Supply chain disruptions caused by the US and Israel’s war on Iran have had repercussions across industries, but information technology stands out as particularly vulnerable. This is due to their extensive growth plans, which require certain ingredients to function, from energy to helium.
Cheap energy is one of those ingredients, and cheap energy has gone from a perceived surplus to a definite and acute shortage in most of the world as a result of the disruption of energy exports in the Middle East. Some argue that the US market is isolated thanks to abundant domestic supply, but that isolation is far from absolute given the export-oriented attitude of gas producers.
However, this is just the beginning of Big Tech’s looming problems. Because in addition to disrupting oil and gas exports, the Middle East war is also disrupting critical mineral exports. Morningstar reported on the issue last week, noting that helium and aluminum are some of the minerals/elements whose supplies to major chipmakers in South Korea have been disrupted by the war.
“The longer this conflict persists, the more likely it will be that some of the critical minerals the region produces, which go into other supply chains (for example, helium in semiconductors), will also begin to emerge as a problem,” Capital Economics chief economist Neil Shering was quoted as saying in the report.
Related: A Chinese publication claims that the United States has two months of rare earths left
The same goes for all other goods or export products affected by the war, but with helium, the problem seems to be especially notable due to the prominence of the so-called AI race in media discourse. There can’t be an AI race without a crucial ingredient, or at least the race is likely to slow down significantly without it.
Helium is the second most common element in the universe. On Earth, however, it is rare but quite valuable. Helium is a “completely non-reactive” gas, making it perfect for creating a protective atmosphere for the production of optical fiber and semiconductors, according to the British Royal Society of Chemistry. It is also a very fast cooler, so it is used as a cooling agent in MRI scanners and other machines, including the Large Hadron Collider, and semiconductor production machinery. Helium has no viable alternative as a cooling agent, neither in semiconductor production nor elsewhere.
The largest producer of helium in the world is the United States, which is to be expected, since it is also the largest producer of natural gas, and helium is a byproduct of natural gas extraction. It is also because of this that Qatar is the second largest producer of helium in the world, and now its production has been severely disrupted.
“This is the biggest event that we always feared would happen, it’s the black swan event,” Cliff Cain, commercial and external affairs manager at a US helium exploration company, told the Wall Street Journal in comments on the helium supply situation. “It’s going to be a crescendo as to who will be able to get their molecules and who won’t,” Cain added.
The big problem is that helium supply chains are not as flexible as big tech companies would probably like. The world’s largest semiconductor producers are in Asia and import their helium from Qatar. With the country’s gas production compromised by the war, South Korean chipmakers are trying to switch to American helium, but it is taking time and money, if only for geographical reasons.
Not only that, but American helium companies have also been affected by the Qatar blackout, according to the WSJ. The publication reported that Airgas had declared force majeure in March due to helium supply shortages in the Middle East, and it’s not the only one, according to industry experts who spoke to the WSJ. According to a report by another publication, Goldinvest, at least three of the world’s largest helium suppliers had introduced what essentially amounts to rationing, informing customers that they would only receive a portion of previously agreed volumes. Unsurprisingly, this has made analysts pessimistic about the future of the so-called AI revolution, especially with a protracted conflict in the Persian Gulf.
“Even if production resumes tomorrow, full supply chain recovery would take an additional four to six months, bringing the window of total vulnerability to six to nine months,” Quantum Strategy president David Roche told Morningstar. “This is a crisis of a critical and irreplaceable raw material, spanning technology, healthcare and science. Chip production is at the center of immediate concerns,” he added.
Reports of global helium shortages suggest that physical supply problems are just beginning. This means that the situation will worsen considerably in the coming weeks, and the supply shortfall could reach up to 30%, according to Goldinvest. This could possibly cool AI optimism or at least extend the timeline of the “revolution” and make it even more expensive.
By Irina Slav for Oilprice.com
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