Chip materials and policy pressures disrupt supply

Upstream dependency challenges continue to compound as Japanese photoresist suppliers sound the alarm on potential shortages. Naphtha, a key chemical in semiconductor manufacturing, is becoming increasingly constrained as the U.S.-Israel and Iran conflict rages on.

For Southeast Asia, a primary buyer of naphtha supplies from the Middle East, geopolitical tensions have put the squeeze on much-needed imports. With the ongoing memory shortage, any disruption upstream can further exacerbate the industry's fragile state.  

Furthermore, recent discussions in the U.S. capital about further export restrictions on chipmaking equipment could pose another hurdle for global supply chain operations. Even as U.S. chipmakers call for an easement on previous rounds of restrictions, these new regulations could make business critical exports even harder.  

Photoresist shortages raise new supply concerns

With the Strait of Hormuz effectively closed since early March due to ongoing conflict in the Middle East, critical inputs for the chip industry are facing unprecedented disruption. Naphtha, a key crude oil refinement derivative and feedstock for specialty chemicals used in semiconductor production, gained attention in recent weeks as Japanese firms started sounding the alarm on potential shortages.  

Photoresist production relies on solvents such as PGME and PGMEA, both of which count naphtha as a precursor. The disruption has set off a chain reaction that carries significant implications for chipmakers.  

Major Japanese photoresist and related material suppliers, including Shin-Etsu Chemical, Tokyo Ohka Kogyo, JSR Corporation, Fujifilm, and Nissan Chemical, have reportedly informed or preparing to inform customers such as Samsung and SK Hynix about disruptions in raw material procurement. Japan currently relies on the Middle East for more than 40% of its naphtha supply, putting downstream products in jeopardy.  

Sourcing PGME and PGMEA from other countries isn’t simple. Any change to the raw materials used in photoresist formulations triggers a costly requalification that can take a year or longer, especially at leading-edge nodes. So, while alternative sourcing is a medium-term solution at best, it offers no relief today.  

The shortage is expected to have the greatest impact on advanced nodes which rely on extreme ultraviolet lithography. Taiwan and South Korea, due to the high-end fabs located there, remain the largest markets for photoresist and will shoulder the biggest burden. Notably, a South China Morning Post report states that TSMC, the largest manufacturer in region, has diversified its supply strategy, potentially shielding it from some of the disruption.  

For now, though, most companies are relying on finite and fast-shrinking stockpiles. Semiconductor manufacturers typically maintain several months of safety inventory. However, with no clear solution to feedstock disruptions out of the Middle East, it’s unclear whether that buffer will be enough.  

What this episode makes plain is that concentration in the semiconductor materials supply chain is a growing vulnerability. Organizations that haven’t mapped their material dependencies and assessed how many of those run through Hormuz-adjacent logistics, are operating with an incomplete picture of their actual exposure.  

Chip policy tensions reshape global competition

The debate over U.S. export controls has never been one-sided, and the latest developments unfolding in Washington are an ode to this ongoing struggle. Even within the same industry, companies are lobbying in diametrically opposing directions.  

At the center of the argument is the MATCH Act, a bill recently advanced by a U.S. House of Representatives panel. The legislation aims to close loopholes in restrictions on chipmaking equipment and targets China’s SMIC as well as other major Chinese memory firms.  

Micron has been a key force pushing Congress to advance legislation that would impose new export controls on the tools used by its Chiense rivals to manufacture chips. As the world’s third-largest memory supplier and the only major player based in the U.S., Micron has watched its Chiense competitors rapidly gain ground. Tightening equipment access is one of the few policy levers that could slow that trajectory without requiring Micron to outcompete on cost or scale.

However, the legislation’s implications aren’t uniform across the industry, and that’s where the lobbying picture gets complicated. Tokyo Electron and U.S. toolmakers Lam Research, Applied Materials, and KLA, among others, are actively exploring ways to mitigate the impact of current export regulations given the significant share of their revenue that is derived from China. They fear tighter rules will only serve to compound the losses they’ve already absorbed through previous rounds of restrictions.  

Should the MATCH Act become law, its effects will be felt well beyond Micron’s walls. Chinese chipmakers and the country’s chipmaking capabilities have the most to lose, as is the story with most new export regulations.  

However, because both Samsung and SK Hynix operate memory production facilities in China, they too could face potential losses depending on how the export regulations are structured and enforced. Simultaneously, both also stand to benefit from reduced Chinese competition in global memory markets, perhaps even more so than Micron.  

That duality highlights the difficulty of enacting chip policy in 2026. The same regulation that protects one revenue stream can threaten another based on where a company’s manufacturing footprint is located.  

For procurement teams, risk isn’t tied to one policy outcome, but rather the sustained uncertainty that makes long-term planning difficult. The global chip ecosystem continues to fragment along competitive and geographic lines as governments increase intervention through export controls and raw material sourcing becomes more concentrated and vulnerable.  

Organizations that proactively diversify supply sources and build resilient procurement strategies will be better positioned to absorb the shocks brought on by policy volatility. Sourceability’s global market intelligence and regionally embedded teams of experts help customers navigate this terrain and walk the line between regulatory compliance and market access.