Companies like Amazon.com and Alphabet signed agreements in the Persian Gulf, investing heavily in artificial intelligence development. Now, Iran has threatened to attack these firms' regional infrastructure.
In 2019, Amazon.com inaugurated its first data center in the Persian Gulf, located in Bahrain. The company expanded its operations to the United Arab Emirates three years later. By 2024, Amazon.com had launched new projects in Saudi Arabia with a total value exceeding $10 billion. These moves helped the company establish a foothold in one of the world's fastest-growing regions, where wealthy governments and investors are eager to participate in the digital economy and AI race.
During a visit to Saudi Arabia last year with the President and other tech executives, Amazon.com CEO Andy Jassy stated, "We look forward to helping drive innovation and talent development across the Kingdom." However, on March 1, Jassy's plans were thrown into disarray: an Iranian drone attack damaged Amazon.com's data center in Bahrain and struck two additional data centers in the UAE. Many clients relying on these facilities for computing power remain affected.
Two weeks into the conflict involving the United States, Israel, and Iran, American tech companies in the Persian Gulf are confronting a new reality. Once viewed as an investment safe haven with cheap energy and light regulation, the region has become a central hub for data centers essential to powering AI software. U.S. firms including Alphabet, Microsoft, and OpenAI rushed in, attracted by rapidly growing economies and convenient network links connecting Africa and Europe.
According to research firm IDC, consumer and business technology spending in the Middle East reached approximately $65 billion last year, up from $36 billion in 2020. Spending on data center and cloud service-related technology surged 75% last year to $895 million.
As the war continues, however, the bets made by tech giants in the region are becoming increasingly risky. This week, Iran threatened broader attacks on the "enemy's technological infrastructure" of seven U.S. tech companies, including Amazon.com, Microsoft, Alphabet, Palantir, NVIDIA, IBM, and Oracle. On Thursday, Iran's new Supreme Leader, Mujtaba Khamenei, issued another vague warning, stating Iran would "open battlefronts in other areas where the enemy lacks experience," further heightening concerns.
Encouraged by the previous administration, which helped broker several agreements between U.S. tech giants and Gulf nations, these companies largely underestimated the geopolitical risks of deploying critical infrastructure in one of the world's most volatile regions. A strategy once seen as a key advantage in the AI race is now becoming a significant vulnerability due to the ongoing conflict.
In recent weeks, the tech industry has learned lessons that oil producers and multinational banks have grappled with for decades, casting a shadow over billions in prospective AI investments. Steffen Hertog, a professor at the London School of Economics and an expert on Gulf economies, said, "The energy sector is far more experienced than the tech industry in dealing with traditional geopolitical risks. Before this war, most non-energy investors in the Gulf, including U.S. tech firms, underestimated the dangers."
Following the damage to Amazon.com's data center by an Iranian drone, numerous businesses in the region lost connectivity. Simon Williams, a former Amazon.com employee now an executive at Dubai-based AI firm Atelic AI, said, "The system just went down. We completely lost connection to the servers, which had a major impact on our business." While Williams remains optimistic about the region's future as a tech investment hub, he has been unable to reach Amazon.com representatives to restore access to critical data stored on its cloud. "It's a complete black box," he said. "Their disaster recovery systems were not robust."
Amazon.com stated in a release that it is "adjusting operations according to the evolving situation, including temporary suspensions where necessary." Alphabet said it is closely monitoring the situation with a "focus on the safety and well-being of local staff." Microsoft declined to comment.
Dave Comendant, former Chief Security Officer at Boeing, noted that data centers have become a new form of critical infrastructure in conflicts, making them attractive targets. He said the attack on Amazon.com's facility will lead companies to prioritize security risks more heavily before construction. Comendant, now with security consultancy Corporate Security Advisors, stated, "This is a low-frequency, high-impact event. It might not happen again, or it could happen ten more times."
These issues highlight the central role U.S. tech giants play in geopolitical conflicts, with key technological capabilities deployed in regions that can become flashpoints. The spillover effects of the Iran war are expected to further impact the tech sector, including supply chain disruptions, surging prices for natural gas needed by data centers, and increased costs for commodities like plastic and aluminum essential for manufacturing electronic components.
A recent report from research and policy think tank Strategy International noted, "The real weapons are not drones; they are canceled insurance, diverted tankers, and investors hitting pause." The vulnerability of the tech industry is also evident elsewhere globally: China controls much of the world's hardware manufacturing; Taiwan Semiconductor Manufacturing Company (TSMC) in Taiwan produces the vast majority of advanced chips; and factories in South Korea, within range of North Korean artillery, produce most of the world's memory chips.
Lyu Xiaomeng, a director at risk advisory firm Eurasia Group, which studies the interaction of emerging technology and geopolitics, said the Iran war will significantly hinder Gulf nations' efforts to attract major tech companies, particularly the UAE, which is close to Iran. "Their ambitions are built on the assumption of geopolitical stability," she said. The ultimate impact of the war depends partly on its resolution. Lyu suggested that if the conflict leads to a new Iranian leadership less adversarial to the U.S. and Israel, it could bring more stability and investment. However, if the Iranian government is weakened but remains in power, it could pose risks of further disruption and conflict for years. "The timeline is key," she said. "If the war ends within a month, people will forget about it. If it drags on for months or longer, the situation will be entirely different."
Comments