Thoughts on the Market
The Looming Bottleneck for Global Tech
Why It Matters
Understanding these energy‑related vulnerabilities helps investors and industry leaders anticipate risks that could affect chip production, AI data center costs, and broader tech market performance. As the world leans more on advanced chips for AI and electrification, any disruption in energy supply chains could have cascading effects on the digital economy.
Key Takeaways
- •Strait of Hormuz closure threatens energy supply for chip production.
- •Taiwan's semiconductor fabs consume roughly ten percent national electricity.
- •Limited LNG inventory means higher power costs if shipping disrupted.
- •Sulfur from oil refining essential for semiconductor chemicals and batteries.
- •Oil price spikes historically caused thirty percent semiconductor equity drawdowns.
Pulse Analysis
The episode highlights how the global technology sector hinges on a single maritime chokepoint: the Strait of Hormuz. While AI and advanced chips dominate headlines, their production consumes massive electricity, especially in Taiwan where leading‑edge fabs account for roughly ten percent of the island’s power usage. Taiwan’s grid relies heavily on imported liquefied natural gas, with only about one and a half weeks of reserves on hand. Any significant disruption to oil‑borne LNG shipments through the Hormuz corridor would push power costs higher, squeezing the economics of semiconductor fabrication and AI data‑center operations.
Beyond electricity, the semiconductor ecosystem depends on sulfur, a by‑product of oil refining used to make sulfuric acid for wafer processing and battery components. Over ninety percent of the world’s sulfur originates from the same refining streams that feed LNG exports. If Hormuz closures curtail oil flow, both fuel and sulfur supplies could tighten, creating a cascade of material shortages. Such second‑order effects would ripple through metal‑processing, advanced chip manufacturing, and downstream electrification projects, amplifying risk for companies that assume stable input markets.
Historical data reinforces the link between energy shocks and tech valuations. During the 2008 oil price surge and the 2021‑22 spike, semiconductor indices fell roughly thirty percent before stabilizing, reflecting higher operating costs for data centers and weakened consumer spending. Investors therefore need to monitor geopolitical risks that could elevate energy prices, not just chip design cycles. The episode concludes that the future of technology is as much about power infrastructure and raw‑material logistics as it is about code, urging portfolio managers to factor energy‑related bottlenecks into their risk models.
Episode Description
Our Head of Asia Technology Research Shawn Kim explains what disruptions to shipping in the Strait of Hormuz could mean for the global semiconductor supply chain and the immediate future of AI infrastructure.
Read more insights from Morgan Stanley.
----- Transcript -----
Welcome to Thoughts on the Market. I’m Shawn Kim, Head of Morgan Stanley’s Asia Technology Team.
Today: why the Strait of Hormuz closure may matter to the global technology industry.
It’s Friday, March 13th, at 8 pm in Taipei.
AI and advanced chips may represent the cutting edge of technology, but they depend on something far more basic: that’s energy. And a large share of that energy flows through one narrow shipping lane in the Middle East – the Strait of Hormuz. When energy supply chains are disrupted, the effects can quickly ripple into semiconductor manufacturing.
Advanced semiconductor fabrication is, in fact, one of the most energy‑intensive industrial processes in the world. Take Taiwan, for example – home of the world’s largest share of leading-edge chip production. Just one major manufacturer alone accounts for roughly 9–10 percent of the country's total electricity consumption. That scale of energy use means the stability of power supply is critical.
Taiwan relies heavily on imported LNG to generate electricity. But storage levels are limited. It maintains roughly one and half weeks worth of LNG inventory, with several additional weeks supplied by vessels currently at sea. If shipping through the Strait of Hormuz were significantly disrupted, that supply chain could come under pressure. The immediate impact might not necessarily be an outright shortage – but rising energy costs could still affect semiconductor production economics. And that's important because advanced chips are foundational to everything from cloud computing to artificial intelligence systems.
Energy isn't the only potential bottleneck. Another lesser-known input in the semiconductor ecosystem is sulfur. More than 90 percent of the world's sulfur supply is produced as a by‑product of oil refining. That sulfur is then used to produce sulfuric acid, a key chemical that supports semiconductor materials, metal processing, and battery components.
Disruptions in oil refining tied to shipping constraints or energy market shocks could also affect sulfur supply. In other words, a disruption in energy markets could trigger second‑order effects across multiple layers of the technological supply chain. And those effects extend beyond chips themselves. The downstream impact touches industries tied to electrification, data centers, and advanced electronics manufacturing.
History also offers some lessons learned about how technology markets react when energy prices spike. During periods of major oil price surges – such as in 2008 and again in 2021 through 2022 – semiconductor equities experienced significant drawdowns. In both cases, semiconductor stocks declined by roughly 30 percent before reaching an inflection point. The mechanism is fairly intuitive. Higher oil prices raise costs across the economy and can weaken consumer spending. At the same time, companies building energy‑intensive infrastructure – like large‑scale AI data centers – may face higher operating costs and low revenues.
So when energy markets move sharply, technology markets often move with them. A disruption in the Strait of Hormuz wouldn’t automatically halt chip production, but it could ripple through power costs, materials supply, and the economics of building AI infrastructure. And that highlights an important reality for investors: the future of technology isn’t just written in code. It’s powered by energy, by infrastructure, and the fragile global networks behind the digital economy.
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