large number of pharmaceuticals are made from petrochemicals, is valid. For example, petrochemicals are used to make painkillers, antidepressants, antihistamines, antibiotics, antidiabetic agents, antibacterials, cough syrups, creams, ointments, ointments, gels, etc. oxygen masks, etc., while oil-based processed plastics are used in heart valves. Although we know that Russia is the world’s largest exporter of oil to world markets and the second largest exporter of crude oil behind Saudi Arabia, it is difficult to estimate at this time to what extent the ongoing war could impact the production levels of global pharmaceutical companies.

The implications for Indian pharma

Just as the global pharmaceutical industry has been relatively less susceptible to the ongoing turmoil in Central Asia, the manufacturing capacities of India’s pharmaceutical industry are also war-proof given our negligible dependence on raw materials and pharmaceutical supplies from Russia, Ukraine and other CIS countries (except aluminum foil for packaging). Russia’s share of India’s crude oil imports is around 1%, compared to 63% for West Asia. Yet rising fuel prices have led to higher transportation costs, disrupted supply routes and war-related logistical issues have challenged Indian pharmaceutical exporters and manufacturers. Moreover, since Russia accounts for almost 2.4% of Indian pharmaceutical exports, there would be a loss of business for Indian exporters in the immediate term. In fact, Russia accounts for 50% of pharmaceutical exports to CIS countries. The fact that India is also the third largest exporter of pharmaceutical products to Ukraine is also relevant in this context. At the same time, some Indian companies have significant investments in Russia and maintain close ties with the Russian market. They are unlikely to stop the operations, especially given the special bilateral relationship that India and Russia have with each other. In the very short term, Russia’s ouster from Swift payment systems disrupted payments for many Indian pharmaceutical exporters who had supplied products to Russia and other CIS countries before the war began. In addition, several shipments to these countries and already in transit are blocked in ports, further encroaching on the production cycles of these manufacturers. Some manufacturers have also complained about the rising cost of aluminum foil needed for pharmaceutical packaging, of which Ukraine is known to be a major source.

Therefore, even as the war intensified pressure on global commodity markets and fuel prices with spillover effects on the economy, the pharmaceutical sector suffered somewhat in a limited way. Yes, pharma exporters and those with on-the-ground investment presence in the region have experienced temporary setbacks, but the global pharma sector as a whole has not been affected much given the low reliance towards this region for supplies and raw materials. . While the Istanbul talks indicate signs of backsliding from both sides, it looks like the current turmoil in the economy and pharmaceutical sector may soon be over. We must not lose hope.