By Reshma Kapadia
The war in Iran and consequent blockage of the Strait of Hormuz offer a stark reminder of a different geopolitical risk, one lurking in tech-heavy global portfolios that are betting on artificial intelligence: Taiwan.
Beijing claims the self-ruled island as its own and intends to unify it with the mainland, by force if necessary, making Taiwan a geopolitical tripwire. Investors often put Taiwan in the "too big to fail" bucket, meaning China wouldn't dare attack anytime soon because of the cascading ramifications. Their reasoning: If China were to invade, its damage wouldn't be just to holdings such as Taiwan Semiconductor Manufacturing, which makes more than 90% of advanced semiconductors, but to the entire global economy.
But the far-reaching ripples from Iran's attacks on the Strait of Hormuz, itself once thought to be in the unlikely bucket, is a reminder of the risks to global chokeholds and the potential spillover from geopolitical conflict. Whereas a fifth of global oil passes through the strait, Taiwan produces three-quarters of global chip foundry revenue and is home to companies crucial to anything with an on/off switch, not to mention anything related to artificial intelligence.
"A serious crisis in the Taiwan Strait would trigger commercial and financial disruption on a scale that makes Hormuz look manageable," says Eyck Freymann, a fellow at the Hoover Institution and author of Defending Taiwan: A Strategy to Prevent War with China, out later this month.
While the International Energy Agency was able to release 400 million barrels of oil in an effort to cushion the impact of the Hormuz closure on energy prices, no such reserve exists for semiconductors. China's levers to exact financial pain would have an effect far wider than what Iran can inflict in the Persian Gulf, Freymann observes.
That's saying something, considering that Chevron CEO Mike Wirth has described the oil shock from this conflict as worse than the previous two, and that the prices of chemicals, including helium and urea, have soared.
Taiwan, which imports the bulk of its energy, with about 35% coming from liquefied natural gas, much of it from the Middle East, has felt some of this pain, considering its semiconductor fabrication plants need steady power.
But its years of contingency planning have helped mitigate the impact, putting it in a better situation than some of its neighbors. The iShares MSCI Taiwan exchange-traded fund is down 6.75% since the war began, compared to a 15% decline for the iShares MSCI South Korea ETF and a 10% decline in the iShares MSCI Japan ETF.
Taiwan has at least three months of oil stockpiled, and it is turning on some of its coal-fired plants, 40% of which are typically idle, and buying coal from Indonesia and Australia. It is also working on contingency plans for other potential disruptions, including improving its recycling technology for rare-earth minerals, a market that China dominates, and reducing its use of specialty gases, says Tiffany Hsiao, a fund manager at Matthews Asia. It is also exploring the use of small module reactors and nuclear energy, Hsiao adds.
It is also finding alternative sources for helium, needed in chipmaking. Taiwanese companies had been big buyers of helium from Qatar, which produces 30% of the global supply and sells it at lower prices than other sources do. But now some Taiwanese companies are buying more-expensive helium from U.S. producers and will likely pass on the additional cost to customers, says Alison Shimada, head of the Allspring Global Investments' Total Emerging Markets Equity Team.
Taiwan's chip-oriented companies will likely be able to navigate the disruptions for a short while -- even possibly through summer -- in part by paying more for what they need from other suppliers, passing that extra cost to customers, and possibly delaying chip production for goods such as smartphones and computers, which have less priority than more-critical AI products, Hsiao says.
But the Iran war has put a spotlight on Taiwan's fraught geopolitical situation. Some strategists see the Trump administration's seizure of Venezuela President Maduro as setting a precedent for China to close the Taiwan Strait, but few see the U.S. moves in Venezuela or Iran as hastening a timeline for Beijing to try to take Taiwan by force.
If anything, strategists say the U.S. technological and military prowess on display in Venezuela and Iran are likely raising questions in Beijing about military readiness. "Paradoxically, it's not making China more inclined to invade Taiwan [but is] making China more convinced it should move against Taiwan in a way that doesn't require military action," Freymann says.
In an annual threat assessment, Director of National Intelligence Tulsi Gabbard said the intel community does not expect China to invade Taiwan next year. But analysts expect Beijing to keep up the pressure, including with military exercises and the constant presence of its coast guard and even fishing vessels around Taiwan's shores. The aim, Freymann says, is to send the message that Taiwan is "being boa-constricted" and that China could enforce a "quasi-blockade" at any time to disrupt deliveries to Taiwan's ports.
There have also been glimpses of how China could use economic coercion. Last year it restricted rare-earth exports to Japan and used the threat of such restrictions as a lever against the U.S. before the two nations reached a truce.
The next big signal geopolitical strategists are watching for is likely to come from the summit between President Donald Trump and Chinese leader Xi Jinping, scheduled for May 14-15. Beijing is likely to push for the U.S. to tweak its language on Taiwan from saying it "does not support" independence to it "opposes independence."
The nuanced shift would be notable and would potentially raise concerns among other Asian allies about whether the U.S. would help defend them against Chinese aggression. Moreover, growing skepticism about U.S. support within Taiwan could aid the China-leaning Kumonitang, or KMT, opposition party, says Raymond Kuo, director of the Taiwan Policy Initiative at Rand.
The risk is that Taiwan's supply chains and industrial cooperation with U.S. companies could come under China's control, jeopardizing the best options for reindustrializing the U.S., Rush Doshi, senior fellow for Asia studies at the Council on Foreign Relations, said in testimony to a Senate committee earlier this year.
Already, pro-autonomy President Lai Ching-te's plan to boost Taiwan's defense spending to 3.3% of GDP in 2026 and 5% of GDP by 2030 through a special $40 billion defense budget has hit roadblocks thrown up by the KMT. And a record U.S. deal to sell Taiwan $11 billion in arms has been delayed in the face of opposition from Beijing.
Also a source of concern for Taiwan: If the U.S. were to put troops on the ground in Iran, it would suggest a de-prioritization of the Indo-Pacific region, Kuo says.
Write to Reshma Kapadia at reshma.kapadia@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 26, 2026 01:00 ET (05:00 GMT)
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