Israel v Iran | Inside Intel

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This week is the ‘i’ edition, as International Intrigue investigates:

  1. 🕵🏻‍♀️ Israel vs Iran: a new ‘accidental’ explosion at an Iranian nuclear facility.

  2. 🍟 Inside Intel: a huge geopolitical development wrapped in an awkward speech by a rich nerd.

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🕵🏻‍♀️ Israel and Iran’s Shadow War

By Helen


It’s a feud that eclipses even Kanye and Taylor’s, one that’s peppered with enough spy thriller antics to make Jason Bourne look like a stodgy public servant.  

The epic shadow war between Israel and Iran that’s been simmering for decades has boiled over (again) this week.

On Sunday, Iran’s main nuclear enrichment facility in Natanz suffered a supposedly ‘accidental’ explosion, which caused a blackout and set back the country’s uranium enrichment capabilities by nine months.

Before this incident, Iran had been enriching its uranium stockpile to 20% purity, which is only a technical step away from reaching weapons-grade levels of 90%. Yikes.

Iran has now labelled the incident (carried out via cyberattack) an act of terrorism perpetrated by Israel’s spy agency, Mossad. It promises to square the ledger and exact revenge ‘at a time of its choosing’.

All this has made things tough for the US (a staunch Israel ally), whose diplomats have been in talks with Iran to resurrect the ‘Iran nuclear deal’ - the deal that limits Iran’s ability to attain a nuclear weapon. You might recall that the US was both the chief architect (under Obama) and destructor (under Trump) of the Iran deal.

How did we get here?

To understand how the bad blood began, we take you to the 1979 Iranian Revolution.

Back then, Iran’s new government stopped recognising Israel as a state and cut all diplomatic and commercial ties with it, labelling the Israeli government a ‘Zionist regime’.

Iran played the role of chief weapons supplier, military trainer, and financier against Israel during the decades of conflict that followed between Israel and neighbouring states like Lebanon and Palestine. 

Israel responded in kind with operations against Iranian targets and any other group suspected of having ties to Iran.

Ed: we note this period is an incredibly complicated piece of history and is impossible to condense into this article, but please drop a comment at the end if you want to discuss!

The shadow war playbook

Since then, Israel and Iran have both engaged in a covert tit-for-tat ‘shadow war’. Standard moves from this playbook have included:

For Israel:

For Iran:

  • A colourful war of words against Israel in international arenas

  • Arming proxies across the Middle East to fight the shadow war, particularly in Iraq (Shiite militias), Syria (the Syrian regime), and Lebanon (Hezbollah):

Remarkably, the fighting has continued without escalating into an all-out, actual war between the two countries (thanks to a lot of frantic diplomatic shuttling behind the scenes).

Key takeaways from the latest incident

  1. The shadow war is carefully calibrated and calculated to avoid escalation, despite the aggressive public rhetoric from both sides. Both Iran and Israel know the cost of getting into an actual kinetic war, and don’t fancy getting involved.

  2. Timing is everything. So why now? Israel attacked because it knows the Iranians are in a financial bind. Iran needs the US to lift economic sanctions on its battered oil industry - and Iranian retaliation against a US ally won't help that cause.

  3. Domestic politics dictates foreign policy. In Israel, freshly-elected Prime Minister Netanyahu urgently needs to form a government after his fourth election in two years. This strike against Iran (a country he characterises as Israel’s ‘existential threat’) will no doubt boost his popularity.

  4. The chutzpah! This strike shows that Israel feels emboldened to fight more in the open after its détente with Sunni-Arab states. Israel confirmed Mossad’s ‘central role’ in the attack on public radio, a stark departure from its usual ‘cannot deny nor confirm’ responses.

  5. The attack will fuel Iran’s political conservative hardliners ahead of Iran’s presidential elections in June 2021, who have always argued against the US-led Iran nuclear deal and pushed for tougher retaliations on Israeli strikes.

Israel and Iran’s shadow war will continue to be a central part of Middle Eastern geopolitics. For Middle East-watchers, this back and forth is arguably always one misstep away from sparking a broader conflict.

Many of the Israelis and Iranians I spoke to during my time in the Middle East lamented this conflict, and said that the Israeli and Iranian populations vibe culturally and share a long history. Might the day come when these states become friendly again? Insha’Allah. 🙏🏽


🍟 Inside Intel's big announcement

By John

Big tech CEO keynote addresses are like watching your nice-but-strange uncle talk enthusiastically about his latest backyard shed tinkerings - everyone is listening but no one's sure why. Your uncle’s ramblings however, are unlikely to be described as:

[New Intel CEO Pat Gelsinger’s] keynote… has the potential to go down as one of the single best keynotes I’ve covered in my career.
- Ben Thompson, tech analyst

The tl;dr of Intel's March 23 announcement:

  • Intel will outsource much more of its chip manufacturing

  • It will invest US$20b in new US-based foundries

  • And, for the first time, it will make chips for other companies

Remember that last point - we’ll come back to it.

But why should we care about a company many had written off as the embodiment of America’s decline?

Understanding the US$469.4b global chipmaking industry

Semiconductors are the new oil’ is an overused cliché.

Sure, life without chips in 2021 is as unimaginable as life without oil in the 1980s. But oil is a geographically fixed resource; no amount of national investment can spirit oil fields into existence.

