The Iran war: its likely impacts on Australian healthcare

Whatever its eventual outcome, the US / Israeli attack on Iran has already unleashed a wave of consequences that will shape global political and economic outcomes for months and years to come. The aim of this post is to explore how the concatenating effects of this conflict might end up impacting the Australian healthcare system, public and private, and perhaps even the health of Australians.

Before we discuss what the war might mean for Australian healthcare, we might want to reflect from our position of safety on the substantial impacts it has already had on the Iranian health system. For example, the active targeting of the Pasteur Institute in Tehran, Iran’s leading public health institution and part of a worldwide WHO network; and the deliberate bombing of Iranian pharmaceutical manufacturing plants. These attacks represent a further acceleration of the already alarming trend towards active targeting of healthcare infrastructure and healthcare workers as a deliberate strategy of war in recent years.

Thus far, the Australia Defence Force’s somewhat ambiguous deployment in the region appears not to have led to any Australian casualties. While casualties from limited operations such as this will be managed within the capabilities of the ADF’s medical services system, it is important to acknowledge that higher casualty rates in any future large scale military operations would feed through into pressure on civilian healthcare systems (some European countries have certainly been planning on that basis in light of the Ukraine war) – even if Australia was not itself under direct attack. We must therefore hope that the Australian Government remains skilful enough to avoid further embroilment in other countries’ illegal wars of choice.

Direct casualties aside, then, what are the most likely mechanisms by which the Iran conflict might touch Australian health and healthcare? The proximate cause of most (but not all) of these potential impacts is, of course, Iran’s “tollbooth” – its de facto control and restriction of shipping through the Strait of Hormuz. This has already choked off significant portions of the global supply of petrochemicals, including crude and refined oil, liquid natural gas, fertilizers, helium, naphtha and other petrochemical derivatives that are essential to a vast constellation of products – including many that are essential for modern healthcare. At the same time, oil and gas processing and transport infrastructure have been destroyed by both sides across the Gulf. Even if hostilities ended today and the Straits of Hormuz reopened to all shipping, global supply will remain constrained until such time as this capacity can be repaired – which may take years.

This choking of global petrochemical supply will be felt via three tightly linked mechanisms: direct supply chain shortages and physical scarcity; higher prices across all supply chains; and overall global macroeconomic impacts.

Scarcity, Supply and Prices

We are all aware of Government reassurances on available fuel security and reserves for petrol and diesel in Australia. There is considerable uncertainty over what might happen once the last consignments to have cleared the Strait of Hormuz reach their destinations, even as Australia and our regional neighbours seek to provide mutual reassurance on energy supply. Unambiguously, though, supply will remain constrained for months if not years to come. Global oil prices have skyrocketed more than 90% on their level a year ago, almost matching levels seen early in the Ukraine war. Global LNG prices have not seen the same levels of increase, and Australian LNG prices have not spiked appreciably – but it would be brave indeed to rule out the possibility of gas price increases over coming months if supply remains constrained. High fuel prices and the risk of fertiliser shortages are already raising uncertainty over crop planting decisions and crop yields in Australia and around the world. While governments can provide some targeted relief to consumers (e.g. cuts in fuel tax excise), the price of energy in general (and of oil in particular) impacts almost every good or service produced in the modern economy – through direct energy use, embodied inputs into other goods and processes, and transportation. High oil prices are the ultimate carbon tax – and a global oil shock is far more destructive of prosperity than even the most fevered carbon tax nightmares of the climate denialists.

A substantial portion of healthcare products and supply chains will be directly impacted. A large proportion of pharmaceutical feedstocks are derived from petrochemicals, as are medical plastics, consumables, devices, packaging etc. – and most manufacturing of active ingredients still takes place in China and India, requiring transportation over long supply routes. Helium is a seemingly obscure input into a number of healthcare applications (especially MRI machines), and is cracked from LNG – and thus directly impacted by war damage and the closure of the Strait of Hormuz. Commonwealth and state / territory health agencies are actively monitoring the Australian medical supply chain. However, current “low” risk ratings might change over time if the conflict drags on, or global output of key products cannot return to pre-conflict levels. Again, current deliveries are from orders filled before the Strait was closed. It is, however, almost certain that prices will rise across the gamut of healthcare supplies, with inevitable financial consequences for healthcare providers, payers and patients alike. At some point, constrained supply and/or elevated prices in the healthcare supply chain will start to constrain operational activity in both the private and public health sectors.

