Hormuz closure exposes Taiwan and South Korea’s AI energy traps

The ramifications of the ongoing Strait of Hormuz crisis are far-reaching, with Taiwan and South Korea being the most affected, anchors of essential hardware in the global artificial intelligence (AI) era.

The two economic giants have doubled their gas imports in recent years to meet power generation demand, but the current energy crisis has exposed structural flaws. As a major manufacturer of high-end semiconductors and memory chips that are driving the global technological revolution, its competitiveness and local businesses are at serious risk.

Energy consumption is not the only concern. The world’s biggest technology buyers, including Apple, Google, and Microsoft, are all committed to ambitious clean energy goals.

Samsung, SK Hynix, and TSMC’s manufacturing plants (also known as fabs) operate on whatever the grid has to offer, but meeting supply chain requirements is structurally difficult when the grid is powered primarily by gas.

Connected to the grid and exposed to the world

Taiwan and South Korea rely on fossil fuel imports to power their factories. Grid configuration is critical because chip manufacturing is one of the most energy-intensive industrial processes on the planet.

Taiwan accounts for 60% of global chip manufacturing revenue and 90% of cutting-edge chips critical to the AI ​​field. But the country relied on imports for 95% of its energy needs last year, including more than 38% of its natural gas and 70% of its crude oil from the Middle East.

Meanwhile, in South Korea, SK Hynix and Samsung together control about 70 percent of the global market for dynamic random access memory (DRAM), the memory chips that power everything from servers to smartphones. Similarly, the country imports 94 percent of its energy and 72 percent of its crude oil from the Middle East.

The dangers of importing large amounts of energy became clear starting in February, as shipping through the Strait of Hormuz was disrupted due to the war between the United States and Iran.

Although the Taiwanese government says there is sufficient supply of liquefied natural gas (LNG) through May, the cost of alternative transportation is rising. If supply disruptions continue, the country will have to turn to the spot market. According to Professor Liang Zhiyuan of National Central University, JKM, the standard price for LNG in Asia, has soared by about 80% since the start of the war on February 28.

In South Korea, oil and gas price fluctuations are already shaking economic confidence. The South Korean won has fallen to a 17-year low, raising concerns about stagflation as rising oil prices put pressure on production costs. For every 10% increase in international crude oil prices, production costs are expected to increase by 0.71%.

double the gasoline

Japan’s dependence on imported fossil fuels is expected to increase further in the future.

Instead of protecting the engine of its economy with stable, clean energy, South Korea is deepening its dependence on fossil fuels and tying its fastest-growing industries to fossil fuels. The government’s 11th Basic Electricity Supply and Demand Plan, scheduled to be revised this year, predicts that LNG power generation capacity will jump from 43.2 gigawatts (GW) to 69.2 GW by 2038, with coal-to-gas conversion and new infrastructure such as the Karatsu LNG terminal being the main drivers.

The most important expansion is where gas meets South Korea’s technological ambitions. Six new LNG facilities totaling 3 GW are under construction to power the Yongin National Semiconductor Cluster, one of the world’s largest chip complexes under development.

Additionally, the new bill would allow AI data center operators to enter into power purchase agreements directly with LNG power producers. Additionally, AI data centers built outside the Seoul metropolitan area will be exempt from grid impact assessments, a regulatory check that assesses how new industrial connections will affect the stability and capacity of the broader power grid.

This effectively ties South Korea’s AI-driven growth to volatile fossil fuel prices.

More importantly, the proposed legislation would lock tech exports into high-carbon emissions, as buyers around the world demand carbon-neutral supply chains.

In Taiwan, the Ministry of Economic Affairs is promoting supply diversification, and in particular aims to increase the proportion of LNG procured from the United States from 10% to 15% to 20% by 2029. This includes a 25-year long-term purchase agreement with Cheniere, the largest LNG exporter in the United States. The contract, signed in February, includes up to 1.2 million tonnes of LNG per year, scheduled to begin in 2027.

However, this diversification strategy does not protect Taiwan from geopolitical risks and only provides an illusion of security. Instead, it simply replaces one geographic dependency with another while increasing dependence on imported fossil fuels.

Customers Already Seen

There is increasing pressure from both environmental and commercial perspectives to increase the adoption of renewable energy by large industrial companies. And the loudest voices are companies like TSMC, Samsung, and SK Hynix.

TSMC has already hinted at this issue, saying Taiwan needs to add renewable energy to its power grid more quickly. Without it, the company will not be able to meet its own net-zero target by 2040, much less the targets demanded by its largest customers.

Despite facing the same pressures, Samsung was less ambitious with its goal of achieving net zero by 2050.

Chip manufacturing factories operating on the Majority Gas grid will increasingly struggle to meet the requirements set by buyers such as Amazon, Google and Microsoft as they continue to move towards carbon neutrality.

Customers currently cannot easily swap chip suppliers because no other companies produce what TSMC and SK Hynix make at scale. However, this is not always the case.

TSMC’s Arizona factory runs on a very clean grid, and Intel’s foundry ambitions aren’t dead yet. Meanwhile, countries including Vietnam are moving forward with increasingly ambitious semiconductor plans.

The Hormuz crisis has made visible the costs of inaction on the part of the governments of the countries involved. For companies, the business case for increasing renewable energy rather than sitting back and accepting what the grid has to offer has never been stronger. And huge opportunities are taking shape for clean tech and renewable energy companies that can reliably meet industrial-scale chip manufacturing demands.

Energy company Orsted began supplying power directly to TSMC’s factory from the 920-megawatt Day Changhua offshore wind farm in 2025, the first project of its kind.

In South Korea, SK Hynix and Samsung have signed a solar power purchase agreement. However, they only cover a small portion of domestic fab needs, with the Yongin semiconductor cluster expected to require up to 10GW when fully operational. That gap is an opportunity.

For cleantech companies that can reliably service industrial-scale chip manufacturing, the Holmes crisis has made the business case undeniable.

The current crisis is a wake-up call. Energy security in the age of AI is no longer defined by how well we can hedge against fossil fuel markets, but by how quickly we can build a way out of fossil fuel markets. asian technology