And while creating and maintaining strategic semiconductor capabilities is complex, takes decades, and is eye-wateringly expensive:

The manufacturing chain for any given semiconductor is extraordinarily complex and relies on as many as 300 different inputs, including raw wafers, specialty chemicals, and bulk gases; all are processed and analyzed by upwards of 50 different types of processing and testing tools.
- The Brookings Institution, 2021

...as China has shown, it can be done.

1. Industry structure

Chips are produced by three kinds of companies:

  • Foundries: these are factories that make chips for 3rd party customers. They have a vast library of chip designs available for purchase, allowing companies to build made-to-measure chips. They don’t sell their own brand of chips.

    Example: Taiwan Semiconductor Manufacturing Company (TSMC).

  • Fabless firms: these are expert chip design firms. They design and sell chip blueprints for customers, but outsource the manufacturing to foundries.

    Example: Nvidia, AMD.

  • Integrated device manufacturers (IDMs): these companies do it all. They design, manufacture, and sell their own brand of chips. They generally dictate chip design to customers rather than the other way around.

    Example: Intel, Samsung.

2. Low-tech v high-tech chips

Size is important - but with chips, the smaller the better. By 2022, the 'leading edge' of high-tech chips will be 3nm big (a nanometre = 3 billionths of a metre). Thankfully size isn’t everything; design and quality matter hugely too.

Put very simply lest I wade well out of my depth, there are two broad use cases for chips:

  1. Low tech, bigger chips: simple consumer electronics, transportation, IoT devices, etc. These are high volume, lower margin products. A current shortage of these chips is causing havoc in the car industry, for example.

  2. High tech, smaller chips: high-powered computing, AI, and other highly advanced use cases. These are exceptionally complex and expensive to develop.

3. The major players

Intel (US), Samsung (South Korea), and TSMC (Taiwan) are the three largest semiconductor companies. But six of the top ten are from the US:

Source: Statista, 2020. Interestingly, China’s Semiconductor Manufacturing International Corporation (SMIC) isn’t in the top 20 companies by market share.

Here’s the important bit: note how different the map looks when we restrict it to only the three companies capable of manufacturing high-tech (leading edge) semiconductors (Intel, Samsung, and TSMC):

That is a lot of geopolitical risk in one simple graphic.

4. The industry is changing

Over the last 20+ years, global tech giants have largely relied on Intel to fuel their rise. However, Amazon, Alibaba, Tencent, Google, Microsoft, and others have now begun designing their own custom chips optimised for their own specific use cases.

Recall that Intel has traditionally refused to make bespoke chips for other companies. That means that any company wanting to design its own custom chips has been forced to have them made by other manufacturers.

For low-tech chips that's no problem - there are plenty of capable foundries across the world. But if a company wanted to custom design its own high-tech chips (which many do), it had only one real option: TSMC.

Summary:

  1. Chips are not oil - strategic investment decisions can mitigate geopolitical risk

  2. More big companies (and governments) want bespoke, high-tech chips

  3. High-tech chips can only be made by three manufacturers…

  4. …but only one of those three manufacturers is currently capable of making bespoke high-tech chips

Intel as the de-risked TSMC

For governments and companies ideologically opposed to China, reliance on TSMC to manufacture their most critical input is a huge risk since Taiwan is within easy missile range of China.

That's why Intel's announcement that it will make bespoke leading edge chips is so important. If Intel's new strategy is successful, it will establish itself as the 'de-risked' TSMC for the western world.

The pursuit of digital sovereignty gains speed

The 21st century version of the Cold War is about economic more than military competition. That economic competition is beginning to manifest as a global private/public technological arms race in which sovereign control of technological inputs is paramount.

And that's what the 'chips as oil' analogy gets right: semiconductors are becoming the most strategically important industry on earth.

Churchill's 1946 'The Sinews of Peace' speech and Reagan's 1987 'Berlin Wall Speech' bookended the Cold War. While the statement, "I am excited to share the next major evolution of Intel’s IDM model. I call it IDM 2.0" doesn't quite capture the imagination like, "an iron curtain has descended across the Continent", it might prove to be just as consequential.


➕ Extra intrigue

  • The global antitrust techlash continues. The UK has created a ‘Digital Markets Unit’ – a public body designed to regulate the relationships between large digital platforms and smaller businesses to promote online competition.

  • To curb carbon emissions, France voted to ban domestic flights between destinations that travellers can reach by train under 2.5 hours. Good news for the climate, but not great for the aviation industry’s post-pandemic recovery.

  • Cambodia has demanded apologies from Vice Media after it published doctored photos by an Irish artist that altered the images of Khmer Rouge survivors. Some photos show victims smiling, which Vice claimed ‘humanized’ the tragedy.

  • Ecuador has a new president: Guillermo Lasso, who won 52.4% of the vote against his left-wing opponent Andrés Arauz. Lasso promises to attract more foreign investment, increase oil production, and cut taxes for small businesses.


🔎 Intriguing recommendations

👩‍🦱  Helen: This week, I was impressed by Google’s ‘Atlas of Emotions’, a map that showcases and groups famous artworks by the emotions they trigger. It’s a very… triggering experience.

👴  John: Are you interested in how thousands of fireflies in Thailand 'light up’ in perfect synchrony? After this incredible interactive explainer, I promise you will be. The internet is the future of education, kids.


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