Why Are “Chips” The New Oil?
Introduction:
The trade of oil shaped the geopolitical landscape in the 20th century. Its control was a measure of industrial power and national wealth. Hydrocarbons have been replaced by silicones in modern times in terms of influence. The tiny, complex and ubiquitous semiconductor chip serves as the invisible engine that fosters every modern innovation from electric vehicles and artificial intelligence to advanced defence systems. It has rightfully emerged as the “new oil”.
The ultimate determinant of a nation’s economic predominance, military superiority and long-term technological growth is defined by its control over the semiconductor supply chain. The global chip shortage of 2020-2022 highlighted the severity of the vulnerability of the system, which further led to an unprecedented race led by governments around the world to achieve technological self-reliance and greatly amend international trade and diplomacy.
Economic and Industrial Foundation: Silicon’s Multiplicative Power
The semiconductors promote exponential growth and innovation across multiple industries, as compared to oil, whose value is highly transactional, which makes semiconductors more valuable. Chips are the backbone of the entire $14 trillion digital economy, which is growing dramatically.
Due to the shift to EVs and autonomous driving, cars have transformed into complex computers on wheels. A traditional combustion engine car contains approximately $500 in semiconductor content whereas a modern EV can contain chips worth $1000 – 1500 per vehicle and is expected to rise further. The absence of a single low-cost microcontroller can halt entire production lines.
The AI revolution is largely driven by enormous computational demands, which require the need for highly specialised silicon. Strong Graphics Processing Units (GPUs) and specialised silicon, such as Neural Processing Units (NPUs), are needed for training large language models (LLMs). High-Bandwidth Memory (HBM) is also required by these AI-specific chips in order to effectively handle large datasets. A nation’s ability to access this high-end computing power determines its ability to compete in the next wave of disruptive technologies.
Modern military dominance is determined by access to cutting-edge chips. Modern microelectronics are necessary for electronic warfare systems, smart weapons, encrypted communications, and hypersonic missile guidance. The ability to manufacture or consistently acquire cutting-edge chips has become a strategic military necessity for superpowers.
Vulnerability Paradox:
The global semiconductor system is built on the “Foundry Model” where chips are designed by the companies and manufacturing is outsourced. This ecosystem is both highly efficient as well as extremely fragile, which has led to an extreme geographic concentration of the most advanced manufacturing capabilities.
The world’s dependence is largely centred on Taiwan, which controls over 60% of the world’s semiconductor manufacturing capacity and an astounding 92% to 95% of the global supply of the most advanced logic chips (7nm and below). A single company: Taiwan Semiconductor Manufacturing Company (TSMC) maintains this dominance.
This concentration gives rise to a situation of “single point of failure”. Any disruption in the Taiwan Strait, whether from a blockade, natural disaster, or geopolitical conflict, would immediately stop the production of the parts needed for the world’s servers, phones, defence systems, and automobiles, causing an economic disaster that would far outweigh the effects of any previous oil crisis.
Geopolitical Scenario:
The vulnerable supply chain has turned the semiconductor industry into the main battleground of the US–China tech rivalry. Each side uses different policies to establish technological leadership.
The US Choke Point Strategy:
The US aims to maintain its dominance by controlling the “choke points” in the value chain, specifically chip design software (EDA) and specialised manufacturing equipment.
The most cutting-edge chips (such as NVIDIA’s H100) and, more significantly, the sophisticated Extreme Ultraviolet (EUV) lithography machines-essential for manufacturing 7nm and below-made by the Dutch company ASML, which depends on U.S. technology, are effectively blocked from China by the U.S.’s extensive export controls. The intention is to purposefully restrict China’s advancements in artificial intelligence and military modernisation.
The “Silicon Shield” theory is a result of Taiwan’s huge strategic significance. The world’s reliance on TSMC acts as a safeguard as it prevents wars by the major powers, the aftermath of which can lead to the crashing of the global economy.
China’s Self-Reliance Pursuit:
China is countering this pressure with a massive, state-backed drive for technological self-reliance.
