Conflict in Ukraine Has Vast Implications for the Global Semiconductor Market

By Logan Wamsley

As the war in the Ukraine enters into its second week, the global implications for the conflict are beginning to be fully understood. Of the many issues at stake, the global semiconductor supply chain might be one of the most significant.

On Monday, the U.S. announced further sanctions on Russia, primarily affecting Russia’s central bank, as well as the National Wealth Fund of the Russian Federation and the Ministry of Finance of the Russian Federation, effective immediately.

“We wanted to put these actions in place before our markets open because what we learned over the course of the weekend from our allies and partners was the Russian Central Bank was attempting to move assets and there would be a great deal of asset flight starting on Monday morning from institutions around the world,” the official said, on a conference call with reporters.

“Our strategy to put it simply is to make sure that the Russian economy goes backward. As long as President Putin decides to go forward with his invasion of Ukraine,” the official added.

One avenue that has not been taken yet are sanctions targeting Russia’s energy sector. According to analytics, Russian oil exports are vital to Europe, and in the current U.S. administration’s move away from fossil fuel independence in favor of investments into renewable energy, the U.S. has a strong dependence on Russia and other foreign powers such as Saudi Arabia. Although consensus is that energy sector-based sanctions would hurt Russia the hardest, global leaders nevertheless seem wary to take such a drastic measure in the middle of a fragile economic recovery following the COVID-19 pandemic. Still, global leaders have reiterated that as the conflict continues no action is off the table.

What the world is watching outside of Ukraine’s border is how Russia will respond under increased economic pressure on multiple fronts. One strong possibility is to lean into its strongest political ally, China, who has to date neither condemned nor endorsed Russia’s actions against the Ukraine. The potential actions on this front, however, are worthy issues to consider.

Consider, for example, the implications both the current war and strengthening Russia-China ties might have on the semiconductor industry. In late 2020 and 2021, the world has been facing strained electronic component and semiconductor supply in nearly every industry. In the automotive industry, companies such as General Motors were forced to shut down entire factories. In consumer electronics, Apple announced that its projections for iPhone production have been slashed by 10 million for 2021. Now with the Ukraine conflict, predictions for recovery are even direr.

Ukraine is one of the world’s leading production of neon gas, which powers the lasers to etch patterns into computer chips in countries including Japan, Korea, China, Taiwan, and other countries throughout Europe. Among the most dependent is the U.S., which estimates that 80-90% of its neon gas comes from Ukraine. The Ukraine city of Odessa, which houses one of the leading neon gas providers Cryoin, was one of Russia’s first targets. Following the attack, the White House immediately urged U.S. chipmakers to find alternative suppliers.

But this is just one scenario. According to many analysts, should the semiconductor industry become even more strained, there is a worry that this increase already fraught tensions between China and Taiwan, which dominates the semiconductor market. In a worst case scenario, should China act on its long-standing threat to invade Taiwan, the ripple effects around the global industrial landscape would be nothing short of crippling.

Many are interpreting China’s silence on Ukraine as something of “test case” for how the world would respond to a full Taiwan invasion. According to The New York Times, both China’s Xi Jinping and Russia’s Vladimir Putin have forged a strong, decades-long alliance, even friendship. “The two leaders [have] vowed to resist American-led efforts to promote pluralistic democracy and said they would fight foreign influence under the guise of what both call ‘color revolutions,’ after the popular uprisings in former Soviet republics like Ukraine and Georgia,” it says.

The possibilities for how such an alliance can play out must be a high priority in all industries’ risk management plans, and any and all strategies for how to maintain some degree of efficiency in absence of a global supply chain, such as a procurement model that moves away from “just in time inventory”, must be in play.