South Korea, home to the two companies that control about 70% of the global DRAM market, is turning to Russia for naphtha. When Iran effectively closed the Strait of Hormuz in late February, cutting off the corridor through which a fifth of the world’s oil and gas flows, the immediate consequences were predictable: crude prices soared, energy markets shook, and geopolitical analysts used the most alarming epithets. What fewer people predicted was how quickly the crisis would move up the petrochemical chain and reach, with considerable force, Asia’s semiconductor industry.
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South Korea, home to Samsung and SK Hynix, the two companies that control about 70% of the global DRAM market and 80% of high-bandwidth memory production, is at the sharpest end of this disruption. The country imports about 45% of its naphtha, a critical petrochemical feedstock, and about 77% of those imports historically come from the Middle East. That supply line is now cut.
On Monday, South Korea’s Ministry of Trade, Industry and Resources confirmed the import of 27,000 tonnes of Russian naphtha, the country’s first such purchase since the outbreak of the US-Israeli war with Iran. The buyer was LG Chem, the country’s largest chemical company, which directed the shipment to its Daesan industrial complex in South Chungcheong Province. The transaction was made possible thanks to a temporary waiver from US sanctions that allows Russian cargoes already in transit to complete sales and offloading between March 12 and April 11, with Washington confirming that non-dollar payments would not trigger secondary sanctions.
The purchase is not a strategic shift so much as an act of necessity. LG Chem had already been forced to shut down its No. 2 naphtha cracker at the Yeosu complex, an 800,000-ton-a-year facility, after it could no longer secure sufficient feedstock. It is not alone. Yeochun NCC has declared force majeure on its contracts, and both Lotte Chemical and LG Chem have warned customers that further declarations may follow. Industry officials say inventories across South Korea’s petrochemical sector have fallen to about two weeks.
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The crisis has prompted Seoul to take its most aggressive supply-side intervention in years. Starting Friday, South Korea has imposed a ban on naphtha exports, requiring refiners to redirect about 11% of domestically produced naphtha that was previously shipped overseas. The government has also been given powers to order naphtha production and distribution under emergency provisions.
Naphtha's role in chip manufacturing is less obvious than its role in plastics, but no less important. Its derivatives, olefins and aromatics, are processed into high-purity chemicals, solvents, and plastics needed to make chips, including photoresist coatings used in circuit imaging and cleaning agents necessary for wafer processing. Ethylene, produced by the fractional distillation of naphtha, is sometimes described as the "rice of industry" in South Korea for its ubiquity in the industry.
But naphtha is just one thread in a broader web of disruption. South Korea’s industry ministry has identified 14 items in semiconductor supply chains that face serious exposure from the Middle East conflict. Among the most critical is helium, which is used to cool silicon wafers during manufacturing and is widely considered to have no viable substitute.
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Qatar, which accounts for more than a third of global helium production, halted production on March 2 after Iranian drone attacks.
