The Middle East, previously one of the fastest-growing regions for global AI infrastructure expansion, now faces uncertainty as the risk of war with Iran casts a shadow over hundreds of billions of dollars in investments.
In early March, military actions involving Iran escalated, with multiple infrastructure sites across the Gulf region coming under attack.
According to Reuters and other media reports, two of Amazon Web Services' data centers in the UAE were struck by drones, while a facility in Bahrain was damaged by a nearby explosion, causing temporary disruptions to some cloud services. This incident is believed to be the first time a major U.S. tech company's data centers have been directly affected by military action.
The event quickly shifted market sentiment regarding the safety of AI investments in the Middle East.
A recent report from The Information highlighted that Gulf nations had been advancing a large-scale AI infrastructure initiative, with total investments exceeding $300 billion. These projects include data centers, AI chips, computing power, and the development of local AI models.
Not only are local companies involved, but several U.S. tech giants—including OpenAI, xAI, Microsoft, Amazon, Oracle, and Alphabet—are also participating. Key incentives include low-cost energy and government financial support.
However, as conflict intensifies, operational security and funding stability are being reassessed by the market.
Gulf nations have emerged as significant financiers in the global AI investment landscape.
Beyond tech giants, Middle Eastern sovereign wealth funds have become one of the largest sources of capital for AI.
Several countries have announced specific commitments:
Saudi Crown Prince Mohammed bin Salman stated that Saudi Arabia plans to invest $50 billion in the semiconductor industry in the short term.
At current market prices, the UAE may spend over $30 billion on NVIDIA GPUs by next year.
Saudi Arabia aims to build data centers with a total power consumption of 6.6 gigawatts by 2034.
These computing scales far exceed those of traditional data centers.
Before the AI boom, data centers typically ranged from 10 to 50 megawatts. Today, gigawatt-scale facilities have become the planning standard, with individual project costs often ranging from $50 billion to $60 billion.
The UAE also plans to develop the region’s largest AI data center campus, spanning approximately 10 square miles with a power capacity of up to 5 gigawatts. OpenAI and Oracle intend to operate 1 gigawatt of computing power within this campus as part of the "Stargate" project.
If the conflict persists, it could lead to a pause in investments.
For now, Gulf nations appear reluctant to abandon their AI ambitions.
According to IDC analyst Stephen Minton, "If the conflict continues for several months or longer, it could lead to a disruptive pause in related investments."
He added, however, that AI projects may continue in the short term, as they represent not only economic initiatives but also part of these nations' strategic priorities.
Risks are already becoming apparent.
For example, asset management firm Brookfield is collaborating with several Gulf states on AI projects. Should the conflict endure, the pace of foreign capital flowing into the Middle East may slow.
Jesse Marks, CEO of geopolitical advisory firm Rihla Research, noted, "Gulf nations may reassess how they build core infrastructure, and even reconsider the geographic placement of data centers."
Tech giants’ regional strategies now face uncertainty.
Currently, several technology firms maintain significant investments or operational presence in the Middle East:
Microsoft plans to invest $15.2 billion in the UAE between 2023 and 2029.
Alphabet's Google Cloud and Saudi Arabia’s Public Investment Fund intend to jointly invest $10 billion in building an AI hub.
Oracle plans to invest $1.5 billion to expand its cloud infrastructure in Saudi Arabia.
At the same time, tech company operations have already been impacted.
NVIDIA has closed its Dubai office and shifted to remote work, while some Google employees have been stranded due to flight and safety restrictions.
These developments are prompting investors to reconsider a critical question: Can the Middle East still become a key node in the global AI infrastructure network as originally planned?
If the conflict continues, the repercussions may extend beyond the region.
First, energy prices have already risen by nearly one-third since the escalation of hostilities. Higher energy costs could drive inflation and potentially force central banks to maintain elevated interest rates.
Second, financing costs for capital-intensive projects like data centers would increase significantly if interest rates remain high.
Finally, global investment patterns could shift. If Gulf nations redirect more resources toward domestic security or infrastructure protection, previously pledged overseas investments may also be reevaluated.
For the rapidly expanding AI industry, this implies that a major source of funding may become less reliable.
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