Financial Observation: Are Gulf Countries Still a "Safe Oasis" for US AI Giants?

Source: Global Times

【Global Times Reporter Ni Hao, Special Correspondent Huang Peizhao from Egypt】Editor’s note: In recent weeks, internet outages have become a headache for some businesses in the Gulf region. Due to regional conflicts, American tech giant Amazon’s data centers in the area have been damaged, causing their customers to lose network access and suffer heavy losses. As tensions continue, the risks faced by US tech companies in the Middle East are increasing, casting a shadow over the region’s AI development prospects. The New York Times reports that the US government had previously helped facilitate deals between American tech giants and regional countries, but now this strategy may become a huge burden for companies due to the conflicts it has sparked. In this context, are tech companies still willing to push forward with deploying critical infrastructure locally? How will the digital economy transformation that Gulf countries are hopeful for be affected?

“Damage is direct and heavy”

During this US-Israel-Iran conflict, three data centers operated by Amazon Web Services (AWS) in the UAE and Bahrain were attacked. “Their systems were paralyzed,” Simon Williams, a former Amazon employee now executive at Dubai-based AI company Atelic AI, told The New York Times. “We lost all access to the servers, which severely disrupted our normal operations.” According to multiple foreign media reports, the attacks directly caused disruptions in local banking payments, enterprise services, and civilian digital applications. AI services relying on Middle Eastern computing nodes, such as Anthropic’s AI model Claude, also experienced global outages.

Earlier this month, Iran’s Tasnim News Agency published a list naming tech giants like Google, Microsoft, Palantir, IBM, Nvidia, and Oracle, indicating their offices or cloud infrastructure in the Middle East, stating that because their technologies have been used for military purposes, they will become new targets.

As a result, Nvidia urgently closed its Dubai office and shifted to remote work. Some Google employees were stranded locally due to security restrictions. Amazon encouraged customers to back up data or consider migrating workloads elsewhere. Some infrastructure developers announced plans to slow expansion in the Middle East. Meanwhile, risk-averse investors increased their caution; asset management firm Brookfield warned that foreign capital inflows into the Middle East would slow significantly, and valuations of AI-related assets in the region continued to decline as the conflict escalated.

The New York Times analyzes that the spillover effects of this conflict are expected to expand and impact the tech industry. This includes supply chain disruptions, soaring natural gas prices for data centers, and rising costs for bulk commodities like plastics and aluminum used in electronic components.

The incident has also impacted the AI industry development in Gulf countries. The Times quotes analysts saying that the conflict will weaken Gulf nations’ efforts to attract large tech companies. Local Gulf media and think tanks point to the core impacts, with Qatar’s Al Jazeera stating that data centers have become “legitimate targets” in modern warfare, and the security of digital infrastructure in Gulf countries faces unprecedented challenges; UAE’s The National argues that the attack exposed the over-reliance of Middle Eastern digital infrastructure on foreign companies, making the development of domestic computing power systems urgent.

American tech companies operating in the Gulf are more visibly affected. Dubai’s “Arab Business” reports that the damage caused by this conflict to US tech giants is direct and heavy, marking the first time data centers have been targeted physically in an international conflict. Amazon openly states that even as it strives to restore damaged facilities, ongoing conflicts in the region make the overall operational environment unpredictable. The Hill’s analysis on the 16th notes that the risks faced by AI infrastructure in the Gulf are increasingly raising questions about large-scale US tech investments there.

CNBC reports that while the conflict may not cause major cloud giants to abandon existing AI infrastructure projects in the Gulf, if the conflict becomes prolonged, future investments could be affected. The New York Times believes these issues show that US tech giants play a central role in geopolitical conflicts, pushing critical technological capabilities into regions that could become strategic chokepoints.

“Underestimated risks”

The Hill reports that as the US government views the Middle East as a partner in AI competition with China, many US AI companies have invested billions of dollars in delivering chips and building data centers in Gulf countries like Saudi Arabia and the UAE.

Last May, US chip giants Nvidia and AMD announced collaborations with AI company Humain, founded by Saudi’s Public Investment Fund (PIF). In the UAE, President Trump announced plans to build a large data center complex in Abu Dhabi. US AI startup OpenAI later stated it was working with UAE AI firm G42, Nvidia, Oracle, Cisco, and SoftBank to develop an AI infrastructure cluster called “Stargate UAE.” In November, Humain announced plans to expand its partnership with Nvidia, deploying up to 600,000 chips and establishing new data center agreements with Elon Musk’s xAI.

