Artificial intelligence has been sold as weightless—software, data, algorithms scaling endlessly in the cloud. The reality is far heavier. Beneath the code sits a physical system of chips, energy, chemicals, and shipping lanes. And today, that system is under strain.

The ongoing conflict involving Iran is exposing how fragile the foundations of the global AI boom really are.

For more than three years, AI has powered global trade and investment, pulling stock markets from the United States to Asia to record highs. Investors have poured billions into one of the most energy‑intensive technologies ever deployed, betting on two assumptions: cheap power and uninterrupted semiconductor supply. The Iran conflict is now challenging both.

East Asia at the center of the shock

The epicenter of the risk lies in East Asia, where the world’s most critical semiconductors are produced. South Korea’s Samsung Electronics and SK Hynix dominate memory chip manufacturing—components essential for AI systems, cloud data centers, and advanced electronics. Taiwan’s TSMC produces around 90 percent of the world’s most advanced logic chips, including nearly all high‑end AI processors designed by NVIDIA.

What these industrial powerhouses share is a deep dependence on imported energy. South Korea and Taiwan rely heavily on fossil fuels shipped from the Middle East, with much of that supply transiting the Strait of Hormuz—one of the most strategically sensitive waterways on the planet.

As tensions rise, energy costs surge. Semiconductor fabs, which run around the clock and consume vast amounts of electricity, are particularly exposed. AI may be digital, but it is built on power-hungry factories.

The raw materials no one talks about

Energy is only part of the story. The semiconductor industry also depends on a narrow set of chemical inputs that are difficult—or impossible—to replace quickly.

Roughly one‑third of the world’s helium supply comes from Qatar, a byproduct of natural gas processing. High‑purity helium is essential for cooling silicon wafers and enabling precise chip manufacturing. South Korea and Taiwan source most of their helium from the Gulf, leaving them vulnerable to regional disruption.

Sulfur, another critical input used in wafer cleaning and etching, is also heavily exposed. About half of global seaborne sulfur trade passes through the Strait of Hormuz. Any prolonged blockage tightens an already strained market, pushing costs higher and forcing manufacturers to ration supplies.

These materials are invisible to consumers—but without them, chip production slows or stops.

Data centers feel the squeeze

The conflict’s impact extends far beyond Asia. In the United States, hyperscalers plan to spend roughly $650 billion on AI infrastructure this year. Nearly 75 percent of planned on‑site power for these data centers comes from natural gas.

But US LNG exporters are increasingly selling to Europe and Asia, where shortages command higher prices. That dynamic risks driving up domestic energy costs, undermining the economics of data centers just as AI demand peaks.

What looked like a straightforward scaling problem is turning into an energy pricing problem.

Logistics under pressure

Even when materials are available, moving them is becoming harder. Air and sea freight routes are disrupted, insurance costs are rising, and delays are compounding. Cathay Pacific’s cargo division, which handles a significant share of global wafer transport, has faced restricted access to its regional hub in Dubai, adding friction to already tight supply chains.

Semiconductor manufacturing depends on just‑in‑time logistics. Disruption is not absorbed gracefully—it cascades.

A market built on confidence

For now, buffers exist. South Korean chipmakers reportedly hold several months of helium reserves. Taiwan has secured a portion of its near‑term LNG needs, though it maintains limited strategic storage and relies heavily on continuous deliveries.

But the clock is ticking. Roughly one‑fifth of global oil and LNG flows through the Strait of Hormuz. The longer instability persists, the deeper the fallout. Chip prices rise. Production is rationed. Technology valuations come under pressure as investors price in inflation, higher rates, and prolonged disruption.

The AI boom was built on the assumption of a smoothly functioning global system. The Iran conflict is reminding markets that geopolitics still has a veto.

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