Middle East conflict threatens global semiconductor supply chain, analysts warn

A prolonged conflict in the Middle East could disrupt the semiconductor industry’s access to critical materials, while rising costs may dampen demand for chips that have fueled the artificial intelligence boom, analysts warn.

The ongoing US-Israel war with Iran has highlighted the strategic role certain Middle Eastern countries play in the complex semiconductor supply chain, CNBC reports.

Semiconductor stocks have already felt the impact, falling in line with broader equity market declines. Memory chipmakers SK Hynix and Samsung have been particularly affected, with over $200 billion wiped off their combined market value since the start of the conflict, even after both companies saw sharp rebounds on March 10. The VanEck Semiconductor ETF has declined roughly 3% since the conflict began, partially recovering from a 3.6% jump on March 9.

“A prolonged regional conflict could potentially disrupt chipmakers’ manufacturing operations regarding sourcing materials like helium and bromine,” said Ray Wang, memory analyst at SemiAnalysis, speaking to CNBC. “For now, the impact appears to be limited. However, a prolonged conflict could eventually lead to disruptions or require adjustments in the sourcing of key materials.”

Qatar produces over a third of the world’s helium supply, according to the US Geological Survey. Helium is essential for cooling during chip manufacturing and is crucial in lithography, which prints intricate circuitry on chips. There are no viable substitutes for helium. In 2023, the Semiconductor Industry Association warned that any disruption in helium supply could create shocks for the global semiconductor manufacturing industry.

Transportation is also a concern. The effective closure of the Strait of Hormuz could block more than 25% of the world’s helium supply, according to Phil Kornbluth, president of Kornbluth Helium Consulting. Qatar’s state-owned QatarEnergy produces helium as a byproduct of liquefied natural gas. Its Ras Laffan Industrial City was recently hit by an Iranian drone strike, taking the site offline.

“It is getting hard to imagine that the world is not looking at a minimum two-to-three month shutdown of helium production and a four-to-six month period before the helium supply chain returns to normal,” Kornbluth said.

Bromine, another critical element in semiconductor manufacturing, is primarily produced in Israel and Jordan, accounting for about two-thirds of global output, according to the USGS.

“There is modest risk to critical materials. Helium is the main one we are watching. Qatar is one of the largest sources of helium. Canada and the United States are also large suppliers,” said Peter Hanbury, partner in Bain & Company’s Technology practice, speaking to CNBC.

Analysts warn that if the conflict continues, the semiconductor industry could face serious supply chain challenges, potentially affecting global chip production and escalating costs in sectors dependent on advanced chips, including AI technologies.

By Vafa Guliyeva