Second-Order Effects: How Hormuz Threatens AI Infrastructure

A look at the second and third-order effects of the closure of the Strait of Hormuz has on AI infrastructure buildout.

The Strait of Hormuz closed on March 2, 2026. What followed wasn’t just an oil crisis. It was a series of bottlenecks that revealed how deeply AI infrastructure depends on a handful of chokepoints most people weren’t paying attention to. Aren’t paying attention to.

I have been meaning to map out the second and third-order effects of this conflict on AI buildout. The first-order effects are obvious: oil prices hit $110 per barrel, tanker traffic dropped to near zero, and energy costs spiked. But the real story is in what happens in the materials, chemicals, and gases that semiconductor manufacturing depends on, and how their disruption threatens to slow the entire AI infrastructure buildout.

The Constraint We Weren’t Watching

About 20% of the world’s daily oil supply flows through the Strait of Hormuz. So does a significant volume of liquefied natural gas from Qatar, which accounts for roughly 30% of global helium production and 33.7% of Taiwan’s LNG imports.

When Qatar’s Ras Laffan facility was hit by a drone attack, it didn’t just shut down LNG production, it cut off helium, a gas that semiconductor fabs literally cannot operate without.

Helium is used to cool semiconductor manufacturing equipment during production. Many fabs maintain only a 4-to-8-week buffer of specialized gases. South Korea’s Samsung and SK Hynix have current helium stockpiles expected to last roughly six months. If the conflict persists until late April, the industry will hit a hard stop.

Without sufficient helium for thermal management, chip yields will plummet. Taiwan’s limited gas reserves, estimated at roughly 10 to 11 days under normal consumption, could quickly come under strain, raising the prospect of electricity shortages affecting TSMC, which alone accounts for about 9% of Taiwan’s total electricity consumption.

The Chemicals That Make Chips Possible

Sulfuric acid is the most produced industrial chemical in the world. Around 92% of global sulfur comes from refining petroleum and processing natural gas. Both of these industries are heavily concentrated in the GCC region.

That sulfur becomes sulfuric acid, which is critical to semiconductor manufacturing. It’s used in chip etching, cleaning, doping, and other fabrication steps. The demand for sulfuric acid is rising in the electronics industry which is used to make semiconductors, printed circuit boards, and integrated circuits in everything from smartphones to data center servers.

Even though refineries have been switching to crudes with lower sulfur content due to environmental regulations, if the Strait remains closed and GCC refineries stay offline, the supply of sulfuric acid tightens precisely when AI chip production is supposed to be ramping up.

Then there’s bromine. Around two-thirds of the world’s bromine production comes from Israel and Jordan. Bromine is used for polysilicon etching in DRAM and NAND flash production. A prolonged conflict doesn’t just threaten energy supplies; it threatens the specialized chemicals that memory manufacturers depend on.

Polymers and the Petrochemical Chain

Polymers are everywhere in AI infrastructure. They’re used in cooling systems, chip packaging, printed circuit boards, and optical communications. The GCC countries are major exporters of petrochemicals, which is the feedstock for these polymers.

With the Strait closed, rerouting around it adds a lot of distance and a exorbitant costs in the form of fuel burnt. Those costs flow through the supply chain. But it’s not just about higher prices. It’s about availability. If petrochemical exports are disrupted for months, the materials needed for data center buildouts and chip packaging become scarce.

South Korea’s Energy Vulnerability

South Korea imports most of its energy. Samsung and SK Hynix are racing to expand memory production capacity. Samsung is looking to expand by around 50% in 2026, while SK Hynix announced plans to increase infrastructure investment by more than four times previous levels.

But higher energy costs could dampen demand for AI data center buildouts, which are roughly three-to-five times more power-hungry than regular data centers. This significantly increases the total cost of ownership for hyperscalers.

If energy shortages materialize, AI chip and RAM production slows down. The world’s two leading memory chipmakers have already warned that the supply crunch in their industry will continue until 2027 because they cannot keep up with fast-rising demand.

