Iran’s war is a harsh lesson in what can happen when geopolitical risks that were acknowledged by all but not fully valued suddenly become real.
Brent crude oil has soared to $100 per barrel, its highest level in decades. Global GDP growth estimates for 2026 were already revised downward by 0.7 percentage point.
The OECD is experiencing an increase in inflation expectations, while trade corridors stretching from Suez all the way to Singapore are buckling.
Three thousand vessels are currently parked on the Persian Gulf, posing the possibility of the biggest energy shock in decades.
Investors that had written off Hormuz in the past as an tail risk, are paying the price for this assumption now at the gas pump, the supermarket, and their portfolios.
Taiwan is a similar lesson waiting to be taught. The numbers are larger.
Taiwan: A single point of failure
Taiwan Semiconductor Manufacturing Company produces 90% of world’s strongest chips, which power data centres and fighter jets as well as smartphones and electric cars.
Other companies on the planet cannot manufacture to this level of sophistication. It is impossible to replace TSMC in a timeframe shorter than 5-7 years.
It is no accident that we are in this location.
The result is a culmination of years of investment and institutional expertise, as well as the engineering talents of a team that can’t be simply airlifted from Arizona to reassemble.
TSMC invests $100 billion into US plants, which will be of great importance in the future.
The world’s best chips, at least in the near future, still originate from an island of 36,000 square kilometers that China claims as its territory.
Eyck Freymann is a Hoover Institution fellow and the author of a forthcoming book about Taiwan strategy.
The financial and commercial disruption caused by a serious crisis along the Taiwan Strait is comparable to that of Hormuz.
It is well worth it to sit with. Hormuz’s closure has already been the biggest energy shock recorded in history. Taiwan is worse.
What’s actually going on right now?
China does not have to invade Taiwan yet. It is being more efficient and patient.
PLA air incursions in Taiwan increased from 380 to 5,709 by 2025. China’s most comprehensive military exercises around Taiwan were conducted on December 29. The drills simulated a complete blockade.
The budget for defence in 2026 has increased to $278 Billion, an increase of 7%, while GDP growth is slowing.
Beijing’s official language towards Taiwan has been hardened in its new Five-Year Plan. AI-powered campaigns and interference with elections are being run against Taiwan’s forthcoming elections.
International Crisis Group calls the current status in the Taiwan Strait “precarious.”
Taiwan is Beijing’s top external security concern according to a prominent Chinese think-tank at Tsinghua University.
Trump’s administration has added a new layer of uncertainty.
In the US National Defense Strategy 2026, Taiwan Strait is not mentioned. Trump claimed in January that Taiwan is “up to” Xi Jinping and also claimed Xi has promised not to attack during Trump’s tenure.
It is not clear what informal assurance means and whether or not it applies.
Anyone with an interest in Asian markets will closely follow the upcoming Trump-Xi Summit.
Iran’s war has changed our calculus
Most investors miss this counterintuitive investment insight.
China isn’t more inclined to invade Taiwan because of the US military show in Iran. China is more likely to believe that a non-military approach is better.
Beijing’s lessons from Iran are driving it to economic pressure, blockades and gray-zone pressurization rather than military action.
Investors should not be focusing on the amphibious landings that are part of Pentagon wargames, but rather the realistic scenario.
It is possible to implement a partial or quasi-blockade that would disrupt deliveries, but not trigger a military response from the US. This could still stop semiconductor exports immediately.
It is more difficult to describe, to react to and it could last for several months before the markets come to a consensus about how serious this invasion really is.
China, on the other hand, has closely monitored the situation in Hormuz and acknowledged that the chokepoint denial strategy works when bombs are being dropped against the party blocking the flow.
Beijing spent last year building up its oil reserves. It imported 15.8% more crude during the first two month of 2026 compared to the same time period in 2015. The strategic reserve is now approximately 1.2bn barrels.
This is generally understood to be preparation for sanctions and disruptions in supply that a Taiwan contingency could trigger.
Investors should be aware of the implications
Taiwan’s ETF has fallen 6.75% since the Iran War began. South Korea and Japan have also declined.
Taiwan’s resilience is partly due to its contingency plans, which include stockpiling three months worth of oil, reactivating idle coal plants, and obtaining alternative sources of helium from US suppliers.
Taiwanese companies that manufacture chips can navigate through this summer’s disruption in the Middle East by increasing prices and charging customers more.
The point is that the Iran analogy is important. Hormuz was never expected to close.
Investors should not wait until a binary outcome. Grey-zone campaigns are already underway.
The geopolitical risks that are carried by companies with a concentrated exposure to Taiwanese chips – such as Apple, AMD and any hyperscaler with AI goals – is underpriced.
The Indo-Pacific region is one of the best-performing regions in terms of spending, irrespective of the outcome.
The race for alternative semiconductor production capacity from Arizona, Dresden, and Osaka is one of few themes in investment that grows stronger as the Taiwan crisis worsens.
There is a single failure point in the technology stack of all countries. This is no secret.
Investors must decide if they will take it seriously or not before being forced.
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