Iran war threatens Asia's AI boom as energy costs surge

Thursday 02 April 2026 - 14:20

By: Dakir Madiha

Iran war threatens Asia's AI boom as energy costs surge

Asia's artificial intelligence ambitions face a significant test as the conflict in Iran drives up energy prices, strains supply chains, and raises production costs across the region's semiconductor industry, even as chip exports reach historic highs.

South Korea's semiconductor exports jumped 151.4% year-on-year in March to a record $32.83 billion, surpassing the $30 billion threshold for the first time, according to the country's Ministry of Trade, Industry and Energy. Total exports rose 48.3% to $86.13 billion, marking a tenth consecutive monthly record driven by soaring memory chip prices and expanding AI investment. Analysts, however, warn that geopolitical pressures could stall this momentum.

Taiwan stands at the center of the vulnerability. Home to TSMC and roughly 90% of global advanced chip production, the island imports 95% of its energy and held only 11 days of natural gas reserves as of late March, according to the Atlantic Council. Before the war, more than 38% of Taiwan's annual natural gas supply came from the Middle East. With the Strait of Hormuz effectively blocked, ship transit having collapsed by 94% since hostilities began, Taipei has moved quickly to secure alternative liquefied natural gas deliveries from Australia and the United States. TSMC stated it does not anticipate a significant impact but is monitoring the situation closely, according to Politico.

The energy shock is also reshaping financing decisions across the region. Bloomberg reported that Asian bankers funding data center projects are increasingly weighing electricity prices and energy security in their lending decisions. Separately, Southeast Asian nations are reviving stalled nuclear energy projects to meet electricity demand driven by AI infrastructure expansion, the Associated Press reported.

The disruption extends well beyond Asia's chip sector. J.P. Morgan's global manufacturing PMI, compiled by S&P Global, fell to 51.3 in March from a 44-month high of 51.8 in February, as supply chain delivery delays reached their highest level since October 2022. Average industrial input prices rose globally at the fastest pace since July 2022, while the U.S. ISM price index climbed to 78.3, its highest since June 2022, driven by steel, aluminum, tariffs, and petroleum products tied to the Middle East conflict.

In China, input costs grew at their fastest rate since March 2022, with manufacturers passing those costs to consumers at the highest rate in four years, Reuters reported. Morningstar analyst Jing Jie Yu warned that elevated energy costs could substantially increase total ownership costs for hyperscalers, posing a direct challenge to AI infrastructure adoption.

Craig Singleton, a senior China fellow at the Foundation for Defense of Democracies, told Politico that power disruptions in Taiwan could have direct consequences for global chip supply chains that underpin everything from AI servers to automobiles. The question facing the industry is whether Asia's record-breaking chip momentum can withstand an energy crisis showing no signs of easing.