Energy insecurity makes that constraint worse. Without stable, affordable power, fabs can’t run at full capacity. And without helium, they can’t run at all.

The Third-Order Effects

There are other dependencies most people haven’t mapped yet.

Ultrapure water is essential to semiconductor manufacturing. An average fab uses 10 million gallons per day. Producing ultrapure water is energy-intensive. If power becomes unstable or expensive, water production costs spike, and fab operational expenses increase.

Neon gas is used in lasers for photolithography. Up to 70% of neon produced serves the semiconductor industry. Neon makes up more than 95% of the gas mixture in these lasers. While the current crisis hasn’t directly impacted neon supply (much of it comes from Ukraine and Russia), energy shortages in Asia could disrupt neon purification and distribution.

Rare earth elements are another vulnerability. China controls about 90% of global rare earths processing capacity and has expanded export controls. Several firms across the US, EU, and Japan have flagged risks with respect to lower inventory thresholds and potential productions halts in early 2026 if alternative sources aren’t secured.

The Middle East conflict introduces geopolitical risk at the same time China is tightening rare earth controls. That’s not a coincidence. It’s a convergence of constraints.

The Capital Constraint

There’s another dimension most people aren’t tracking: Gulf sovereign wealth funds are reconsidering their US investments.

Saudi Arabia, the UAE, Qatar, and Kuwait collectively control over $2 trillion in US assets. During Trump’s Gulf tour in May 2025, these countries pledged hundreds of billions of dollars in US investments. Those agreements are now under review.

Gulf sovereign wealth funds have been pouring billions into American AI companies. Abu Dhabi’s MGX co-led Anthropic’s $30 billion funding round at a $380 billion valuation. Qatar Investment Authority invested in xAI. Saudi Arabia’s Public Investment Fund has backed multiple AI startups. OpenAI has been actively seeking investments from Middle Eastern sovereign wealth funds for multibillion-dollar rounds.

The implicit bargain was straightforward: Gulf states invest in US tech and AI infrastructure, and in return, they get access to cutting-edge technology and US security guarantees.

But when drones struck facilities in the Middle East, that bargain looked hollow. When hundreds of drones and ballistic missiles were launched at infrastructure across all six GCC states, the Gulf realized that housing US military bases wasn’t providing the protection they thought they were paying for.

On March 5, 2026, the Financial Times reported that Saudi Arabia, the UAE, Qatar, and Kuwait had begun an internal review of existing and future financial agreements with Washington. They’re examining whether force majeure clauses can be legally invoked. They’re reassessing billions in investment commitments as the war tears through their energy infrastructure, tourism sectors, and defense budgets.

If Gulf capital pulls back from US AI companies, the funding environment changes. Major AI labs are burning billions per quarter. Anthropic’s $30 billion round, OpenAI’s ongoing fundraising, and the broader AI infrastructure buildout all assume continued access to deep-pocketed sovereign wealth funds willing to deploy capital at scale.

That assumption is now in question.

What This Means for AI Buildout

Major tech companies are estimated to spend $650 billion on AI data centers in 2026. That spending assumes chips, memory, and materials are available at predictable prices.

But the Strait of Hormuz closure has revealed that the AI supply chain is heavily dependent on a geographically concentrated set of inputs that flow through a small number of chokepoints.

The bottlenecks compound. No helium means no chip production. No sulfuric acid means no etching. No bromine means no DRAM. No petrochemicals means no polymers for cooling systems. No stable energy means Taiwan’s fabs, which produce the majority of the world’s advanced chips, can’t operate reliably.

While the impact remains limited, if the conflict extends past April, the industry faces a hard stop. Not a slowdown. A stop.

And even if the Strait reopens tomorrow, the lesson is clear: AI infrastructure buildout is constrained not just by compute capacity or model architecture, but by upstream material dependencies that most people building in AI weren’t thinking about.

Thanks for reading!