Iran war has a second front — and it's quietly threatening the world's chip supply

Geopolitical scholars define globalisation as a process in which the world is inter-connected and inter-linked in such a manner that an event happening on one side of the hemisphere will impact the events of other side as well.

The practical application of this theoretical idea can be witnessed in the ongoing conflict in West Asia. The war that's been ongoing in the Gulf since February 28, has severely impacted the other parts of the world. Almost all regions and sectors are witnessing its repercussions at an unprecedented scale. The semiconductor production and the supply chain associated with it, is one such arena.

The protracted conflict in the Gulf has posed a direct threat to global semiconductor production- a connection that has received less attention than the oil price shock, but may prove equally consequential.

The countries located far away from the warzone are also feeling outsized shocks, triggering dramatic economic effects across the globe.

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Ripples across globe

South Korea, a booming semiconductor trade hub, has witnessed its stock market plunging 18 per cent since the war started, wiping out more than $500 billion in the market value.

Taiwan, which produces the vast majority of the world's advanced chips, relies on imports for 97 per cent of its energy needs , including liquefied natural gas (LNG) that currently cannot move through the Strait of Hormuz due to the ongoing blockade.

The semiconductor industry is dependent on a range of raw materials, from Bromine to Helium, a majority of which is produced and supplied by Gulf. Both of these are critical to the semiconductor manufacturing. Helium is primarily used for ultra-clean cooling, and bromine for precision circuit etching. Helium is also essential to control the temperatures during the chip manufacturing, while bromine enables the high-precision etching of patterns on silicon wafers.

Experts have long warned of this import dependency on Gulf which remains vulnerable to supply chain shocks. In other words, the war in Iran and the closure of Strait of Hormuz haven't actually created this problem. Instead, it has revealed that how a decades‑old dependence has become far more dangerous for an energy-poor economy.

Analysts warn that if the strait remains blocked for long, the war's economic damage won't be confined to energy markets alone, but will ripple through other industries as well that depends on the chips that power the modern world.