Putin's war with Ukraine might worsen global chip shortage

The conflict between Ukraine and Russia continues to rage on with no signs of either side letting up. While the war between the two nations has already caused the price of oil to skyrocket, it is also about to worsen an already big problem plaguing automakers, the global chip shortage.

While some might think the war has nothing to do with the production of semiconductors, Ukraine is actually an important player in the production of chips. According to a report by Automotive News Europe, Ukraine is the source of 70% of the world's neon supply. This particular gas is critical as it runs the lasers that are needed to produce semiconductor chips.

Further complicating matters is the fact that Ukraine's neon gas production is a byproduct of Russian steel manufacturing. The gas is purified in Ukraine, which is then exported by the country to other parts of the world. Should the conflict escalate, we could experience another wave of semiconductor shortage.

“Of course, people will look for alternative sources of neon as quickly as they can — but that's not something that can just be switched on. Eventually, if semiconductors do not come, we will be right back to where we were last year,” said Carla Bailo, CEO of Center for Automotive Research.

For now, the ongoing conflict will not cause an immediate effect on global semiconductor production. In fact, automakers have apparently stocked up on several months' worth of neon gas. But the longer the war goes on between Ukraine and Russia, the more likely companies could run low on neon. Should this happen, it might cause another chip shortage from which automakers and other consumer electronic companies might not recover from.

With the price of fuel at an all-time high, the prospect of a worsening global chip shortage might result in automakers not being to regain profits lost in 2021. Combined with the wiring harness supply issue facing European manufacturers, things might get worse before it gets better.