Will the Israel/Hamas War Disrupt Medtech Supply Chains?

After wading through the supply chain woes of the COVID-19 pandemic and, more recently, the geopolitical uncertainty of the Russia/Ukraine war, Hamas’ devastating surprise attack on Israel now risks unnerving already ratted markets internationally, causing stock prices to fall, and already elevated interest rates to skyrocket.

The conflict started over the weekend as Iran-backed Hamas militants fired thousands of rockets at southern Israel in a surprise attack that overwhelmed the Iron Dome and caught Israel off guard. The rockets went as north as Tel Aviv. About 1,000 Hamas fighters also took part in the initial incursion, taking more than 130 hostages on foot, and killing hundreds. Israeli prime minister Benjamin Netanyahu has since officially declared war on Hamas as it continues to shell the Gaza Strip in retaliation.

To-date, reports state that more than 800 Israelis and some 500 Palestinians have been killed.

The tech industry as a whole has been the fastest growing sector in Israel over the last few decades, accounting for 14% of jobs and almost a fifth of gross domestic product.

More specifically, Israel has grown to become a successful medtech hub. This is, in part, due to government support opportunities, including financial support for R&D programs, including medical devices, by the Israel Innovation Authority. Additional grants, like the Magnet and Nofar programs are provided directly to startup programs. However, now the hub must contend with potential manufacturing disruptions amid attacks, short-term diverted resources if the conflict expands — like medtech company staff being recalled as military reservists — and the potential blockades of sea-focused shipping lanes.

However, experts note that some of the larger global implications to the supply chain would depend on the duration and intensity of the conflict, as well as if it spreads to other parts of the region like Iran, Lebanon, and Saudi Arabia, plus major shipping lanes that run through chokepoints at the Strait of Hormuz, Bab-el-Mandeb, and Suez Canal.

As of right now, it seems that factories are sill operating, according to Israel’s Manufacturers’ Association. "All companies will continue to operate as much as possible despite the difficult emergency conditions, the rocket barrages and the resulting shortage of workers," said association president Ron Tomer. "Thanks to Israel's production independence... even in times of emergency, the residents of Israel will lack nothing."

Manufacturing isn’t the only way that medtech could face challenges, however, because the conflict also poses a risk of higher oil prices, impacting indirect imports, as well as higher transport costs for products, which would be passed on to the consumers. “While some price increases may be temporary, if the war persists or escalates, it could lead to more sustained disruptions in supply chains and higher costs, potentially impacting consumer prices in the long run,” said Niaz Asadullah, economics professor at Monash University, in an interview for The Sun Daily, focusing on the Malaysian market.

Within the medtech space, Israeli companies have received global attention for innovation. But will these companies be able to weather the incoming geopolitical storm?