A potential closure of the Strait of Hormuz, driven by ongoing Middle East tensions, is posing a significant threat to Taiwan's semiconductor industry, particularly Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest contract chipmaker. TSMC relies heavily on chemicals and energy resources, such as ethylene, propylene, and specialty gases, which are derived from petroleum products and LNG shipments that transit the Strait of Hormuz. Any disruption in these supply chains could lead to shortages, price spikes, and increased costs for TSMC and its clients, impacting the availability of advanced semiconductors globally [1].
Industry analysts highlight that despite some supply chain diversification, TSMC remains vulnerable to shocks in global energy and chemical markets. A Taipei-based supply chain analyst described the Strait of Hormuz as "an Achilles' heel for Taiwan's semiconductor sector," warning that even temporary disruptions could force production slowdowns or halt certain processes. The ripple effects would extend across industries reliant on chips, including AI data centers, electric vehicles, and consumer electronics [1].
Financial markets are expected to react strongly to these risks. Semiconductor stocks, already volatile due to cyclical demand and geopolitical uncertainties, may face further downward pressure. Technical analysts are monitoring TSMC's share price, with NT$700 and NT$650 identified as critical support levels. A break below these could signal further declines [1].
Standard Chartered’s Senior Economist Tommy Wu has revised Taiwan’s 2026 macro outlook in response to higher oil and LNG prices resulting from Middle East tensions. The bank now forecasts CPI inflation at 2.1% (up from 1.5%) and GDP growth at 7.6% (down from 8.0%). Wu notes that the government’s price stabilization mechanism should mitigate the pass-through to CPI inflation, but rising costs and supply disruptions will eventually impact consumer prices. The surge in global energy and industrial input prices is expected to dampen Taiwan’s exports, with consumer electronics demand likely to be affected more visibly. While AI-related demand remains resilient for now, a prolonged surge in energy costs could become a material headwind for AI investment and demand for Taiwan’s semiconductors [2].
Standard Chartered maintains its view that the Taiwan Central Bank (CBC) will keep the policy rate at 2.0% for the rest of the year, but warns that a sharp increase in oil prices could prompt a rate hike as early as June [2].
CONCLUSION
Middle East tensions and the potential closure of the Strait of Hormuz are creating significant risks for Taiwan's semiconductor industry and broader economy, with rising energy costs threatening supply chains and dampening growth. Both industry and financial analysts warn of heightened volatility for semiconductor stocks and a challenging outlook for Taiwan’s exports and inflation. Investors and policymakers are advised to closely monitor developments, as further escalation could intensify market impacts.