Threat of Middle East conflict, South Korea warns: Chip supply chain faces risk of “disruption”!
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The situation in the Middle East continues to deteriorate, sending shockwaves to the core of the global semiconductor industry chain. South Korea—one of the world’s most important chip manufacturing bases—has sounded the alarm first.
On Friday, Kim Young-bae, a lawmaker from South Korea’s ruling Democratic Party, publicly stated in a televised press conference—after meeting with executives from Samsung Electronics, SK Hynix, and domestic industry associations—that if geopolitical tensions in the Middle East continue to spread, they will pose a substantial threat to South Korea’s semiconductor sector. He pointed out that rising oil prices will drive up domestic electricity costs, thereby weakening the price competitiveness of Korean chips. At the same time, supply disruptions of key materials and rising logistics costs are also major risks faced by the industry.
South Korea’s high dependence on Middle Eastern energy is the root cause of its exposure to this risk. Kim Young-bae noted that 70% of South Korea’s oil supply comes from the Middle East. If conflicts in the region continue to escalate and oil prices rise, it will directly push up the cost of industrial electricity in South Korea. Since semiconductor manufacturing is highly energy-intensive, the rise in power prices will directly squeeze chip makers’ profit margins, and weaken their price competitiveness in the global market.
Besides energy, the supply of key raw materials needed for semiconductor production also faces risks. Kim Young-bae stated that Korean semiconductor enterprises procure core production materials such as helium from the Middle East. Should these supplies be disrupted, it will directly impact chip manufacturing capacity. He also emphasized that the increase in logistics and transportation costs will be the “biggest problem” brought by the Middle East situation: If shipping routes are obstructed or freight charges surge dramatically, it could place considerable pressure on the supply chain management of Korean chip companies.
In response to industry demands, the South Korean government has already begun to take countermeasures. Kim Young-bae stated that he is advancing a proposal to flexibly use the nation’s strategic oil reserves according to the specific needs of various industries. Authorities have already opened up national oil reserves to domestic refiners to limit the impact on industrial production.
BNP Paribas analysts predict that the South Korean government will introduce more supportive measures to buffer the economic impact of the current situation, and noted that the government may further consider lowering fuel taxes.
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