AI has been dining out on cheap power and smooth shipping, and the Iran war is messing with both.
For more than three years, the tech has flattered global trade and investment, then dragged stock markets from the US to Asia to record highs.
Investors have poured trillions into one of the most power-hungry inventions going, banking on plentiful energy and a chip pipeline that crosses more than 70 borders before anyone can flog the finished kit.
Now, according to the Financial Times, the pipeline is showing its weak joints, with the Iran war prodding at every assumption baked into the AI boom.
East Asian nations at the centre of semiconductor production are staring at brutal energy shocks, because their fabs do not run on wishful thinking.
South Korea’s Samsung Electronics and SK Hynix sit on memory chip manufacturing, together claiming 80 per cent of high-bandwidth memory and nearly 70 per cent of dynamic random-access memory.
Those parts keep AI systems and cloud data centres ticking, then end up in smartphones and cars once the hype cycle has had its fun.
Taiwan’s TSMC makes 90 per cent of advanced semiconductors and virtually all the high-end AI chips designed by Nvidia, now the world’s most valuable company.
South Korea and Taiwan rely on fossil fuels that mostly arrive as imports, with much of that supply chain passing through the Strait of Hormuz.
Taiwan relies on the Middle East for more than one-third of its liquefied natural gas needs, which is a spicy dependency when the region is kicking off.
Energy is not the only worry, because the chemicals that keep chipmaking clean and precise have their own awkward geography.
About one-third of the global helium supply, a byproduct of natural gas processing used to cool silicon wafers, comes from Qatar.
South Korea and Taiwan get most of their helium from the Gulf state, which matters because the hard-to-substitute high-purity stuff is not something you magic up overnight.
Roughly half of global seaborne sulphur, used for chip cleaning and etching, transits Hormuz, and the market was already tight even before the war started.
The Dead Sea is the world’s largest source of bromine, a chemical used to score patterns onto silicon wafers, and South Korea imports virtually all of its supply from Israel.
The conflict could land another punch by changing the economics of data centres, where the spreadsheet is already doing most of the talking.
In the US, hyperscalers are set to spend $650bn on AI infrastructure this year, and close to 75 per cent of planned on-site power comes from natural gas.
US LNG exporters are racing to sell into Europe and Asia, where shortages allow them to charge more, risking a push up in American energy prices at the worst time.
That stings because electricity is roughly half of a data centre’s operating expenses, and those bills do not care about anyone’s product roadmap.
Getting chips from the factory to the customer is hardly smooth right now, either, with air and sea freight already clogged by delays and rerouting.
Cathay Pacific Airways’ freight division, which handles about 30 per cent of global wafer transport, has limited access to its regional hub in Dubai.
As the costs stack up, tech valuations look exposed, with investors more willing to price in stronger inflation, higher interest rates and longer supply disruptions.
Stockpiles buy time, but they do not fix the problem, and the clock is not exactly on the industry’s side.
South Korean chipmakers reportedly have around six months of helium supplies, while Taiwan has secured more than half of its LNG needs for May, even though it keeps about 11 days of LNG in reserve.
If Hormuz stays closed, the fallout gets nastier fast, given that one-fifth of the world’s oil and LNG normally moves through that waterway.
Chip prices would steepen as manufacturers ration and scramble for tighter supplies, and production could still seize up if the squeeze keeps tightening.
Higher US energy costs would make present and future data centres look less viable, while debt borrowed against AI assets starts to look like a dare.
BCA Research, chief strategist Marko Papic, said: “There is no way for the US to replace the oil and natural gas out of the strait on any timeline that avoids a global recession.”
“In my estimation, the US, Israel and Iran have about until mid-April to conclude hostilities and begin returning shipping through Hormuz, or else the world will see its first post-Covid-19 break in supply chains,” Papic said.
