The Middle East war is testing the Gulf’s ambitions to become AI hub
This photo taken on April 3, 2026, shows the exterior of the US Oracle technology company in Dubai, United Arab Emirates. Iran’s Islamic Revolutionary Guard Corps (IRGC) said on Thursday it hit the data center of the US Oracle technology company in Dubai, United Arab Emirates. (Photo: Wen Xinnian/Xinhua via Getty Images)
Xinhua News Agency | Xinhua News Agency | Getty Images
The Gulf’s ambitions to become a global hub for AI are being tested as the potential for a protracted conflict in the Middle East raises questions about energy security, infrastructure resilience and investor confidence.
Before the war began in February, the United Arab Emirates, Saudi Arabia and Qatar were racing to position themselves at the center of the AI boom, leveraging abundant, low-cost energy and strategic geography to encourage hyperscalers to build vast data center networks there.
But two Amazon Data centers in the UAE were targeted early in the war, and about three months later oil prices remained around $100 per barrel and the Strait of Hormuz remained closed.
While investors and companies involved in AI infrastructure in the Middle East told CNBC they are optimistic about the region’s future in the sector, analysts said increasing geopolitical risk in the region could impact AI projects. Investment decisions for some data center projects in the region have been paused or are taking longer as conflict continues.
“The ongoing conflict in the Middle East is putting AI infrastructure on the front lines in a way that seemed improbable a year ago, even two years ago,” Trisha Ray, deputy director and associate fellow at the Atlantic Council Geotech Center, told CNBC’s Dan Murphy on May 15.
He added that the war “marked a change.” Risk management “focuses on cyber threats and digital disruptions, not kinetic threats,” Ray said. This situation has changed with drone attacks.
AI bet
In the years before the war, Gulf states made advanced technology a central pillar of their economic diversification plans, from state-backed investment vehicles to national artificial intelligence strategies. The basis of this step is energy. The Gulf’s access to abundant hydrocarbons, large-scale production capacity, and relatively low-cost electricity has made it an attractive destination for the power-intensive data centers that form the backbone of artificial intelligence and cloud computing.
The UAE has backed major startups through AI investment platform MGX and local AI “champion” G42, both founded by $385 billion Abu Dhabi investor Mubadala. Saudi Arabia plans to invest tens of billions of dollars in artificial intelligence and data infrastructure under Vision 2030 through HUMAIN, backed by the Kingdom’s nearly $1 trillion Public Investment Fund. Qatar is also investing heavily in artificial intelligence and, in partnership with Brookfield, has launched a national firm called Qai, a subsidiary alongside the nearly $600 billion Qatar Investment Authority.
In this context, companies are as follows: Cisco, SeerAmazon Web Services (AWS), Microsoft And Google It expanded its investments in projects and data centers in the region together with its local partners.
But regional conflicts are causing AI project developers to think.
Gary Wojtaszek, CEO of Oaktree-owned Pure Data Center Group, told CNBC in April that the company was temporarily pausing investment decisions in the Middle East while it continued “planning and discussions” around the projects.
Timelines are also increasing. Mark Richards, partner at law firm BCLP, which advises on large-scale data center projects including the Middle East, said investment decisions “are taking longer because of the nature of the risks involved in effectively being in a region where there are some serious threats.”
Risks that were not part of the original investment thesis are now priced in as part of this process, he told CNBC.
energy shock
Gulf markets such as the UAE have long offered relatively low industrial energy prices; It’s around $0.11 per kWh, compared to $0.25-$0.40 or more in some parts of Europe.
Global energy markets have been shaken since the outbreak of war on February 28, and the closure of the Strait of Hormuz has turned into what the International Energy Agency has called the largest oil supply disruption in history.
Brent crude oil rose more than 55% from about $72 per barrel to about $120, its peak in the last three months.
Even in energy-rich states, cheap energy is no longer guaranteed: Gas prices in the UAE rose 30% for consumers in April, following more than a month of high oil prices.
The consequences of this for the Gulf are becoming more structural. Tighter energy markets and increased volatility are putting pressure on governments to pass on costs to large industrial users, especially data centres.
Strategic assets
Data centers, like energy assets in the region, are becoming as strategically important as pipelines. Attacks on AWS data centers in the UAE and Bahrain early in the war were unheard of and demonstrated the vulnerability of assets that remain a key priority for Gulf governments.
The Atlantic Council’s Ray added that data centers should “physically retrofit” facilities and perhaps even build them underground. But he also said they should consider “diversifying” by building them outside the country, “because the data center infrastructure the UAE needs to meet its global and regional ambitions does not need to be located in the UAE alone.”
Asked whether it was pausing investment decisions in the region, Amazon referred CNBC to CEO Matt Garman’s comments in early April that the company’s “excitement to invest long-term in this region is stronger than ever.” Google and Microsoft declined to comment. Cisco and Oracle did not respond to a request for comment.
What happens now?
The region’s leading AI players insist the war will not harm their ambitions.
A spokesperson for G42 told CNBC that the company’s “direction has not changed” and that its “beliefs have only grown deeper.”
The statement also stated that artificial intelligence “will be as fundamental to economies and societies as electricity.” “Infrastructure of this importance must meet challenging periods without losing its shape,” G42 added.
“The company’s ambition has never been limited to building data centers. We are building the entire AI stack, from critical infrastructure and computing to models, platforms and AI applications,” Tareq Amin, CEO of Saudi Arabia’s HUMAIN, told CNBC.
Amin added that “Saudi Arabia’s scale is a strategic advantage” and highlighted its “vast geography”, “abundant energy resources, world-class connectivity corridors and ability to build long-term flexible AI infrastructure”.
“The AI economy of the future will require nations to think beyond isolated facilities towards integrated infrastructure ecosystems designed for reliability, scalability and global reach,” Amin added.
BCLP’s Richards told CNBC that the firm is still seeing incoming requests for large-scale data center projects in the Middle East. Pure DC’s Wojtaszek said the company was “bullish” on the region and was advancing planning and investment discussions on projects in the UAE and Saudi Arabia.
But Aalok Mehta, director of the Center for Strategic and International Studies think tank, told CNBC that the conflict “shattered the illusion of long-term stability in the Gulf” and changed the value of investment in the region.
He said future data centers will likely be more expensive and slower to come online due to the costs of facility hardening and anti-drone technology, higher insurance rates and potential long-term supply chain issues.
“The region has demonstrated its ability to change and adapt,” Tara Davies, co-head of EMEA at private equity firm KKR, told CNBC in Abu Dhabi earlier this month. he said.
“AI is changing every month right now,” he added. “This is a game that will last for decades, despite short-term volatility and short-term uncertainty in the region.”
