How important is peace to business? Iran war threat prompts $300 billion AI investment in the Middle East

The Middle East was originally one of the fastest regions for global AI infrastructure expansion, but the risk of war in Iran is casting a shadow over this hundreds-of-billion-dollar investment.

In early March, military actions related to Iran escalated, with multiple infrastructure targets in the Gulf region being attacked.

According to Reuters and several media outlets, Amazon AWS’s two data centers in the UAE were hit by drones, and a facility in Bahrain was damaged due to nearby explosions, causing brief disruptions to some cloud services. This is believed to be the first time a major U.S. tech company’s data center has been directly affected by military action.

This incident quickly changed market perceptions of the safety of AI investments in the Middle East.

According to the latest report from The Information, Gulf countries had been pushing for a large-scale AI infrastructure buildout, with total investments exceeding $300 billion, covering data centers, AI chips, computing power, and local AI model development.

These projects are not only driven by local companies but also attract participation from several U.S. tech giants, including OpenAI, xAI, Microsoft, Amazon, Oracle, and Google. The key factors attracting them are cheap energy and government funding support.

However, as conflicts escalate, the operational security and financial stability of these projects are being reassessed by the market.

Gulf countries are important “funders” of AI

In the global AI investment landscape, the financial role of Gulf countries is becoming increasingly significant.

Beyond tech giants, Middle Eastern sovereign wealth funds have become one of the largest sources of AI funding.

Several countries have announced specific investments:

• Saudi Crown Prince Mohammed bin Salman stated that Saudi Arabia plans to invest $50 billion in the short term to develop the semiconductor industry.

• Based on current market prices, UAE may spend over $30 billion next year to purchase NVIDIA GPUs.

• Saudi Arabia plans to build data centers with a total power consumption of 6.6 GW by 2034.

These computing capacities far surpass traditional data centers.

Before the AI boom, data centers typically ranged from 10 MW to 50 MW. Now, 1 GW-scale data centers have become standard planning benchmarks, with individual projects costing usually $50 to $60 billion.

UAE also plans to build the region’s largest AI data center park, covering about 10 square miles with a power capacity of 5 GW. OpenAI and Oracle plan to operate 1 GW of computing power within it as part of the “Stargate” project.

Prolonged conflict may lead to investment suspensions

Currently, Gulf countries do not seem willing to abandon their AI plans easily.

IDC analyst Stephen Minton said:

“If the conflict continues for months or longer, related investments are very likely to face disruptive pauses.”

But he also believes that in the short term, AI projects may still proceed because, for these countries, AI is not only an economic project but also a part of national strategy.

However, risks are already emerging.

For example, asset management firm Brookfield is working with multiple Gulf countries on AI projects. If the conflict persists, the pace of foreign capital entering the Middle East could slow down.

Rihla Research CEO Jesse Marks also stated:

“Gulf countries may reassess how they build core infrastructure, and even reconsider the geographic locations of data centers.”

Regional tech giants face uncertainty

The Wall Street Journal reports that currently, several tech companies have large investments or operations in the Middle East:

• Microsoft plans to invest $15.2 billion in the UAE from 2023 to 2029.

• Google Cloud and the Saudi Public Investment Fund aim to jointly invest $10 billion to build an AI hub.

• Oracle plans to invest $1.5 billion to expand cloud infrastructure in Saudi Arabia.

Meanwhile, operations of some tech companies are impacted.

NVIDIA has shut down its Dubai office and shifted to remote work; some Google employees are stranded locally due to flight and security restrictions.

These events are prompting investors to reconsider a key question:

Can the Middle East still become a major node for global AI infrastructure as planned?

Macroeconomic ripple effects

If the conflict continues, its impact could extend beyond the Middle East.

First, energy prices.

Since the escalation of the war, oil prices have risen nearly 33%. Rising energy costs will push inflation higher and may force central banks to keep interest rates elevated.

Second, financing costs.

Data centers are inherently capital-intensive projects, and rising interest rates will significantly increase construction costs.

Finally, the pace of global investment.

If Gulf countries divert more resources to domestic security or infrastructure protection, their previously committed large-scale overseas investments could be reevaluated.

For the rapidly expanding AI industry, this means a key source of funding may become less stable.

Risk warning and disclaimer

Market risks are present; investments should be cautious. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions herein are suitable for their particular circumstances. Invest accordingly at their own risk.