South Korea's market crash shows how wars can hit global tech industry

As the world remained glued to West Asia after joint air powers of Israel and the United States launched fierce strikes on Iran on February 28, igniting a crisis, something alarming happened in East Asia. Shares in South Korea, Asia’s fourth-largest economy, tanked 12 per cent on Wednesday (March 4), witnessing the biggest fall in its 46-year history and erasing won worth trillions in no time. The fear of the adverse outcome of the year also saw the Korean economy plummet to a low not seen n 17 years.

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While the outbreak of a conflict in a sensitive region like the Gulf always heightens the risks for the global economy, particularly after Iran blockaded the narrow Strait of Hormuz, which is key to international trade supply, the Korean episode revealed something more.

Global tech hub hit by Iran crisis

The global technology industry, of which Korea is a known hub, has over the years expressed concerns over factors such as shortage of semiconductors, supply chains and geopolitical challenges around the manufacturing of chips, a major ingredient for advancements in the sector. But what transpired in Seoul this week brought to the fore the fact that more than computing power or manufacturing capacity, it is energy which remains the most vulnerable area in the AI (artificial intelligence) revolution.

Also read: How many countries hit by Iran crisis so far? Here's a list

In other words, the biggest risk to the AI revolution might not be the chip or software but the traditional fossil fuel energy required to run units that manufacture them. The stocks in the country, which heavily depends on oil supply from the Middle East (2.76 million barrels) to meet its energy requirements, saw a massive slump, outweighing the war’s immediate impact in other parts of Asia. Korea is the world’s fourth-largest buyer of oil.

Korean stocks nosedive

The country’s benchmark KOSPI (Korea Composite Stock Price Index) fell by over 12 per cent on Wednesday (after falling 7.2 per cent on Tuesday), eclipsing the single-day plunge record seen after the 9/11 attacks in the US. Many traders could not react earlier this week, even as the trend was witnessed since Monday (March 2) was a public holiday. But even after the trading restarted, institutional investors offloaded shares worth trillions of won, making their strong apprehensive about the global financial markets evident.

According to financial experts, the fall in the Korean stocks was ignited mainly by surging oil prices and fears over supply. After Iran warned of blocking the strait, crude prices jumped nearly 13 per cent. South Korea was particularly hit as much of its oil from the Gulf passes through the Strait of Hormuz.

Chip factories require power, hence energy

To give an example, chip-making factories are huge industrial operations that require a continuous supply of electricity. When energy prices rise, running those factories becomes dearer. If war-related uncertainty continues, companies play it safe by delaying expansion plans or cutting down production. For a world which has less memory stockpiled, it matters a lot.

Expert explains

Australia-based analyst Shanaka Anslem Perera explained the Korean episode in detail on X. He said while everyone noticed the Korean market crash, what they didn’t is the AI supply chain crisis that it concealed.

In his post on March 4, he said, “The KOSPI just lost 15% in 48 hours. Circuit breakers triggered for the first time in 576 days. $270 billion vaporized in a single session. Samsung down 10%. SK Hynix down 12%. The world’s hottest stock market went from all-time highs above 6,300 to freefall below 5,300 in two trading days. The consensus says geopolitics. Iran strikes, Hormuz threats, oil surging past $80. Standard energy shock narrative. That is the surface reading.”

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Explaining the actual problem, he said Korean companies such as Samsung and SK Hynix control nearly 70 per cent of the global DRAM (dynamic random-access memory) and almost 80 per cent of the high-bandwidth memory game.

“HBM (high-bandwidth memory) is the oxygen of every AI datacenter being built on Earth right now. Every NVIDIA Blackwell chip, every Google TPU, every hyperscaler expansion relies on memory manufactured overwhelmingly in one country,” Perera said, referring to Korea, which imports 97 per cent of its energy through the Strait of Hormuz, which is currently under Iran’s threat.

“The entire global memory supercycle, projected to exceed $440 billion in 2026, depends on fabs that cannot run without imported oil and LNG flowing through contested waters. Global DRAM inventory sits at 2 to 3 weeks. NAND at 3 to 4 weeks. There is no buffer. If Hormuz disruption persists beyond a month, production cuts become unavoidable, and the AI buildout timeline slips in ways no one has modelled,” he added.

“The KOSPI crash is not a Korea story. It is the first live stress test of the AI infrastructure buildout’s most critical single point of failure,” Perera said in his post.

Stocks rebound in Korea

The stocks saw a sharp rebound on Thursday (March 5), partially recovering from the rattled markets, The Korea Herald reported, adding that surging buying pressure pushed KOSPI by more than nine per cent and the secondary KOSDAQ by more than 14 per cent and President Lee Jae Myung asked the government to implement a market stabilisation programme worth 100 trillion won to ensure that the capital market doesn’t remain unstable.

Also read: Stock markets rebound in early trade tracking rally in global peers

But a worse impact of the war cannot be ruled out, including other rising Asian economies, such as India. With their high dependence on West Asia for energy, which is required for running massive data centres to train and run AI systems, any inflation caused by war would eventually harm the pace and scale of AI infrastructure, not only in Asia but across the globe.