Dragoman Digest

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Middle East crisis helps bolster nuclear power’s prospects

A second energy shock in five years is strengthening the case for atomic power

The US and Israel’s war with Iran and resulting disruption to oil and gas supplies has created the worst energy shock since the 1970s. European Commission president Ursula von der Leyen has since called the reduction of Europe’s nuclear sector a “strategic mistake”. The cost of the post-Fukushima retreat is clearest in Germany, where electricity futures are four times those of France, Europe’s largest nuclear producer, and gas must cover any shortfall in generation. Taiwan, which draws roughly half its electricity from LNG – a third of it sourced from Qatar – has begun the process of restarting shuttered nuclear plants.

Even before the current shock, nuclear’s fortunes were beginning to revive. Energy security concerns following Russia’s full-scale invasion of Ukraine combined with growing demand for reliable baseload power to run AI infrastructure, has led to a commercial resurgence. Urenco, a uranium enrichment company part-owned by the UK and Netherlands governments, reported a record order book of €21.3 billion in 2025. The Middle East crisis is now accelerating this momentum in countries without existing fleets. Italy is plotting a return to atomic energy nearly 40 years after shuttering its last reactor. Germany, while ruling out conventional restarts, is backing small modular reactors and has pledged to stop opposing nuclear power at the EU level. Japan restarted the first unit at Kashiwazaki-Kariwa, the world’s largest nuclear plant, in February, while Sweden, Poland, and others are either investing in new stations or extending reactor lifespans.

Nuclear cannot address the immediate shortfall, as new reactors require years to build and commission. China is constructing roughly ten reactors a year at less than a fifth of Western costs. It is on track to overtake US nuclear capacity by 2032. Decades of stagnation have left the rest far behind. The Vogtle plant in Georgia, the first new US reactor in three decades, was completed years behind schedule at more than double its estimated cost. Even France, which draws 70 percent of its electricity from nuclear, has pushed back the first of six planned new reactors to 2038, and these will do little to offset retirements. The test will be whether political commitment can endure these lead times, or whether, as with past energy shocks, the impetus fades once prices stabilise.

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Chip testing emerges as AI’s latest supply chain chokepoint

Proliferating quality control demands are outpacing the testing industry’s ability to expand

AI chips now require 100 percent testing across multiple stages, with each test taking over ten times longer than for a conventional mobile processor. The complexity of modern AI chips – which combine multiple specialised processors and memory components on a single platform – means every unit must be individually verified, unlike consumer electronics where only a sample is checked. Each chip is expensive, and the systems they power are costly and difficult to disassemble once deployed, making pre-deployment verification essential. The step-change in testing demand has translated directly into record results for equipment suppliers. Japan’s Advantest, the world’s largest supplier of chip testing equipment, projects 37 percent revenue growth and a more than doubling of net income this fiscal year. Share prices of Taiwanese testing firms Chunghwa Precision Test Tech (CHPT) and WinWay Technology surged 457 percent and 448 percent respectively in the year to mid-March.

Testing requirements are also expanding in scope. Verification now extends beyond individual chips to ensuring entire assembled server systems function correctly. The power and cooling demands of AI infrastructure, including liquid cooling systems replacing traditional air cooling, require purpose-built testing equipment that did not previously exist. This means testing firms are being drawn well beyond their traditional domain of verifying chip performance into areas like power management and thermal systems.

WinWay plans to more than double its capacity for key testing components to eight million units by end-2026. However, even this expansion will meet only about 60 percent of in-house demand. CHPT’s president describes an industry short on land, electricity, and talent – constraints expected to persist until at least 2028. The investment required to compete in high-end testing is consolidating the industry, favouring larger firms able to commit significant capital. As AI chip designs grow more complex with each generation, the gap between testing demand and capacity is likely to widen before it narrows. For an AI sector already contending with power and infrastructure constraints, testing bottlenecks add a further complication.

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Asian governments prepare for a prolonged energy crisis

Measures imposed now will accelerate electrification across the region

As the Iran war enters its second month, the Philippines last week became the first Asian nation to declare a national emergency in response to disrupted energy imports. The Philippines imports 95 percent of its crude oil from the Persian Gulf, making it a canary in the coal mine – but far from alone among its neighbours. Asia is uniquely exposed to Middle East export disruptions. According to the IEA, approximately 80 and 90 percent respectively of oil and LNG products exported through the Strait of Hormuz in 2025 were destined for Asia.

Asian governments are pivoting to prepare for a sustained energy supply shock. Thailand last week scrapped a diesel price cap after burning through US$32 million a day. In India, where cooking gas shortages are already being felt by households, the government has limited industry to roughly 80 percent of its usual gas usage. South Korea has likewise asked large industrial energy users to cut consumption. Japan has launched a review of the oil-related product ecosystem to identify likely shortages and knock-on effects.

In the longer-term, measures imposed to blunt the energy crisis will likely accelerate the electrification of Asia’s households and industry. Pakistan, which engaged in a massive solar build-out using Chinese solar panels following the supply shock of 2022, is slightly better positioned. It will benefit from an estimated US$6.3 billion in in oil and gas import savings costs this year if prices stay at current elevated levels. The Indian Ministry of Heavy Industry has asked India’s automotive industry to consider transitioning from oil-based fuels to electricity “wherever technically feasible”. Changes made during this shock are unlikely to be reversed, with significant geopolitical implications for Asia’s reliance on Chinese clean energy supply chains.

Volkswagen seeks to offset mass layoffs through Germany’s rearmament

Beleaguered German carmaker eyes alternatives to the overcrowded automotive industry

Volkswagen’s recently reported talks with Israel’s Rafael Advanced Defence Systems on a joint manufacturing partnership signal an opportunistic pivot for the embattled German carmaker. The talks’ proposed plan would convert Volkswagen’s Osnabrück plant to make key components for Rafael’s prized Iron Dome air defence system, including heavy-duty trucks and electricity generators. Rafael already produces Spike missiles and EuroTrophy Active Protection Systems in Germany through joint ventures with Rheinmetall, Diehl Defence, and KNDS Deutschland. Volkswagen’s potential shift comes as German Chancellor, Friedrich Merz’s loosening of Germany’s traditionally stringent “debt brake” aims to facilitate US$575 billion in additional military spending by 2030. The German government is subsequently supporting talks between Rafael and Volkswagen as part of efforts to use rearmament to provide a lifeline to its manufacturing sector, which is hemorrhaging around 10,000 jobs per month.

Volkswagen also sees merit in the deal. Over the past five years, VW’s share price has tumbled 60 percent. Despite a recent rebound, VW’s share of the China market has fallen from around 20 percent in 2019 to almost 10 percent today. Chinese competitors like BYD and Geely are also taking market share in Volkswagen’s historical European strongholds. The crisis has forced the company into painful restructuring, with plans to cut 50,000 jobs by 2030. Since then, the Osnabrück plant, situated in the “city of peace”, has been scheduled for closure and faces a loss of 2,300 jobs by the end of next year. A deal with Rafael would also enable Volkswagen to avoid selling operations to Chinese competitors.

Questions still remain about the viability of the project. Politically, the transition to weapons manufacturing would need support from German workers unions. There are also markedly differing views within the industry surrounding the ease of retooling Osnabrück to defence related production. It is also somewhat unlikely that Germany will actually acquire the Iron Dome. Despite its vaunted 90 percent intercept rate, the Iron Dome’s limited range of up to 70km may be better suited towards Baltic states. As one industry observer remarked, “we have no need for it [the Iron Dome] in Germany, unless the Russians are already at the Oder river”.

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