The war in the Middle East is testing the Gulf’s ambitions to become an AI center

The Gulf’s ambition to become a global hub for artificial intelligence is being tested, as the prospect of protracted conflicts 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, using abundant, low-cost power and strategic geography to encourage hyperscalers to build massive data center networks there.

But two Amazon data centers in the UAE were targeted at the start of the war and, almost three months later, oil prices remain around $100 a barrel and the Strait of Hormuz remains closed.

Although investors and companies involved in AI infrastructure in the Middle East told CNBC that they are optimistic about the future of the region in this sector, the increasing risk of the political environment in the region could affect AI projects, analysts said. Investment decisions on other data center projects in the region have been delayed or delayed as the dispute continues.

“The ongoing conflict in the Middle East is putting the AI ​​infrastructure on real lines in a way that even a year ago, two years ago, it looked like it was possible,” Trisha Ray, associate director and resident at the Atlantic Council’s Geotech Center, told CNBC’s Dan Murphy on May 15.

The war “marked a change,” he added. Risk management used to focus on “cyber threats, digital disruptions, not kinetic threats. And this has changed with drone strikes,” said Ray.

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In the years leading up to the war, Gulf countries made advanced technology a key pillar of their economic diversification plans, from energy-backed investment vehicles to national AI strategies. The core of this game is powerful. The Gulf’s access to abundant hydrocarbons, large production capacity and low-cost electricity have made it an attractive location for the high-powered data centers that form the backbone of AI and cloud computing.

The UAE has supported major initiatives through AI investment platform MGX and local AI “champion” G42, both founded by Abu Dhabi investor Mubadala. Saudi Arabia plans to invest tens of billions of dollars in AI and data infrastructure as part of Vision 2030 through HUMAIN, funded by the Kingdom’s nearly $1 billion Public Investment Fund. Qatar is also investing heavily in AI and founded a national firm called Qai, a subsidiary of the nearly $600 billion Qatar Investment Authority, in partnership with Brookfield.

Against this background, companies like Cisco, The OracleAmazon Web Services (AWS), Microsoft again Google increase their investment in projects and data centers in the region and local partners.

But regional conflict gives AI project developers pause for thought.

Oaktree-owned Pure Data Center Group CEO Gary Wojtaszek told CNBC in April that the company has temporarily suspended investment decisions in the Middle East, while it continues “planning and discussions” about projects.

Deadlines are also increasing. Investment decisions “take a long time because of the nature of the risks associated with being successful in a region with serious threats,” said Mark Richards, a partner at BCLP, a law firm that advises on large data center projects, including in the Middle East.

Risks that weren’t part of the original investment thesis were now being priced in as part of that process, he told CNBC.

Gulf markets such as the UAE have long offered low prices for industrial energy, around $0.11 per kWh compared to $0.25–$0.40 or more in parts of Europe.

Since the outbreak of war on February 28, energy markets around the world have been shaken and the closure of the Strait of Hormuz has escalated into what the International Energy Agency has called the largest oil supply disruption in history.

Brent crude has surged more than 55% from around $72 a barrel to around $120 when it hit a three-month high.

Even in energy-rich regions, cheap energy is no longer guaranteed: Gas prices in the UAE jumped 30% to consumers in April after more than a month of steady oil prices.

In the Gulf, the results are increasingly structural. Tight energy markets and growing volatility are pushing governments to pass on costs, especially for large industrial users like data centers.

As an energy asset across the region, data centers are becoming as important as pipelines. The attacks on AWS data centers in the UAE and Bahrain at the start of the war were unprecedented, and showed the vulnerability of assets that remain critical to Gulf governments.

The Atlantic Council’s Ray added that data centers will need to “physically harden” the sites, and perhaps even build them underground. But he also said they should consider “diversification” by building them outside the country, “because the data center infrastructure the UAE needs to meet its global and regional ambitions, it doesn’t have to be in the UAE.”

When asked if it had paused investment decisions in the region, Amazon pointed CNBC to CEO Matt Garman’s comments in early April about “the company’s enthusiasm for long-term investment in that region is as strong as it’s ever been.” Google and Microsoft declined to comment. Cisco and Oracle did not respond to a request for comment.

Major AI players in the region insist that the war will not bend to their wishes.

A G42 spokesperson told CNBC that “the direction of the company has not changed,” and “their conviction has deepened.”

Its statement added that AI “will become as fundamental to economies and societies as electricity.” Infrastructure of that importance must withstand difficult times without losing its stability,” added the G42.

Tareq Amin, CEO of Saudi Arabia’s HUMAIN, told CNBC that “the ambition has never been limited to building data centers. We are building the full AI stack – from critical infrastructure and computing, to AI models, platforms, and applications.”

Amin added that “Saudi Arabia’s scale is a strategic advantage,” emphasizing its “vast territory” and “abundant energy resources, world-class communication corridors, and the ability to build long-term AI infrastructure at scale.”

“The AI ​​economy of the future will require countries to think beyond isolated areas and look to an integrated ecosystem designed for reliability, resilience, and global reach,” Amin said.

BCLP’s Richards told CNBC that the company is still seeing incoming inquiries for large data center projects in the Middle East. Pure DC’s Wojtaszek said the company is “bullish” about the region and is continuing planning and investment discussions for projects in the UAE and Saudi Arabia.

But the conflict “shattered the illusion of long-term stability in the Gulf,” changing the value of investment in the region, Aalok Mehta, director of the think tank Center for Strategic and International Studies, told CNBC.

Future data centers will be more expensive and slower to come online because of the cost of facility resilience and anti-drone technology, higher insurance rates and potential long-term problems, he said.

“The region has shown its ability to change and adapt,” Tara Davies, head of EMEA at private equity firm KKR, told CNBC in Abu Dhabi earlier this month.

“AI is changing every month right now,” he added. “Despite the short-term instability in the region and the short-term uncertainty, this is a game that spans decades.”