Beijing has invested hundreds of billions of dollars through the National Integrated Circuit Industry Investment Fund (the “Big Fund”) to establish domestic manufacturing titans like SMIC
China is focusing largely on controlling the market for legacy chips (28nm and above), even though it struggles to get past the choke points for advanced nodes. China’s objective is to create a new kind of global dependency by flooding the market with less sophisticated but highly produced parts for automobiles and consumer electronics.
The Policy Response:
Major economies have put in place policies that are heavily subsidising local production to build stronger, more reliable supply chains – doing away with the traditional globalisation model.
| Initiative | Core Funding & Mechanism | Strategic Objective |
| U.S. CHIPS and Science Act | $52.7 billion in direct grants and subsidies for manufacturing, plus a 25% Investment Tax Credit. | Secure the supply of advanced chips, strengthen U.S. domestic manufacturing, and implement strict “Guardrails” prohibiting recipients from expanding advanced capacity in China for 10 years. |
| European Chips Act | Mobilising over €43 billion in public and private investment. | Double the EU’s global market share to 20% by 2030 and achieve strategic autonomy, protecting critical sectors like automotive from future shortages. |
| India’s Incentive Scheme | ₹76,000 Crore ($10 Billion) incentive package. | Attract major fabrication and Assembly, Testing, Marking, and Packaging (ATMP) investment to establish India as a hub for a trusted and diversified value chain. |
This global investment surge brings the end of purely optimised supply chains and the birth of “friend-shoring,” where resilience and trust outweigh lowest-cost manufacturing
The Next Frontier:
The conventional scaling method of Moore’s Law, which is shrinking transistors on a single chip, is approaching economic and physical limits. Hence, the new battleground for performance and manufacturing is moving to Advanced Packaging.
The Transition to Heterogeneous Integration: Manufacturers are switching to chiplets rather than creating a single, massive monolithic chip. Chiplets are smaller, specialised semiconductor dies (such as CPU, memory, and I/O) that are made independently and then put together using technologies like Chip-on-Wafer-on-Substrate (CoWoS) and 3D stacking to create a single, high-performance package.
Strategic Implication: This change is crucial as advanced packaging often relies less on extremely costly EUV equipment required for fabrication. It makes it possible to friendshore advanced packaging capacity outside of Taiwan to countries like the U.S. and Japan, which enables countries to achieve high performance gains through sophisticated assembly. This accelerates supply chain diversification and distributes risk efficiently. The next ten years will see a great amount of strategic investments and technological advancements in this area.
Opportunities:
For global corporations and governments, the strategic challenge is no longer merely recognising the problem; it is executing the change under intense geopolitical pressure. As a strategic consultancy, the focus shifts to three high-value areas of intervention:
Clients require quick, multi-level supply chain visibility. This means looking deeper into the supply chain to find out where the actual chip making and packaging happen, especially if those sites are located in risky regions. The objective is to change the procurement approach across various geopolitical zones from single-sourcing, which focuses on the lowest cost, to dual-sourcing, which is concerned with lower risk.
The subsidies offered by CHIPS and European Acts are a huge opportunity, but they also present complex challenges. Companies currently require guidance to access this capital while also complying with the mandates to avoid jeopardising long-term operations in China or other markets. Effective strategy now requires a good understanding of international subsidy and export control law.
New factories need more than just steel and concrete to build domestic resilience. It requires a highly qualified and specialised workforce, especially in areas of advanced packaging and materials science. The long-term goal is to help industries and governments create strong workforce programs and academic systems to support these billion-dollar local industries.
Citations:
Hill, M. (2025, October 6). Biden-Harris administration announces final national Security guardrails for CHIPS for America Incentives Program. NIST. https://www.nist.gov/news-events/news/2023/09/biden-harris-administration-announces-final-national-security-guardrails
European Chips Act. (2025, October 13). Shaping Europe’s Digital Future. https://digital-strategy.ec.europa.eu/en/policies/european-chips-act
Home | India Semiconductor Mission. (n.d.). https://ism.gov.in/
Sutter, K. M. (2025, September 19). U.S. export controls and China: Advanced semiconductors (Report No. R48642). Congressional Research Service. https://www.congress.gov/crs-product/R48642
Advanced Semiconductor Engineering (ASE). (n.d.). Heterogeneous Integration (HI). ASE. https://ase.aseglobal.com/heterogeneous-integration/