How the Iran war could impact hyperscalers' massive AI buildout in the Middle East

In recent years, tech firms have invested heavily in artificial intelligence infrastructure across the Middle East, attracted by affordable energy and supportive government policies. However, the ongoing conflict in Iran raises significant concerns about the future of these developments, particularly if tensions escalate further. Experts highlight that data centers have already come under fire, with Iranian retaliatory strikes recently affecting AWS facilities in the UAE and Bahrain, leading to service outages across various sectors including banking and consumer services. While existing AI infrastructure projects are unlikely to be abandoned, future investments may be jeopardized if the conflict prolongs. Patrick J. Murphy, executive director at Hilco Global, points out that increasing geopolitical risks could shift the focus of future data center capacity to regions such as Northern Europe, India, or Southeast Asia—areas perceived as having more stable power supplies and regulatory environments. The Middle East has emerged as a crucial tech hub, primarily due to government efforts to attract international investment and reduce reliance on China. Tech giants including Oracle, Nvidia, and Cisco are collaborating on OpenAI's ambitious project in the UAE, known as Stargate, which will encompass a vast area and feature significant energy capacity. With Saudi Arabia's Humain also investing billions into AI infrastructure, and Microsoft committing $15 billion to the UAE by 2029, the stakes are high. However, the recent attacks have raised alarms about the security of digital infrastructure. Aalok Mehta from the Center for Strategic and International Studies indicated that data centers might now be viewed as legitimate targets in modern conflicts, prompting a reevaluation of security strategies by firms in the sector. As a result, AI infrastructure companies may need to consider shifting to safer locations or reinforcing their existing facilities with advanced protective measures. Despite the risks, the Middle East still offers considerable advantages, including capital from sovereign wealth funds and its strategic position for accessing emerging markets. Governments in the region are likely to work diligently to reassure U.S. companies about their investments. Mehta emphasized the UAE's commitment to AI, noting that it is investing heavily to support technological advancements and facilitate major partnerships. Given the substantial investments already made in operational facilities, companies are unlikely to relocate their existing data centers, which need to be close to customers for optimal performance. However, the Iran conflict is prompting firms to reevaluate and possibly slow down new investments, as they assess the potential impacts of ongoing hostilities. Gary Wojtaszek, chairman and interim CEO of Pure Data Centre Group, mentioned the possibility of slowing down expansion plans in the region due to the unpredictable situation. He remains hopeful that hostilities will eventually subside, allowing for renewed development efforts. As companies navigate these challenges, they will be conducting cost-benefit analyses to determine the viability of their investments, weighing factors such as the duration of the conflict, costs of enhanced security measures, and the feasibility of alternative data center locations. Both Google and Microsoft have refrained from commenting on how the conflict is affecting their regional operations, while AWS and other involved parties have not responded to requests for comment.