As the Middle East conflict enters its third week, the global semiconductor industry faces escalating threats, with the war potentially disrupting key supplies essential for chip manufacturing and increasing electricity costs in Taiwan. Although Taiwan Semiconductor Manufacturing and regional officials have moved to reassure markets, investors, analysts, and industry executives warn that risks are mounting as hostilities continue.
Taiwan's substantial chip manufacturing sector—accounting for approximately one-fifth of its local economy—relies heavily on significant imports of chemicals, components, equipment, and other materials to support the global semiconductor market, which is projected to reach about $1 trillion in sales this year. These materials include helium, one-third of which is processed in Qatar, and sulfur, produced through oil and gas refining. Any severe disruption in the supply of these raw materials or to Taiwan’s power grid—which sources one-third of its fuel from the Middle East—could impact chip production at Taiwan Semiconductor Manufacturing.
Taiwan Semiconductor Manufacturing is the exclusive manufacturer of NVIDIA’s advanced AI chips and Apple’s iPhone processors, producing around 90% of the world’s most advanced logic chips. Demand for AI chips already exceeds available capacity, meaning any production issues could complicate major technology companies’ planned $650 billion in AI-related expenditures this year. Production disruptions would also ripple beyond the tech sector, affecting industries from consumer electronics to automotive manufacturing—at a time when these firms are already grappling with soaring prices for memory chips used in most modern devices.
Shawn Kim, Head of Asia Technology Research at Morgan Stanley, stated last week, "Disruptions in the Strait of Hormuz won’t automatically halt chip production, but they could create ripple effects in electricity costs, material supply, and the economics of building AI infrastructure." He added that companies constructing energy-intensive facilities such as large-scale data centers may face higher operating costs and reduced revenue.
How the situation evolves depends largely on the duration of the conflict. However, the primary concern centers on Taiwan’s unusually high reliance on liquefied natural gas. Taiwan is highly dependent on seaborne LNG shipments and maintains reserves of only about 11 days, making it particularly vulnerable to supply disruptions. In comparison, South Korea has storage capacity sufficient for at least 52 days of LNG, while Japan currently holds approximately three weeks’ worth of LNG inventories. Morgan Stanley estimates that additional weeks of LNG reserves for Taiwan are en route via shipping vessels.
Analysts at Goldman Sachs estimated in a report that Taiwan depends on foreign imports for 97% of its energy needs, with around 37% of its LNG supply originating from the Middle East. They warned that Taiwan could face high premiums for alternative shipments. The analysts noted, "Commercial shipping through the Strait of Hormuz remains severely constrained, and Qatar has declared force majeure on LNG production. For Taiwan, the key risk channels are not only oil prices but also the actual availability, price, and delivery timelines for natural gas."
Taiwanese authorities stated last Saturday that the region has secured LNG supplies for March and April to offset restricted shipments from Qatar and that power supply remains sufficient. Additionally, local companies in Taiwan have the capability to source helium from multiple suppliers, including the United States and Australia, meaning supply should not be affected solely by tensions in a single region.
To address the insufficient LNG reserve levels, Taiwan has decided to raise the minimum natural gas inventory requirement from 11 days to 14 days starting next year, with plans to reassess the rule in the future. Analyst Michael Deng noted that if supply disruptions persist, helium shortages could compel chipmakers to prioritize production of higher-margin AI chips while reducing output of less profitable components.
Since the outbreak of the Middle East conflict, Taiwan Semiconductor Manufacturing’s stock price has fallen approximately 7%, while global equities have declined around 6% overall. The company stated on Monday that it does not currently anticipate significant operational impacts.
Over time, Europe could also emerge as another vulnerable link in the global technology supply chain. European chipmakers similarly depend on helium imports, with Poland being the European Union’s sole helium producer. Julia Christina Hess, Head of the Global Chip Dynamics project at the think tank Interface, indicated that its output meets only about 8% of regional demand. She added that roughly 40% of the EU’s helium supply comes from Qatar.
In response to the war in Ukraine and the closure of the U.S. National Helium Reserve’s enrichment facility, Europe has strengthened its strategic reserve capacity. Hess noted that Air Liquide’s underground helium storage facility in Gronau-Epe, Germany, with an annual capacity of about 47 million cubic meters, "could now serve as a buffer."
EU chip firms have expressed no immediate concern. A spokesperson for the European Semiconductor Industry Association stated via email that its member companies have not yet observed a direct threat to overall helium supply. A spokesperson for Infineon said the company sources helium from multiple regions and maintains reserves, enabling it to mitigate impacts from the Middle East situation.
However, other pressures in the supply chain could affect EU chipmakers more quickly. Frank Bösenberg, Managing Director of the German industry lobby group Silicon Saxony, pointed out that Cathay Pacific’s cargo operations handle 30% of global wafer shipments, and its regional hub in Dubai is not fully operational, posing potential new disruption risks.
Given the numerous risks across the global supply chain, a broader question remains: how severe the economic impact would be if the conflict continues. In particular, any disruption to Taiwan’s broader chip ecosystem could have cascading effects on some of the world’s largest industries. This would further exacerbate the existing historic shortage of memory chips—a shortage that has already forced global consumer electronics firms to raise product prices.
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