Water Will Decide Who Produces And Who Shuts Down

Dyeing, Printing, Processing

Water Will Decide Who Produces And Who Shuts Down

Water scarcity will emerge as a geopolitical and economic constraint, not just a climate issue, by 2026, according to Ernst & Young’s 2026 Geostrategic Outlook. After decades of carbon-focused climate policy, water is now becoming a decisive factor shaping industrial strategy, supply chains and global power equations.

The stress is already real. Nearly four billion people experience severe water shortages for at least one month every year. Heatwaves and droughts in 2024–25 showed how quickly water shortages translate into higher food prices, inflationary pressure and political unrest. Climate change is accelerating the problem by disrupting rainfall patterns, increasing evaporation, and intensifying floods and droughts, even as demand rises across agriculture, cities and industry.

When digital ambition hits physical limits

What makes the coming phase more disruptive is water’s collision with the global race for digital and industrial dominance. Semiconductor manufacturing, AI infrastructure, mining of critical minerals and hyperscale data centres all require vast, reliable volumes of freshwater, often in regions already under stress.

Advanced semiconductor fabrication is among the most water-intensive manufacturing processes in the world. Research published in 2025 shows that a single leading-edge fab processing around 40,000 wafers a month can consume up to 4.8 million gallons of water per day, even after recycling, comparable to a small town’s daily use.

Data centres running AI workloads pose a parallel challenge. Facilities using evaporative cooling can require millions of gallons of water daily, triggering local resistance in water-stressed regions. While waterless cooling systems are emerging, they often raise energy consumption and capital costs, creating a three-way trade-off between water, energy and infrastructure.

Industries under strain - beyond farms and power

While agriculture and energy remain central to water politics, pressure is spreading across manufacturing sectors.

Textiles and apparel: Water-intensive textile clusters in South Asia face growing scrutiny over freshwater extraction and pollution, creating supply chain and reputational risks for global brands.

Food and beverages: Water is both an input and a product, making operations vulnerable in stressed basins.

Mining: In Chile’s Atacama region, lithium expansion has intensified disputes over indigenous water rights, despite moves toward desalination.

Urban development: Assured water supply is increasingly shaping where cities can expand, and where they cannot.

Arizona shows how water caps growth

The arid south-western US offers a stark example of water becoming the binding constraint. In Arizona, prolonged drought collided with rapid semiconductor expansion, forcing water regulation to the centre of industrial policy.

In 2025, the state tightened groundwater rules and began allowing agricultural water savings to be converted into urban and industrial credits. The contrast is telling: Arizona’s first such approval freed enough water for 825 homes annually, while a single advanced chip fab can consume four times that volume every year. For industry, water access, not capital or technology, is now the decisive factor.

Water as a geopolitical instrument

Water is also becoming a tool of statecraft. The 2025 suspension of the Indus Waters Treaty during India–Pakistan tensions highlighted how shared rivers can be weaponised. Disputes persist over the Nile, Mekong and Brahmaputra, while cyberattacks on water utilities are rising, elevating water infrastructure to a strategic security asset.

What this means for business

EY warns that water risk must move into core strategic planning. Scarcity can halt production, disrupt supply chains and erode social licence to operate. Governments and companies alike are being pushed toward water-efficient technologies, recycling, tighter regulation and long-term infrastructure investment, not as sustainability choices, but as prerequisites for economic resilience.

Heatwaves and droughts in 2024–25 showed how quickly water shortages translate into higher food prices, inflationary pressure and political unrest. Climate change is accelerating the problem by disrupting rainfall patterns, increasing evaporation, and intensifying floods and droughts, even as demand rises across agriculture, cities and industry.

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