West Asia crisis: A war far from fabs is rattling the chip supply chain

The narrative surrounding global semiconductors has traditionally focused on a few key players. The United States excels in chip design, the Netherlands is vital for lithography technology, and Taiwan stands at the forefront of advanced fabrication. Meanwhile, South Korea, Japan, and Malaysia contribute significantly to memory, materials, and packaging. However, West Asia's role often goes unnoticed, despite being a crucial supplier of essential materials like helium, bromine, and energy that are fundamental to chip manufacturing. As the conflict involving the US, Israel, and Iran enters its third week, the vulnerabilities linked to these hidden dependencies are becoming increasingly apparent. Pareekh Jain, CEO of EIIRTrend & Pareekh Consulting, noted, "For now, the impact on semiconductor manufacturers appears limited. However, a prolonged conflict could lead to significant disruptions or necessitate changes in sourcing key materials." He added that the buffer inventories accumulated during the pandemic have provided some relief, but these reserves are finite. Though West Asia may not host semiconductor fabrication plants, it plays an indispensable role by providing raw materials and industrial inputs necessary for chip production. Helium, in particular, poses an immediate concern due to its non-substitutable nature; it is crucial for wafer cooling, leak detection, and advanced lithography processes. Kathir Thandavarayan, a Partner at Deloitte India, warned, "Qatar supplies over one-third of helium, so any prolonged outage could severely impact fab operations." Bromine also represents a significant risk, as it is integral to semiconductor packaging and specialized etching chemicals. Its supply is predominantly concentrated in the Dead Sea region, which includes Israel and Jordan. Danish Faruqui, CEO of Fab Economics, stated, "While alternatives for bromine exist in some applications, high-purity bromine remains essential for specific manufacturing processes." Furthermore, sulphur and sulphuric acid, essential for wafer cleaning and etching, are at risk due to logistical challenges. Approximately 40% of global sulphur exports come from West Asia, with a considerable amount passing through the Strait of Hormuz. Thandavarayan explained that the primary concern is not outright shortages but rather disruptions in logistics and price instability, especially for ultra-high-purity grades needed in advanced manufacturing. The conflict’s impact is not limited to material shortages; energy costs are also rising sharply. Semiconductor fabs are among the world's most energy-intensive facilities, and higher crude oil prices are inflating their operating expenses. Manish Rawat, a semiconductor analyst at TechInsights, remarked, "Rising crude oil impacts the semiconductor supply chain by driving up energy and logistics costs." As crude prices increase, the costs for petrochemical-derived materials, which are foundational to semiconductor packaging, are also on the rise. Jain reported that recent spikes in crude have already raised energy costs for fabs by 20% to 30% and increased petrochemical input expenses by 8% to 10%. He cautioned that if these elevated prices persist, chip manufacturing costs will likely rise, ultimately affecting consumers. The potential fallout of this crisis could be devastating. A four-week disruption could lead to a loss of up to $500 billion in market capitalization among the top semiconductor companies, with revenue schedules beginning to miss if the conflict continues for six weeks. Faruqui warned that should the strife extend beyond eight weeks, it could severely impact projected sales, especially in sectors like automotive. For India, still in the process of developing its semiconductor ecosystem, this situation poses a considerable challenge. Rising costs in crude oil and petrochemicals are inflating expenses for Indian semiconductor fabs and packaging units, which could diminish India’s competitiveness against Southeast Asia. The current disruption underscores the fragility and interdependence of semiconductor supply chains, where a single material shortage can result in widespread production setbacks. In conclusion, while the pandemic highlighted vulnerabilities in chip manufacturing, the ongoing conflict is exposing deeper structural weaknesses in the supply chain. The semiconductor industry may need to rethink not only where chips are produced but also the sources of their critical inputs, as geopolitical tensions continue to reshape global supply chains.