March 25, 2026

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The Iran War: A Crisis for the Defense Industrial Base Now Too

(AP Photo/Kamran Jebreili, File)

The seismic economic ramifications of the Iran War are directly affecting the technological dimensions of the Great Power Competition between the United States and the People’s Republic of China (PRC). The impact of plummeting and disrupted supplies of critical oil refining derivatives, including helium and sulfur, has at times been overshadowed by more immediate concerns about energy markets. Nonetheless, these byproducts are critical for much of the industrial defense base that sustains the technological competition between the U.S. and the PRC. The Iran War has spotlighted the significant exposure of the global supply chains on which the U.S. and the PRC rely for their respective defense industrial bases. While at present both countries are struggling with significant disruptions to key supply chains, including those downstream to semiconductors, the length and intensity of the hostilities will decide the full impact on the technological competition of the Sino-American dyad.

One of the most immediate impacts of the Iran War on the U.S.-PRC technological competition stems from disruptions of the sulfur market. Sulfur is a byproduct derived from natural gas processes and petroleum refining that, after being burned and transformed into sulfuric acid, is used for extracting critical minerals. About a quarter of the world’s sulfur supply originates from crude oil refinement in the Middle East, and about half of the world’s seaborne trade of sulfur passes through the Strait of Hormuz, which remains entirely blocked by Iran’s Islamic Revolutionary Guard Corps (IRGC) with few exceptions as hostilities enter their fourth week. Since the start of Operation Epic Fury, the price of sulfur has nearly doubled. Downstream, this signifies a major disruption in critical minerals extraction, including cobalt and copper, which form the backbone of modern military equipment and technology — from artillery shells to anti-tank weapons to jet engines to radar and guidance systems and stealth technology.

While U.S. efforts had been underway to break the chokehold of the PRC over REEs, it is unclear whether the Trump Administration had factored in that the Strait of Hormuz closure would occur in response to Operation Epic Fury, which is not only destabilizing the energy markets but also having direct ramifications on the industrial base supporting U.S. military might.

Munition stockpiles have dwindled since the start of the Iran War, and many critical U.S. military assets in the region have been significantly damaged or destroyed. Key assets like advanced radars supplied by the U.S. in Bahrain and Qatar have been destroyed by Iranian missiles. In one estimate in Foreign Policy, the Raytheon radar destroyed in Qatar could take up to eight years to produce at a cost of $1.1 billion. This signifies that the crunch in sulfuric acid — and its downstream effect on a range of non-substitutable critical minerals used in the defense industry — will not only impact the tech race with the PRC but will require the U.S. to prioritize the allocation of reproducing assets lost in the Middle East.

Sulfur is not the only critical element for the extraction of critical minerals fundamental to U.S. military might. A day before the opening salvo of the Iran War on February 28, the Pentagon had asked mining companies that are part of the Defense Industrial Base Consortium (DIBC) for project proposals that could help boost domestic supplies of 13 critical minerals that are now almost entirely sourced from the PRC. Indeed, while the U.S. has significant rare earth and critical mineral deposits, notably in California, Wyoming, and Alaska, it does not have the infrastructure to separate, refine, and turn separated oxides into metals, alloys, and magnets. The PRC has long sought to ensure a stranglehold on rare earth elements (REEs) processing as well as its access to critical mineral reserves, including through its Belt and Road Initiative. Providing aid and loans to countries with significant critical mineral reserves, Beijing has been able to maintain a near-monopoly, including on the African continent. Now with the Iran War, Africa is especially exposed to this shock in sulfur supply, as most of its supply passes through the Strait of Hormuz.

Another critical pillar of the defense industrial base sustaining technological competition and the U.S.-PRC AI race is helium, used for a range of civilian applications, from medical imaging to leak detections, but also a fundamental pillar of the AI ecosystem. Helium is used as the cooling gas during semiconductor manufacturing — including wafer cooling — producing the chips that provide the computing necessary for AI training, development, and deployment. A third of global helium supply originates from Qatar, produced at the Ras Laffan facility that declared force majeure after it was hit by Iranian missiles and drones, which wiped out 17 percent of its liquefied natural gas (LNG) export capability.

South Korean and Taiwanese chip manufacturers heavily rely on Qatari helium supply for their manufacturing processes. While the PRC’s semiconductor industry is less advanced than that of South Korea and Taiwan, it is also heavily reliant on helium exports from Qatar. Additionally, Taiwan is heavily reliant on Qatari LNG imports and has only limited LNG storage. About 10 percent of Taiwan’s total electricity consumption is used by TSMC, the world’s largest semiconductor manufacturing company, not boding well for any continued hostilities.

While disruptions in helium supply and LNG have ramifications for the commercial AI landscape, it is especially crucial for its military application in both the U.S. and the PRC. AI is, alongside quantum computing, a key component in the U.S.-China race for technological supremacy. Both AI, particularly machine learning and predictive analytics, and quantum computing could enable China to offset its relative lack of military experience compared to the United States, enhancing real-time decision-making integrated into its command-and-control structures. In the U.S. too, there is increasing pressure to adopt AI within defense, as autonomous and semi-autonomous systems are increasingly considered for military planning, logistics, operations, and intelligence.

If AI development and deployment will decide the arc of the U.S.-PRC technology competition, and potentially the future of warfare, supply chains of AI infrastructure will become crucial terrain for contestation. While the U.S. has been able to monopolize access to advanced chips for AI, the PRC has proven it can use its near-monopoly on REEs as leverage in disputes – including to push back on U.S.-imposed tariffs. Who comes out on top may very well be decided by the speed of near-shoring and investments to counter the respective strangleholds over crucial parts of the tech supply chain both countries hold. The Iran War appears above all as an accelerator in this process, spotlighting where vulnerabilities are clear.

As The Soufan Center has written earlier, supply chains have increasingly reconfigured to build in resilience in the face of U.S.-PRC competition. Friend- and near-shoring have been complemented with coercive economic tools by both powers to secure supply chains and market dominance in critical sectors. Now, the Iran War is spotlighting remaining dependencies – and the geographic inability to overcome them. While the long-term impacts of the Iran War and the U.S.-PRC technological competition have not yet crystallized, the length of the hostilities will be a defining factor. The Iran War has effectively highlighted that physical sources and geography cannot be ignored, and that industrial power — from down to upstream — will chart the course in the coming years.