Geopolitics are reshaping semiconductor supply chain risk in 2026

The semiconductor supply chain has never been insulated from geopolitics, but multiple pressure points are converging in 2026 to wreak havoc. Critical materials like tungsten are emerging as strategic bottlenecks, while energy security adds another layer of uncertainty as conflict in the Middle East rages on past the one-month mark.  

At the same time, despite years of U.S. export restrictions, demand for AI chips in China has not abated. As revealed by a recent DOJ indictment, it has simply found shadowy new pathways. Together, these forces are heightening cost and risk for chip supply chains already stretched by AI-driven demand.  

Energy chokepoints and tungsten surge raise supply risks

Military conflict in Iran may be unfolding thousands of miles from the nearest globally relevant chip fab, but its effects on the semiconductor supply chain are highly relevant. Disruption to oil shipments through the Strait of Hormuz and a historic rally in tungsten prices have put stress on chip production. Industry experts and chip leaders are still working to fully quantify the fallout.  

South Korea is particularly exposed by the effective shutdown of oil shipments through the strategic strait. The country imports roughly 70% of its crude oil from the Middle East, and virtually all of it must travel through Hormuz. Samsung and SK Hynix, both based in South Korea, together control approximately 80% of global HBM production and some 70% of the DRAM market.  

With energy security in the Persian Gulf remains under siege for over a month, hyperscalers, OEMs, and memory chip buyers are feeling the ripple effects. So too have the country’s largest chipmakers. Both Samsung and SK Hynix watched their stock valuations plummet more than 20% at the start of the conflict before climbing back with a partial recovery.  

As researchers at the Carnegie Endowment observed, the conflict in Iran has exposed a long-standing vulnerability in the South Korean chip sector and wider economy created by the country’s dependence on imported fossil fuels.  

Should the flow of oil in the Middle East continue to be limited, manufacturing and transportation costs are likely to rise. Whether chipmakers will be able to absorb those costs, or will pass them on to buyers, is yet to be seen.  

Meanwhile, another materials crisis has been building in the background since last February when China added tungsten to its export control list amid escalating U.S. trade tensions. According to a Bloomberg article citing data from Fastmarkets, tungsten prices now stand at $2,250 per metric ton unit. That marks a 557% increase in just over a year, outpacing gains in gold, copper, and even oil by a wide margin.  

Notably, Chinese exports of restricted tungsten products also fell by roughly 40% in 2025. China controls roughly 79% of global tungsten mine production thanks to its overall dominance in the rare earths sector.  

Tungsten’s exceptionally high melting point and density make it an essential input for chipmaking. It appears both in chips themselves and in several types of equipment and processes used to manufacture them, particularly at advanced nodes. At scale, no practical substitute exists.

As a result of higher prices and an export crunch from China, BMO analysts have forecast another supply deficit in 2026. With production highly limited by geography and western efforts to build alternative supply chains still years away from meaningful capacity, there is no near-term mechanism to offset the shortfall.  

Nvidia’s China orders highlight persistent AI demand

Despite these bottlenecks, demand for AI chips remains at an all-time high. Export controls have reshaped how AI chips move through the world economy, but efforts from the U.S. and others have not diminished how badly China wants to acquire high-powered silicon.  

At Nvidia’s GTC conference in San Jose, CEO Jensen Huang confirmed that the company has received a new wave of purchase orders from Chinese customers for its H200 processors and has restarted manufacturing to fulfill them. China once accounted for at least one-fifth of Nvidia’s data center revenue.  

The announcement ended a roughly ten-month freeze on advanced chip exports to China. During that time, the Trump administration had required export licenses and Nvidia ate a $5.5 billion charge tied to stranded inventory.  

The path back hasn’t been straightforward, but thanks to a December arrangement allowing H200 sales to approved Chinese customers, with the U.S. government taking a 25% cut of revenues, chips are moving again.  

Chinese tech firms had collectively placed orders for more than two million H200 units for 2026 delivery, according to earlier Reuters reporting. That volume, despite geopolitical roadblocks, is a telling sign of what’s to come as buyers rush to obtain supply with channels reopening.

Simultaneously, an unsealed indictment published by the DOJ reveals what unmet demand looks like when legal channels are closed. U.S. prosecutors charged three men with conspiring to smuggle approximately $2.5 billion in Supermicro servers containing restricted Nvidia GPUs to Chinese buyers. At least $510 million in hardware allegedly reached its destination.  

The individuals named—Yih-Shyan "Wally" Liaw, a co-founder of Super Micro Computer; Ruei-Tsan "Steven" Chang, its Taiwan sales manager; and contractor Ting-Wei "Willy" Sun—face charges carrying maximum sentences of up to 30 years. The trio reportedly collaborated to sidestep the Export Control Reform Act by placing purchase orders as though the servers were destined for Supermicro’s operations. A third-party firm then repackaged the hardware in unmarked boxes before the trail was concealed by fabricated audit documentation.  

The case is a reminder that where legitimate supply is constrained, the pressure to source through other means intensifies, in turn adding risk for the rest of the supply chain.

When legal supply tightens or supply chain disruption creates demand surges, Sourceability helps customers plan proactively. By helping procurement teams identify exposure, secure critical components before allocation windows close, and avoid last-minute sourcing that drives up both cost and counterfeiting risk, Sourceability keeps customers one step ahead of global inflection points.