Chip scarcity may get worse amid Ukraine conflict

Contact Counsellor

Chip scarcity may get worse amid Ukraine conflict

  • The Russia-Ukraine conflict: likely to aggravate the global semiconductor shortage as the two countries are major suppliers of raw materials critical to chip production.

Semiconductor Industry

  • Semiconductor chips are integral parts of the powertrain, chassis, safety systems, advanced driver assistance systems, and other parts of automobiles.
  • In comparison to commercial vehicles or two-wheelers, they are employed more in passenger vehicles.
  • With the slowing supply of semiconductor chips, the automobile sector's manufacturing is also suffering.

Role of Russia and Ukraine

  • Russia supplies the global semiconductor industry with rare metals.
  • Ukraine supplies specialty gases required by the chipmaking industry.
  • Neon and helium are both gases critical to the production of chips: Russia and Ukraine are both major players in the global supply chain.
  • Neon prices went up more than 10 times following the Russian annexation of Crimea in 2014.
  • Palladium(another key component): may be affected because Russia controls a quarter of the world’s palladium stock.
  • From Ukraine: Iron ore, semi finished iron and iron bars are among the four largest commodities imported by APAC countries.

Global Scenario of Semiconductor Industry

  • Currently, semiconductor manufacturing is dominated by companies in the U.S ,Japan, South Korea, Taiwan, Israel and the Netherlands.
  • These chipmakers produce up to 70% of the world’s semiconductors, according to estimates by NXP semiconductors.
  • The European Commission has announced a public-private semiconductor alliance with the goal of increasing Europe’s chip production share to 20% by 2030.
  • South Korea has offered various incentives to attract $450 billion in investments by 2030.

Present scenario In India

  • More than 90% of global companies already have their R&D and design centers for semiconductors but never established their fabrication units.
  • Although India has semiconductor fabrication units in Mohali and Bangalore, they are purely strategic for defense and space applications only.

Future Repercussions

  • These supply stresses could potentially impact the manufacturing of automobiles and electronic equipment in the Asia-Pacific region.
  • The conflict can quickly exhaust thin semiconductor inventories, disrupting production worldwide and affecting the fragile global economic recovery.
  • It will likely result in higher chip prices.
  • The conflict contributes only indirectly to higher energy prices via blockages of shipments from Russia.
  • The report concluded that the impact would be much smaller on the APAC region than what is expected in Europe.

Impact on India

  • Impact of the war between Russia and Ukraine on the country’s trade with the two neighbors is worrying.
  • Government has to cut excise duty on fuels if the current surge in crude price lingers longer than can be absorbed by state-run fuel retailers.
  • Food price inflation could stay higher for longer due to high energy prices or disruption of shipments of wheat, corn and edible oils.


  • The ongoing conflict is now affecting the whole world with already increased inflation due to rising fuel prices.
  • India has committed almost $10 billion to promote semiconductor manufacturing in the country, but supply disruption of raw materials for the Semiconductor industry will hugely impact this commitment.