Nearly 50 days into the Iran war, disruptions to the global energy supply chain continue to grow. Though the U.S., Iran, and Israel agreed to a fragile cease-fire on April 7, the Strait of Hormuz remains closed, Iran hopes to continue charging tolls, and the global economy is still a long way from normal.<\/p>\n
Fossil fuels, abundant in the Gulf countries, are essential ingredients for countless goods\u2014the helium that powers MRI machines, the fertilizer that boosts crops, and of course the gas that powers cars. Fossil fuels are also critical to the production of semiconductors, the building blocks for all modern technology. A breakdown in production would not only strain supplies of consumer and commercial electronics, but could seriously disrupt the growth of AI computing capacity at a time when firms are funneling hundreds of billions of dollars into data center construction.<\/p>\n
More from Emma Janssen<\/a><\/p>\n The majority of the world\u2019s chips are produced in Asia. Taiwan, home of the Taiwan Semiconductor Manufacturing Company (TSMC), is a powerhouse, the sole producer of certain high-end chips, and the primary supplier of companies like Apple, Nvidia, and Qualcomm. Other semiconductor fabrication plants are located in South Korea and throughout Southeast Asia. Chips made in Asia are then shipped across the world to power AI systems, video game consoles, weapons systems, smart dishwashers, laptops, and many of the other pieces of technology that are ubiquitous in Americans\u2019 personal and professional lives.<\/p>\n Though semiconductors are produced in East and Southeast Asia, many of the raw materials needed for the intensive, precise manufacturing process come from the Middle East. Chips are produced in dustless clean rooms that are some 10,000 times cleaner than outside air, and the process requires dozens upon dozens of chemical components<\/a> like bromine, helium, and sulfuric acid.<\/p>\n The current disruptions to the steady flow of semiconductors could hasten the AI economy bubble bursting.<\/p>\n Helium, for example, is crucial for preventing rogue chemical reactions<\/a> during the manufacturing process. It manages temperatures during production and is also used to detect leaks. Helium prices have doubled<\/a> since the start of the war, according to Fitch Ratings, because of damage to production facilities and choked-off transit in the strait. Qatar\u2019s Ras Laffan Industrial City, a helium production hub responsible for nearly one-third<\/a> of the world\u2019s helium supply, has been offline following Iranian strikes in early March.<\/p>\n Companies like TSMC and South Korean chipmaker SK Hynix say that the disruptions haven\u2019t damaged their bottom lines<\/a> yet. SK Hynix said in a statement that it has \u201clong secured diverse supply chains and sufficient inventory\u201d of helium, \u201ctherefore there is almost no chance that \u200bthe company will be affected,\u201d and TSMC noted that it is continuing to monitor the situation but isn\u2019t anticipating a crisis yet.<\/p>\n Yet that\u2019s not the only potential supply shock. Many industrial facilities in Asia run on natural gas supplied by those very same gas facilities in Qatar and the Gulf. That energy supply has run dry during the war.<\/p>\n Chip manufacturers have long-term deals with gas suppliers, so they are less vulnerable to the daily ups and downs of the market, explained Alex Jacquez, chief of policy and advocacy at Groundwork Collaborative and a former industrial-policy official in the Biden administration. But if high prices persist when those contracts reach their ends, he said, manufacturing companies can expect to spend more for both energy and chemicals.<\/p>\n Gas and helium supply companies could wiggle out of the current contracts by declaring force majeure, a provision that allows one party to void the agreement if there\u2019s a major disaster or disruption. On March 4, national oil company QatarEnergy declared force majeure<\/a> on some of its liquefied natural gas contracts. Some helium companies have followed suit<\/a>. Also in March, U.S. gas supplier Airgas declared force majeure on one of its customer contracts, saying it would only meet half of its normal monthly helium demand and would add a surcharge.<\/p>\n Experts say that, as of now, the biggest AI companies\u2014which spent close to $450 billion last year<\/a> on data center build-out and have planned for $700 billion this year\u2014have enough money to withstand these disruptions and keep buying the chips they need to run their models. But the increased strain on the industry comes at a time when some experts, like Aya Ibrahim, a former senior adviser in the White House Office of Science and Technology Policy, think that AI companies are overvalued and that there\u2019s an impending market correction that could plunge the whole economy into a recession. The current disruptions to the steady flow of semiconductors could hasten that bubble bursting.<\/p>\n And even if the AI firms muddle through, they could outbid consumer electronics companies for more scarce semiconductor resources, spiking the cost of virtually everything in your house with a plug or a battery.<\/p>\n Even before the Iran war, Jacquez explained, there was already mounting pressure on the price of non-AI, non\u2013data center chip prices. Companies were already producing fewer of their lower-value chips\u2014those that power cellphones and other consumer goods\u2014in favor of making more of the memory chips that power AI. The war has only increased the already-growing price of consumer chips, and prices have already jumped for consumer products<\/a> with semiconductors.<\/p>\n \u201cIf you go on Reddit, people are up in arms about how much it costs now to build your own gaming PC and things like that,\u201d Jacquez said. \u201cCanary in the coal mine here with the gamers.\u201d<\/p>\n