Middle East wars are testing Gulf states’ ambitions to become AI hubs

The Gulf region’s ambitions to become a global hub for artificial intelligence are being tested as the prospect of prolonged 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 competing to be at the center of the AI ​​boom, leveraging their abundant, low-cost energy and strategic geography to encourage hyperscalers to build vast networks of data centers.

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

Investors and companies involved in AI infrastructure in the Middle East told CNBC that while they are bullish about the region’s future in the sector, rising geopolitical risks in the region could impact AI projects, analysts said. Investment decisions for some data center projects in the region have been paused or delayed as the conflict continues.

Trisha Ray, associate director and resident fellow at the Atlantic Council’s Geotech Center, told CNBC’s Dan Murphy on May 15 that “the ongoing conflict in the Middle East is literally putting AI infrastructure at the forefront in a way that seemed out of the realm of possibility a year ago, even two years ago.”

The war “signifies change,” she added. Risk management used to be “focused on cyber threats, digital disruption, as opposed to kinetic threats, and drone attacks have changed this,” Ray said.

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In the pre-war years, Gulf states made advanced technology a central pillar of their economic diversification plans, from government-backed investment vehicles to national AI strategies. The heart of this pitch is energy. The Gulf region’s availability of abundant hydrocarbons, large-scale power generation capacity, and relatively low-cost electricity make it an attractive destination for power-intensive data centers that form the backbone of AI and cloud computing.

The UAE is supporting major initiatives through its AI investment platform MGX and local AI “champion” G42, both founded by the $385 billion Abu Dhabi investor Mubadala. Saudi Arabia plans to inject tens of billions of dollars into AI and data infrastructure as part of Vision 2030 through HUMAIN, supported by the kingdom’s approximately $1 trillion public investment fund. Qatar is also investing heavily in AI, partnering with Brookfield to create a state-owned company called Qai, a subsidiary of the roughly $600 billion Qatar Investment Authority.

Against this background, the following companies are Cisco, oracleAmazon Web Services (AWS), microsoft and google has expanded its investments in projects and data centers in the region with local partners.

But regional conflicts are giving AI project builders pause and think.

Gary Wojtaszek, CEO of Oaktree-owned Pure Data Center Group, told CNBC in April that the company had temporarily suspended investment decisions in the Middle East while continuing to “plan and discuss” the project.

The timeline is also increasing. Mark Richards, a partner at law firm BCLP, which advises on large-scale data center projects, including in the Middle East, said: “Investment decisions are taking longer due to the nature of the risks associated with being substantially present in areas where significant threats exist.”

He told CNBC that risks that were not part of the original investment thesis are now being priced in as part of that process.

Gulf markets like the UAE have long offered relatively low industrial electricity prices of about $0.11 per kWh, compared to prices in some parts of Europe of $0.25 to $0.40 or more.

Global energy markets have been reeling since the outbreak of war on February 28, with the closure of the Strait of Hormuz escalating into what the International Energy Agency calls the biggest oil supply disruption in history.

Brent crude oil has risen more than 55% in the past three months, from about $72 a barrel to a peak of nearly $120.

Even in energy-rich countries, cheap energy is no longer guaranteed. Petrol prices in the UAE rose 30% for consumers in April after more than a month of soaring oil prices.

For the Gulf, the effects are increasingly structural. Tight energy markets and rising volatility are putting pressure on governments to pass on costs, particularly to large industrial users such as data centres.

Like energy assets across the region, data centers are becoming as strategically important as pipelines. The attacks on AWS data centers in the UAE and Bahrain early in the war were unprecedented and demonstrated the vulnerability of assets that remain a key priority for Gulf governments.

The Atlantic Council’s Ray added that data centers would need to “physically harden” their sites, and in some cases would be built underground. But he also said the UAE should consider “diversifying” by building outside the country, as “the data center infrastructure needed to meet its global and regional ambitions does not need to be located solely within the UAE.”

When asked if it had paused investment decisions in the region, Amazon pointed to comments by CEO Matt Garman in early April that said the company’s “excitement about long-term investments in the region has never been stronger.” Google and Microsoft declined to comment. Cisco and Oracle did not respond to requests for comment.

The region’s major AI players insist the war will not dent their ambitions.

A G42 spokesperson told CNBC that the company’s “direction remains unchanged” and that “our confidence has only grown stronger.”

The statement added that AI “will be as fundamental to our economy and society as electricity.” “An infrastructure of such importance must absorb difficult times without losing its shape,” the G42 added.

Tarek Amin, CEO of Saudi Arabia’s HUMAIN, told CNBC that the company’s “ambitions are by no means limited to building data centers. We are building a complete AI stack, from critical infrastructure and compute to models, platforms and AI applications.”

“Saudi Arabia’s size is a strategic advantage,” Amin added, highlighting its “vast geography” and “rich energy resources, world-class connectivity corridors, and ability to build long-term resilient AI infrastructure at scale.”

Amin added, “In the future AI economy, countries will need to think beyond isolated facilities toward integrated infrastructure ecosystems designed for reliability, scalability, and global reach.”

BCLP’s Richards told CNBC that the company is still receiving inquiries about large-scale data center projects in the Middle East. PureDC’s Wojtaszek said the company is “bullish” on the region and is in advanced planning and investment discussions for projects in the UAE and Saudi Arabia.

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

He said future data centers are likely to be more expensive and take longer to get up and running, due to the cost of hardening facilities and anti-drone technology, rising insurance premiums and the potential for long-term supply chain issues.

“The region is demonstrating its ability to change and adapt,” Tara Davis, co-head of EMEA at private equity firm KKR, told CNBC in Abu Dhabi earlier this month.

“AI is changing every month at the moment,” she added. “Despite short-term fluctuations and short-term uncertainties in the region, this is a game that will last for decades.”