Korea and Taiwan: Middle East Disruption Also Exposes a Tail Risk to Semiconductors

Barclays reports that as the Middle East conflict enters its third week, the risk of energy transport disruption through the Strait of Hormuz poses a significant tail risk to Korea and Taiwan, particularly for the semiconductor industry. Both nations are major Asian energy importers, with approximately 60-70% of crude oil imports passing through the Strait. In the short term (1-2 months), strategic reserves can buffer the shock: Korea holds 208 days of crude oil reserves, while Taiwan has over 100 days; however, LNG reserves are tighter at only 9-11 days. If disruption exceeds three months, Taiwan's LNG buffer becomes more strained as 42% of its power comes from natural gas (compared to 27% in Korea), and restarting backup nuclear plants requires 18-24 months.

Power instability could impact semiconductor production: TSMC accounts for 10% of Taiwan's electricity consumption, while the tech sector represents 25%; Samsung and SK Hynix account for 5% in Korea. Long-term energy disruption may lead to reduced output, higher costs, and elevated nominal prices if global demand remains strong. Additionally, both countries rely on GCC nations and Israel for critical chemical gases needed in semiconductor manufacturing, further increasing supply chain risks.

Key Takeaways: - Strategic Reserves: Korea's effective crude oil reserve is ~4 months (adjusted for refining), while Taiwan's is ~2 months. LNG reserves allow ~1.5 months of operation under full disruption. - Power Vulnerability: Taiwan is more vulnerable to LNG shocks due to higher gas-fired generation share. A 10% power supply impact is possible in Taiwan versus ~4% in Korea.