Iran War Could Delay AI Buildout, Risking Recession

The Iran conflict has triggered dramatic economic effects across the globe.

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Geopolitical tensions in Iran are disrupting oil supplies and causing cascading impacts on critical industries.

Carnegie Endowment for International Peace

South Korea has felt particularly outsized shocks despite being far from the warzone.

The country's stock market plunged 18 percent in just four trading days—the worst drop since the 2008 financial crisis.

This wiped out more than $500 billion in market value as energy security disruptions cascaded through Korea's semiconductor-heavy stock market.

The market panic exposed deeper structural weaknesses in Korea's economy.

These revealed how a decades-old dependence on imported energy has become far more dangerous for an energy-poor economy.

Geopolitical shocks threaten the conditions that allow major industries to operate smoothly.

South Korea's chip industry faces unprecedented vulnerability due to its heavy dependence on Middle Eastern energy imports.

Korean industry depends on power generated largely from imported fossil fuels—especially oil and liquefied natural gas (LNG).

Carnegie Endowment for International Peace

Oil accounts for 36.6 percent of primary energy use, followed by coal (22.3 percent) and natural gas (19.7 percent).

South Korea imports roughly 70 percent of its crude oil from the Middle East.

Virtually all of that oil travels through the Strait of Hormuz.

This makes the country's world-leading semiconductor industry particularly susceptible to disruptions.

The country's two largest chipmakers, Samsung and SK Hynix, form the backbone of the Korean chip industry.

They make up nearly 40 percent of the Korean stock market's capitalization.

Each lost more than 20 percent of their market value over two trading days during the recent crisis.

The ongoing conflict is creating critical material shortages that directly threaten the AI buildout.

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Global semiconductor supply chains are being impacted.

Fertilizer prices have surged up to 70% due to Gulf region production halts.

Helium shortages are now threatening semiconductor manufacturing.

These could potentially delay the artificial intelligence buildout.

The AI buildout is crucial for global technology advancement.

These disruptions come 'at a crucial moment for planting,' according to experts.

The combination of fertilizer shortages and energy disruptions could have cascading effects.

Global food security and technology production are at risk.

The timing is particularly concerning as the world accelerates its transition toward AI-driven technologies.

South Korea's economic vulnerability stems from decades of energy import dependence.

This dependence has become increasingly dangerous as geopolitical tensions rise.

Carnegie Endowment for International Peace

For years, the mismatch between Korea's energy import needs and electricity demands of advanced chip manufacturing has placed the country's semiconductor leadership at great risk.

Despite the country's longstanding commitment to clean energy spanning both progressive and conservative administrations, switching to more self-sufficient alternatives has lagged.

Alternatives include nuclear, solar, wind, and biofuels.

Even among electricity sources less dependent on Middle Eastern suppliers, coal (33 percent) still tops nuclear (31 percent) in the Korean energy mix.

This persistent energy dependency creates systemic risk for the global semiconductor industry.

The industry relies heavily on Korean production of memory chips.

The Iran war's economic impacts could mark the beginning of an 'AI recession'.

“Even if the Iran war stops, restarting production and transport for fertilizers and their components could take weeks—at a crucial moment for planting”

Carnegie Endowment for International Peace

Semiconductor manufacturing faces unprecedented challenges to global supply chains.

Carnegie Endowment for International Peace

The world's largest chip complex is currently under construction in Yongin, Gyeonggi Province.

It is scheduled to partially open in 2027.

This complex is designed to strengthen Korea's dominance in global memory-chip production.

It comes as AI-driven demand accelerates.

The timing of these disruptions is particularly concerning.

Korea's ambition to strengthen its chip dominance comes with steep costs.

Energy is at the center of its development challenges.

Experts warn that if disruptions continue, the global AI buildout could face significant delays.

This could potentially trigger a broader economic recession as technology companies and economies become increasingly dependent on uninterrupted semiconductor production.