Medical scans and chips: the hidden fallout of the Iran war for China

By John Liu, CNN

(CNN) — Four months ago, a dozen academics and researchers from China’s top oil and gas producers issued a warning buried in an academic journal: the nation’s quest for self-sufficiency had a critical weak spot.

The threat they identified was helium, a colorless, odorless gas with a wide range of uses, from regulating temperatures during semiconductor manufacturing to cooling medical scanning devices, testing for leaks in pipelines, and pressurizing space rocket fuel tanks.

The problem was that over 83 percent of the country’s supply came from outside China.

“Because these supply sources are highly vulnerable to geopolitical shifts, the security of the nation’s supply chain now faces a severe challenge,” they wrote last December.

Fast forward to today and those fears have materialized with dizzying speed as a historic oil and gas crisis sparked by the US and Israel’s war with Iran grips the world.

China is now facing what some analysts have described as the worst helium shock in decades with prices doubling and supplies dwindling.

A prolonged disruption, analysts warned, could lead to chip factory shutdowns and delays for life-saving medical imaging, triggering cascading effects across the broader economy that relies on semiconductors, from electronics to vehicles.

China’s helium supply crunch is a rare vulnerability in what has otherwise been a largely successful push for energy self-sufficiency that has insulated the country from the worst oil crisis in history.

The collapse of peace talks between the US and Iran over the weekend and Trump’s announcement of a US Navy blockade of the vital Strait of Hormuz have further dashed hopes that material shortages could soon be resolved.

And with the halt in helium production in Qatar, which supplies one third of the world’s demand and 54% of China’s, and collateral damage to related energy facilities, the supply chain could still take years to recover. In the meantime, strains on domestic supply are mounting.

“With the Qatari issue, it’s basically taken so much offline globally that there’s no visibility on how we can get a reliable supply moving forward,” said Cameron Johnson, a Shanghai-based senior partner at supply chain consultancy Tidalwave Solutions.

“A lot of suppliers are basically saying, we don’t have any product to sell. It doesn’t matter if you give us a million bucks, we have nothing.”

Skyrocketing prices

Across Asia, economies that require helium are staring down a potential shortage. The Taiwan Semiconductor Industry Association has called on the government to start stockpiling helium, while Japanese media reported that helium firms have begun limiting sales.

The risk of major disruption has prompted governments such as South Korea and Taiwan – home to the world’s leading chipmakers and heavily reliant on the industry – to assess possible fallout. Seoul said that chipmakers have sufficient inventories for about four months, while Taipei said it has coordinated with chipmakers, which maintain diversified supply chains and adequate stockpiles.

Beijing has yet to address the disruption publicly and it does not disclose information on corporate helium inventories, making it hard to gauge the country’s stockpiles.

But prices for high-purity helium used in industrial sectors have doubled in China in the past month, according to Sublime China Information, a Chinese market intelligence firm.

“With Qatari supply unlikely to recover in the short term, domestic supply anxieties have spiked,” the firm’s analyst Zhang Wei wrote in an article in early April. “Upstream sellers are withholding stock while downstream buyers are scouring for supply, with some even willing to pay high premiums to secure it.”

Unlike oil and gas, China does not hold months of centralized stockpiles for the critical gas. Adding to the supply challenges is the limited number of specialized cryogenic tankers that can transport helium.

“There’s probably quite a scramble to secure these tankers now, because a lot of them are just idled in the Persian Gulf,” Bastian Dürr, analyst at China-focused consultancy Sinolytics.

Li Panyi, a helium sales manager in China’s central Henan province, said the cost of helium from his firm has jumped more than 120% from 76 yuan ($11.12) per cubic meter in early March to 170 yuan ($24.87). So far, he said customers across a range of industries including medical and semiconductors have been willing to accept the price increase.

“Because prices are rising and supply is tight, we can only guarantee some supply for our existing customers, while not taking new orders,” Li said.

Given the shortages, analysts said Beijing is likely to step in to divert supplies for high-priority medical use. Smaller chipmakers and other lower-end manufacturers with slimmer profit margins may face greater strain than advanced chipmakers, which tend to maintain stockpiles and have invested in recycling helium, said Cory Combs, head of supply chain and critical minerals research at consultancy Trivium China.

Eric Huang, vice president of Digitimes, a tech-focused market research firm, said that helium accounts for only a small fraction of chipmaking costs, and major chipmakers will be able to absorb higher prices.

“Those willing to pay higher prices will be able to secure a relatively stable supply; it’s lower-end uses like balloons or consumer goods that will feel the squeeze first,” he said.

Limited options

The US is the world’s largest supplier of helium, followed by Qatar and Russia. However, China has sought to reduce reliance on the US as relations have soured, cutting imports from 28% a decade ago to 2% in the first eight months of last year and boosting its domestic supply. It’s also turned to Russia for more helium, increasing its imports from less than 1% to about 42% in the same period.

But Russian supply won’t be able to make up for what has been lost from Qatar, analysts said, because much of its supply is locked into long-term contracts and it has limited excess capacity.

The limited options that China faces have renewed urgency to invest more in its own helium production and expand reserves, reinforcing the self-sufficiency drive Beijing has been championing for years, they said.

“You’re basically going to see a whole de-risking and resiliency strategy unlike we’ve seen ever before,” said Johnson of Tidalwave Solutions.

The researchers who warned about the supply risks for helium last December also advised ramping up domestic production and exploring more helium mines.

However, increasing Chinese production, which only accounts for roughly one-sixth of the country’s consumption, would take time.

“How quickly can China create new production of its own? That’s a much longer ramp, like a year or two,” said Combs from Trivium China.

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CNN’s Joyce Jiang in Beijing, Yoonjung Seo in Seoul and Wayne Chang in Taipei contributed reporting.