Macroeconomic Impacts

Historically, global oil shocks of the magnitude we are now experiencing have consistently caused global recessions in the following year or two. It is all but inconceivable that the world will escape a similar – and significant – recession over coming months. Australia had already arrived at the brink of stagflation – simultaneously rising inflation and rising unemployment – even before the US and Israel attacked Iran, with the “cost of living crisis” having been the lowest common denominator of retail politics for several years already. The macroeconomic consequences of the Iran war are straightforward and ugly. A global recession will reduce demand and drive further increases in unemployment, even as oil and energy prices remain high, further punishing households and businesses. The nature of stagflation (especially as driven through an oil price shock) is, unfortunately, that “demand destruction” through falling GDP is not sufficient to bring down prices – leading to a trap of falling incomes and rising prices that is hard to exit.

In Australia’s unbalanced health system, with its excessive reliance on out of pocket payments by patients, this recessionary stagflation trap will further choke off the ability of households and consumers to pay for private care; more and more will forego necessary care, or abandon private health insurance and turn to the public system, driving up waiting lists and times – while private providers will see revenues drop and find their financial viability increasingly at risk. It is critical to remember that the external pressures triggered by the attack on Iran arrive in a health system already gravely stressed by “cost of living” pressures. Policy responses to these pre-existing pressures (e.g. bulk-billing incentives, mandatory reporting of specialist fees etc.) have been controversial amongst sections of the medical profession. They will seem mild compared to the measures that may become necessary to sustain adequate population access to care in coming years.

Managed poorly, rising unemployment itself directly drives poorer health outcomes – physical and mental – and hence demand for care, while undermining the ability of patients to afford out of pocket payments. Cost pressures in other sectors – especially food – may have particularly severe additional consequences for the health of the unemployed and their families. Indeed, food security is arguably the ultimate social determinant of health, and hence warrants special focus above and beyond other sectors. While not connected to the Iran war, it is also important to flag the risk that additional job losses due to the expansion of artificial intelligence may also materialise at exactly the worst possible moment, multiplying the social harms of the oil shock and stagflation trap. Inappropriate or inadequate fiscal support for the unemployed will not only blight lives and cause avoidable harm – it may also inadvertently punch another hole below the waterline of the struggling healthcare system. Extensive evidence from Europe in the aftermath of the Global Financial Crisis shows clearly that “austerity” policies and politics caused measurable and lasting damage to both population health and to the resilience of healthcare systems. The Australian Government – as the ultimate fiscal authority – will face complex challenges in protecting the health and wellbeing of Australians in the coming months and years. Australians are very likely to have to forego consumption in a number of different areas; but such “austerity” must be carefully planned and equitably borne. The pantomime politics of “debt” and “out of control spending” will predictably seek to cast the unemployed as bludgers, while protecting “wealth creators” who are already rich. However, we are now entering territory in which governments of all stripes must prioritise physical scarcity and meeting basic needs. Those corporations (including in healthcare) which do not adjust their profit expectations downwards to match this new reality and to meet the wider needs of society can expect not to survive. Bond markets may be able to face down governments; but when a democratic government simultaneously faces both a hungry populace and an angry bond market, the hungry voters will win.

Made in America…

Meanwhile, other unpleasant surprises will likely emanate from the USA, as if they hadn’t already caused enough trouble. Rumblings of a possible crisis in private lending might – if true – have particular impacts on the private equity industry and its significant holdings in Australian private healthcare and aged care provision. President Trump has recently mused aloud about further cuts to US federal healthcare spending to release funds for the military. Be sure that he will seek to make other countries foot this bill, be that through further pharmaceutical tariffs or renewed attacks on the Pharmaceutical Benefits scheme and its equivalents in other countries. The Trump administration will have as little compunction about financially targeting the healthcare systems of other nations as they and their Israeli allies have had in targeting the physical health infrastructure of Iran.

Rising prices and unemployment; declining affordability of healthcare; a stressed private sector unwilling to adjust to an era of straitened circumstances; and a public system trying to keep the show on the road in a global recession and stagflation. What could possibly go wrong?

Next Time: Plausible policy responses (much as I would like to, I simply can’t bring myself to say “solutions”)