This investment enthusiasm is welcomed by Gulf countries eager to diversify their economies. Long reliant on oil revenues, Gulf states are increasingly seeking economic diversification, focusing on AI and related technologies. “In the long run, Gulf countries have foreseen the prospects of the oil industry and realized that their global geopolitical influence largely depends on their position in the oil supply chain,” the Hill quotes analysts. “Now, these countries are trying to gain a foothold in the AI supply chain to replace their previous (energy) influence.” Saudi Arabia, the UAE, and others plan to invest over $300 billion in AI infrastructure. The New York Times reports that the Gulf region, once seen as an investment safe haven with cheap energy and relatively relaxed regulation, has become a core hub for building data centers needed for AI software.

However, after the conflicts and infrastructure damages, some analysts believe that US tech giants, encouraged by the government, have underestimated the risks of investing in the Gulf. The Times states that under President Trump’s encouragement, these companies downplayed the geopolitical risks of deploying critical infrastructure in one of the world’s most turbulent regions. Professor Steffen Hertog, a Gulf economy expert at the London School of Economics, said, “Clearly, before this conflict erupted, most non-energy investors in the Gulf, including US tech companies, underestimated the risks.”

Professor Ding Long of the Middle East Studies Institute at Shanghai International Studies University told the Global Times that the conflict has shattered the image of the region as a “safe haven” for data centers, and its negative impact on the regional business and investment environment should not be underestimated. This may lead US tech giants to reconsider their data center strategies in the Middle East.

Ding believes that the core reason for tech companies’ investment in Gulf countries is the abundant local capital and the lowest energy (especially electricity) costs worldwide. But safety is always the top priority. The attack on Amazon’s data centers will undoubtedly dampen US tech giants’ confidence in investing in the Gulf. Given the ongoing conflict, further targeted attacks on data centers, cloud computing, and AI infrastructure cannot be ruled out.

“Impact on Gulf countries’ AI transformation”

The ongoing conflict may reshape the global AI infrastructure landscape toward decentralization. The previously highly concentrated computing power layout of tech giants is being challenged, and the industry might move toward more distributed, multi-regional redundancy.

Patrick J. Murphy, Executive Director of the Geopolitics Department at Hill & Co. in the US, said this could lead to “a shift in the locations of the next wave of capacity building.” He added, “If geopolitical risks in the Gulf continue to rise, companies may accelerate projects in Northern Europe, India, or Southeast Asia, where electricity supply, regulatory frameworks, and security are relatively more controllable and predictable.”

Professor Samiha of Cairo University’s School of Technology told the Global Times that the strategic value of the Middle East has been redefined from oil hub to computing hub in the digital age. The current conflicts have shown the world that AI infrastructure has become a new battleground in geopolitical competition. While US tech giants’ Middle East expansion has not completely halted, it has entered a cautious phase. Gulf countries’ AI transformation will shift from “rapid expansion” to “steady progress.” The development logic of the global cloud service industry may also be rewritten due to this conflict—security and resilience, alongside cost and efficiency, are now core considerations in computing layout. For the Gulf, only by achieving local and diversified computing systems can they gain the initiative in digital economy geopolitics; for global tech firms, balancing interests and risks amid complex geopolitical environments will be key to future deployment.

In this reshaping of the landscape, Chinese tech companies are gaining new opportunities in the Middle East market. The current demand for localizing and diversifying computing infrastructure in the region is rising sharply. Chinese firms, with advantages in data center construction, hardware manufacturing, and cloud services, and maintaining a neutral geopolitical stance, are becoming important options for Middle Eastern countries to diversify supply chains.

The US tech media “Rest of World” reports that amid the covert competition with US rivals over Middle Eastern digital infrastructure, Chinese cloud companies are quietly rising. The report notes that a key difference is China’s more proactive attitude toward AI. While US companies are relatively slow in adopting AI solutions locally, Chinese providers are rapidly expanding.

What will be the future impact of this conflict on Gulf countries’ AI development? Ding believes that the conflict has dealt a heavy blow to their transformation process, both physically and psychologically. However, these countries have no choice but to continue their economic diversification efforts. The core is how to mitigate the negative effects of this crisis, and their overall strategic commitment remains firm. He further explains that the crisis might even stimulate their transformation drive. Gulf countries are increasingly aware that if the Strait of Hormuz is blocked, the risks of relying solely on oil will skyrocket, further reinforcing the need for economic diversification.

“The ultimate impact of this conflict depends on how it is resolved,” The New York Times reports. “Time is key. If the conflict ends within a month, people might forget about it. If it drags on for months, the situation will be very different.”