A world where we can cook up AI videos in seconds from the apps on our phones might seem remote from the physical realities of warfare in the seaways of the Persian Gulf. In fact, they’re closely intertwined.
That’s because the building blocks of the technology industry are deeply dependent on petroleum flowing through the Strait of Hormuz, where the US government Tuesday vowed to protect shipping threatened by retaliation from Iran after US and Israeli attacks over the weekend.
More than half of the DRAM and NAND chips that provide electronic devices with their short- and long-term memory are manufactured in South Korea. About 70% of the advanced processing chips found in smartphones, PCs and data centers are made in Taiwan. Those two countries, in turn, are among the most dependent on liquefied natural gas exports from Qatar.
It’s a dangerous vulnerability, made worse by the two countries’ reluctant crawl toward renewables. Qatar’s Ras Laffan gas plant, which supplies about a fifth of the world’s LNG, halted output Monday and later declared force majeure, a legal justification for ceasing supplies during emergencies. QatarEnergy cited military attacks on the facility. About 90% of the LNG produced in Qatar and the United Arab Emirates heads east to Asia.
That sparked a rapid selloff in energy-exposed Asian stock markets Wednesday. South Korea’s Kospi index, where memory producers Samsung Electronics Co. and SK Hynix Inc. make up about 40% of the weighting, fell by 12%, its biggest single-day drop. Taiwan’s Taiex, where Taiwan Semiconductor Manufacturing Co. alone accounts for 45% of the benchmark, slumped 4.4%.
That’s a recognition of their unique exposure. China and India may be the biggest buyers of Qatari LNG, but they’ve not given it nearly the same importance in their grids, with gas having a generation share of just 3% or so. Japan uses LNG to produce about a third of its electricity, but Qatar and the UAE together comprise only around 5% of imports. South Korea and Taiwan, with their mix of gas-dependent grids and Gulf-dependent import strategies, look most vulnerable.
Right now, both countries are scrambling to secure supplies. Unlike the European Union, whose stockpiles can cover about a third of annual consumption, their storage capacity is minimal: Enough to cover less than two months of imports in South Korea, and under a month in Taiwan. Once ships currently en route have disgorged their cargoes in early April, any ongoing disruption at the Strait of Hormuz is going to quickly bite into power supply. That will be a problem for electricity-hungry foundries churning out the billions of chips powering our electronic devices.
There are ways to soften the blow. LNG is available on the spot market, but at a hefty price premium that may become even steeper if the crisis at Hormuz continues. The key Asian contract is still trading at about one-sixth of the levels it hit after the Russian invasion of Ukraine in 2022.
Australia and the US, which vie with Qatar for the title of top LNG exporter, tend to be more flexible in the conditions they attach to their sales, and may see an opportunity to make spot sales and take market share. Japan, which is still comfortably supplied from other sources and sees itself as a promoter of LNG globally, may want to help out, as my colleague Javier Blas has written.
The situation is still a wake-up call. Much of the world has used the years since the invasion of Ukraine to start reducing its vulnerability to fuel shipped from volatile corners of the globe: Consider Europe’s push for wind and solar, China’s renewables-and-coal drive, and even America’s increasing self-sufficiency in petroleum. The democracies of Northeast Asia, vital nodes in our high-tech modern societies, have gone in the opposite direction.
An uninterrupted flow of imported energy is more important to them than ever. And yet policy is still moving in the wrong direction. Taiwan closed down the last of its nuclear power plants last May, and in November passed a law that will make large-scale photovoltaic farms almost impossible to build. South Korea is only gradually unpicking similar regulations. A solar-siting rule overturned last month had previously restricted such facilities to less than 1% of the land area in many counties.
Misinformation-fueled nimbyism has largely banned onshore wind from both countries, despite excellent conditions for the technology. Endless permitting delays and rules restricting use of imported equipment have left offshore wind languishing, too. On a planet where clean energy is cheaper than fossil power almost everywhere, a thicket of misguided regulation has left it uniquely expensive in Northeast Asia.
Countries tend to neglect the vulnerabilities in their energy policies until geopolitical emergencies force their hand. The 1973 oil crisis pushed developed nations toward nuclear, coal and domestic petroleum. The 2022 Ukraine invasion accelerated Europe’s embrace of renewables.
The current emergency is showing us just how much Asia’s developed democracies, and the world, still depend on one volatile ocean strait in the Middle East. It’s time South Korea and Taiwan stepped up efforts to fix that weakness.
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