Key takeaways

  • Disruptions to critical mineral supply chains could hamper production of essential microchips.
  • The Middle East is a key supplier of helium, aluminum, and bromine used to produce semiconductors.
  • Big Tech companies are rapidly ramping demand for microchips amid the AI buildout.

The global tech industry could be the latest to be hit by a protracted conflict in the Middle East, with fresh pressures on semiconductor supply chains potentially hampering the artificial intelligence boom.

The conflict has highlighted the key role of the Middle East in supply chains for critical minerals and other elements, essential for the production of microchips used by Big Tech.

“The longer this conflict persists, the more likely it is that some of the critical (materials) the region produces, that go into other supply chains—for example, helium in semiconductors—those start to emerge as a problem too,” says Neil Shearing, group chief economist at Capital Economics.

A South Korean lawmaker warned earlier this month that the Iran war could disrupt supplies of key microchip materials, essential for the country’s leading semiconductor industry. Indeed, chip heavyweights Samsung KRX and SK Hynix KS were among the hardest hit by a recent selloff in the KOSPI index, each shedding 20%, amid concerns around the escalating conflict and sky-high tech valuations.

Samsung and SK Hynix, alongside Micron MU, are the world’s three largest suppliers of memory chips, which are essential for both consumer electronics and artificial intelligence data centers. Their customers include Magnificent Seven tech names Nvidia NVDA, Microsoft MSFT, and Apple APPL.

Those chips rely heavily on critical minerals such as helium and aluminum, a significant share of which are sourced from the Middle East.

Middle East a critical minerals hub

Qatar accounts for more than one-third of the world’s helium supply, which is essential for heat management in semiconductor production, as well as lithography used for printing chip circuitry. It currently has no viable alternatives.

Qatar produces helium as a byproduct of liquefied natural gas (LNG). But the shutdown of QatarEnergy’s Ras Laffan Industrial City following an Iranian drone attack this month also brought its helium production to a standstill.

Israel and Jordan are also responsible for around two-thirds of global bromine production, another key material in the semiconductor manufacturing process.

In the meantime, the Middle East region accounts for about 8% of global aluminum capacity, and is dependent on the Strait of Hormuz for metal exports and alumina imports. Several of the region’s big producers have declared “force majeure,” meaning they are no longer able to honor their contracts, and production remains vulnerable to further energy shocks.

Aluminum prices hit a four-year high of $3,544 in March, with ING suggesting prices could hit $4,000 a ton if the industry faces “severe disruption.”

Ewa Manthey, commodities strategist at ING, says disruptions to supply chains are indeed already visible, if more through shipping delays and cargo diversions than production losses outright.

“These events are exposing how concentrated and logistics dependent many critical mineral supply chains are, allowing shocks to transmit quickly into physical markets,” she says.

How big is the impact for the tech industry?

The critical mineral supply chain risks come as chipmakers face soaring demand for semiconductors amid the AI buildout, with data center demands already sparking shortages for other products such as laptops and cars.

The impact of any prolonged supply disruptions in the Middle East could therefore be stark for the tech industry and any investors buying into the AI boom.

“‘Prolonged’: The word no tech investor wants to hear,” says Dan Ives, global head of technology research at Wedbush Securities. “If this Iran situation lasts until May, then we have some supply chain issues around critical minerals with the AI buildout. If it’s done by mid-April, then it’s a rounding error issue.”

Critical mineral stockpiles will go some way to mitigating the immediate impact of lost supply. South Korea’s chipmakers are reported to have around six months’ worth of helium supplies, according to The Korea Times.

SK Hynix declined to comment on the disruptions, while Samsung did not respond. Contract chipmaker Global Foundries GFS said it is in “direct contact with suppliers, customers and partners in the region and has mitigation plans in place.” Meanwhile, Taiwanese chipmaker TSMC TSM said it is “monitoring the situation closely.”

The sector will now be watching closely the extent and duration of the conflict and production halts. However, analysts caution that the effects of a protracted war could be felt by the tech industry and beyond for many months to come.

“[Chipmakers] should be resilient if disruption of shipping starts to recover in the coming weeks. But prolonged disruption to shipping through the Strait of Hormuz, and/or lasting-damage to gas/LNG production facilities in Qatar, would be a bigger issue,” says David Oxley, Capital Economics’ chief climate and commodities economist, says.

“Even if production resumes tomorrow, full supply chain recovery would take four-to-six additional months—bringing the total vulnerability window to six-to-nine months,” says David Roche, president of Quantum Strategy.

“This is a crisis of a critical, irreplaceable raw material, cutting across tech, healthcare, and science. Chip production sits at the center of immediate concerns,” he adds.