How Conflict in Iran Might Disrupt the Worldwide Digital Economy

Semiconductor Industry Faces Mounting Challenges Amid Middle East Conflict

The semiconductor sector, which is vital to the functioning of the global economy, is currently under significant strain. Producing the computer chips that drive our increasingly digital world demands vast resources, including a range of essential minerals and substantial energy. Now, these supply chains are being severely disrupted by the ongoing conflict involving the United States, Israel, and Iran.

Although Donald Trump recently claimed that the war would conclude , there are growing fears that the hostilities and their consequences could persist for an extended period. Such a scenario would have devastating effects on numerous global supply networks, in addition to the tragic human toll and serious environmental damage already being witnessed.

While computer chips might seem secondary in the face of war, they are now fundamental to the daily operations of the world economy. As highlighted by Duke University’s Deep Tech blog, semiconductors have revolutionized the digital era and are found in everything from satellites and smartphones to medical equipment and electric vehicles. Any disruption in their production or affordability could destabilize both manufacturers and consumers worldwide.

Ray Wang, a memory analyst at SemiAnalysis, explained to CNBC that, “A drawn-out regional conflict could hinder chipmakers’ ability to source materials like helium and bromine. While the immediate effects are limited, a prolonged crisis may force changes in how these critical materials are obtained.”

Although over 90% of the world’s most advanced chips are manufactured in Taiwan (), the Middle East remains crucial to semiconductor supply chains. For instance, Qatar supplies more than a third of the global helium used in chip manufacturing for cooling and circuit printing. If helium supplies were to be significantly disrupted, either through production or transport issues, there is no viable alternative for its role in these processes.

The industry was already grappling with risks due to its heavy concentration in Taiwan, which faces ongoing challenges with energy security. Taiwan’s reliance on energy imports and the constant threat of conflict with China have left it vulnerable, as noted in recent reports. Any extended disruption to global oil supplies could have severe consequences for Taiwan’s energy needs, further threatening the semiconductor sector.

Oil Supply Shocks and Their Ripple Effects

The conflict involving the U.S. and Israel in Iran has triggered what is being called the largest oil supply disruption in history. The closure of the Strait of Hormuz has already halted 20% of global oil shipments for nine days, a disruption twice as large as the previous record during the 1956 Suez crisis. Oil prices have soared past $100 per barrel, creating serious challenges for import-dependent economies like Taiwan and threatening global economic stability.

South Korean chipmakers are feeling the impact even more acutely than their Taiwanese counterparts. As leading producers of memory chips—a market already under pressure from the rapid expansion of artificial intelligence—South Korean firms are particularly exposed. If memory chip prices continue to rise, it could slow the growth of the AI sector.

Jing Jie Yu, an equity analyst at Morningstar, told CNBC that, “This could substantially raise the total cost of ownership for large-scale cloud providers, potentially hindering the adoption of AI infrastructure. If the conflict drags on, demand for AI memory chips may decline.”

Escalating Threats to Tech Infrastructure

The war has also introduced new dangers for the technology sector. This week, Iran’s IRGC-linked Tasnim News Agency released a list of “Iran’s new targets,” which includes regional offices, cloud infrastructure, and data centers operated by major companies such as Google, Amazon, Microsoft, Nvidia, IBM, Oracle, and Palantir, according to CNN. These threats have already materialized: Iranian drone attacks have struck three AWS data centers in the UAE and Bahrain, marking the first military assaults on U.S. cloud infrastructure. The resulting fires and power outages have disrupted banking and payment services across the region, prompting AWS to recommend that customers move their workloads out of the Middle East.

The extent of the risk is significant. Nvidia temporarily closed its Dubai offices following nearby attacks, Amazon has shut down its regional offices, and dozens of Google employees were left stranded in Dubai due to mass flight cancellations. Meanwhile, Samsung and SK Hynix have lost over $200 billion in market value since the conflict began. South Korea’s industry ministry has also highlighted the country’s reliance on the Middle East for at least 14 key semiconductor inputs beyond helium. Patrick J. Murphy, executive director at advisory firm Hilco Global, noted that, “Iran and its allies have previously targeted oil fields, but this week’s attacks on UAE data centers show that digital infrastructure is now considered a critical target.”

By Haley Zaremba for Oilprice.com

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