Unless you’ve been living under a shipping container, you know a closed Strait of Hormuz puts a huge damper on global oil and gas supplies. Less appreciated are all of the other commodities being blockaded. To wit:
- Helium: Qatar produces ~30% of the world’s helium as an LNG byproduct. With Ras Laffan knocked offline by drone strikes, spot prices have ~doubled for He, which is non-substitutable for semiconductors (helium cools wafers at every stage of chipmaking). South Korea imports ~65% of its helium from Qatar, which has forced chipmakers like SK Hynix to reassure markets they have sufficient near-term inventory.
- Copper: Some 40,000 tons of copper cathode a month are stuck in Gulf ports. Worse, Gulf sulfur — 44% of global seaborne trade — feeds the acid leaching that keeps Central African copper mines running. Without it, one-fourth of global copper exports are at risk.
- Aluminum: Middle Eastern smelters produce 23% of ex-China global output. They can’t ship finished metal out or bring alumina feedstock in. Several major smelters are already in controlled shutdowns to avoid equipment damage.
- Fertilizer: The Gulf ships ~43% of seaborne urea (the most widely traded nitrogen fertilizer) and a quarter of its ammonia (the feedstock used to make it). Right now, 1M tons of fertilizer are sitting on ships that can’t leave. With Midwest corn and soybean planting season just weeks away, American farmers are already grinding on thin margins as it is…
The modern chip has seen this movie, Force Majeure, before.
The modern chip is one of the most extraordinary things humans make, and it is also one of the most globally interdependent, requiring exotic gases, rare metals, and specialized chemicals sourced from dozens of countries. So it knows a thing or two about force majeure and exogenous shocks. There was obviously Covid in 2020. Two years later, Russia’s invasion of Ukraine took half of the world’s semiconductor-grade neon offline within days (and prices had spiked 600% during Crimea in 2014). Both times the chip industry absorbed the hit. Fabs stockpiled, new sourcing came online, and the supply chain came out more distributed than it went in.
Today we see signs of the same: fragile in the moment, antifragile over time. TSMC says it doesn’t expect a near-term production impact. South Korean chipmakers sit on ~6 months of helium inventory. North American Helium is fast-tracking wells in Saskatchewan and building Canada’s first liquefier. The Strait will likely reopen before long, as no party to this conflict benefits from a prolonged closure. But each crisis, Crimea to Covid to Ukraine to Hormuz, reminds us why we cannot run on single-chokepoint dependencies.