The conflict in the Middle East is now posing serious risks to the AI supply chain, particularly the semiconductor industry; the effects could be devastating.
Taiwan’s LNG Reserves Are Only Lasting a Few Days, Indicating That TSMC and Other AI Chip Suppliers Will Face Serious Trouble
The semiconductor industry is now at a critical point, and this is a major issue that isn’t being discussed in the mainstream market at all. In an initial report, we discussed Asia’s dependence on helium imports from the Middle East and how geopolitical tensions could have severe consequences for the semiconductor supply chain. However, it now appears the conflict is extending into several weeks, and if this actually happens, it could very well trigger a ‘black swan’ event in the chip industry, according to the outlet Ctee, quoting a Barclays report.
Barclays research team points out that the Middle East conflict has entered its third week, which coincides with the typical shipping cycle for crude oil and natural gas from the Middle East to North Asia.
As time goes on, the impact of energy disruptions will gradually become apparent, and the market’s focus has shifted from whether oil prices will break through $100 per barrel to whether the semiconductor industry can maintain its power and raw material supply.
– Ctee
The effects on Taiwan and South Korea following the Middle East conflict are far greater than in other regions of the world, mainly because these nations are heavily dependent on the Strait of Hormuz for their oil supply. It is claimed that the above nations have ample stockpiles to sustain a conflict, but at the same time, a large portion of those reserves is dedicated to “petrochemical applications”, meaning that Taiwan and South Korea, for power generation, are dependent on their import networks.
The report notes that LNG stockpiles are the immediate concern for these countries, as Taiwan reportedly has enough for only 11 days. This indicates that electricity generation is expected to pose a significant challenge for Taiwan in the near future. More importantly, TSMC accounts for more than 10% of Taiwan’s total electricity output, meaning any disruptions could have a profound effect on TSMC’s semiconductor production lines. Taiwan’s vulnerability also stems from the nation’s phased-out efforts to generate electricity from coal, in line with environmental policies.
Image Credits: TSMC
Not just LNG, but Taiwan is also dependent on helium and bromine from the Middle East, which means the ongoing geopolitical conflict has dire consequences for the semiconductor industry. And even a nominal reduction in TSMC’s production figures could force customers like NVIDIA, AMD, and others in the AI industry to reconsider deployment/delivery plans, triggering a ‘domino effect’ that would affect the broader AI infrastructure buildout.
The reliance on Taiwan and South Korea by Big Tech indicates that these companies would be affected by the Middle East conflict as well, and considering how the AI buildout has driven America’s economy in recent times, there’s no doubt that if the conflict deepens, the aftershocks will be felt by everyone involved in the AI race.
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