Middle East conflict strains Gulf plans to become a global AI hub

Regional ambition meets geopolitical reality

The Gulf states raced to position themselves at the center of the global artificial intelligence boom, leaning on vast sovereign wealth, cheap energy and strategic geography to attract hyperscalers and build large-scale data center networks. But the war in the Middle East has put that plan under stress: attacks on cloud infrastructure, surging oil prices and the effective closure of the Strait of Hormuz have raised fresh questions about energy security, infrastructure resilience and investor confidence.

Before fighting escalated in February, the United Arab Emirates, Saudi Arabia and Qatar were rolling out national AI strategies and mobilizing sovereign-backed investment vehicles to fund compute-heavy projects. Abu Dhabis Mubadala is central to the UAE effort, backing platforms and local champions such as MGX and G42. Saudi Arabia has committed tens of billions for AI and data infrastructure through HUMAIN, supported by the Public Investment Fund. Qatar has also leaned into the sector via Qai and support from the Qatar Investment Authority in partnership with Brookfield.

Global technology companies and cloud providers moved quickly to capitalize on the opportunity. Amazon Web Services, Google Cloud and Microsoft have expanded investments and launched data center projects in the Gulf alongside local partners, while infrastructure vendors such as Cisco and Oracle have deepened their regional footprints.

From optimism to caution

The conflict shifted the calculus for investors and operators almost immediately. Two Amazon data centers in the UAE were targeted early in the war, underscoring how energy and digital infrastructure can sit directly on conflict lines. Brent crude surged more than 55% from about $72 a barrel to nearly $120 at its peak over the prior three months, and benchmark oil prices have stayed around $100 a barrel. The Strait of Hormuz has been effectively closed, a development the International Energy Agency described as the largest oil supply disruption in history.

Even energy-rich states are feeling the squeeze: gas prices in the UAE jumped about 30% in April after sustained high oil prices. That rise has practical consequences for data centers, which are extremely power intensive. Historically low industrial power prices in parts of the Gulfaround $0.11 per kWh compared with $0.25$0.40 or more in parts of Europewere a major selling point. With tighter energy markets and greater volatility, governments are under pressure to pass through higher costs to large industrial users.

Analysts and industry participants told CNBC that the conflict has injected new, kinetic risks into what had been largely a cyber- and disruption-focused risk model. Trisha Ray, associate director and resident fellow at the Atlantic Councils Geotech Center, said the war put AI infrastructure "on the literal front lines," changing how operators must think about facility risk and physical protection.

That reassessment is visible in business decisions. Pure Data Center Group, owned by Oaktree, temporarily paused investment decisions in the region while continuing planning and discussions. Law firm BCLP, which advises on large-scale data center projects, said investment timelines are lengthening as projects now need to price in security and kinetic risks that were previously outside the investment thesis.

Data centers and other strategic digital assets are being treated like pipelines or refineries: their strategic importance has risen and so has their vulnerability. The Atlantic Council recommends physical hardening of facilitiespossibly building undergroundand geographic diversification so that critical infrastructure for regional ambitions does not all sit inside a single country.

Despite these headwinds, many major players remain publicly committed. Amazon noted CEO Matt Garmans remarks in April that the company remains excited about investing long term in the region. G42 said its direction is unchanged and its conviction has deepened, calling AI "as foundational to economies and societies as electricity." HUMAINs CEO Tareq Amin emphasized Saudi Arabias scaleits large geography, energy resources, connectivity corridors and the ability to build resilient AI infrastructure at scale.

Market participants continue to see demand: BCLP reports inbound enquiries for large-scale projects, and Pure DC said it remains bullish, moving ahead with planning and investment discussions in the UAE and Saudi Arabia.

But the conflict has also altered the economics and timing of projects. Future data centers in the region are likely to be more expensive and slower to come online due to higher construction and hardening costs, added anti-drone and security systems, rising insurance premiums, and potential supply chain disruptions. Aalok Mehta of the Center for Strategic and International Studies said the war "shattered the illusion of long-term stability in the Gulf," changing how investors value regional exposure.

Private equity and long-term investors, however, stress resilience and a long horizon. Tara Davies, EMEA co-head at KKR, underscored that AI is evolving rapidly and that despite short-term volatility, the infrastructure buildout is a multi-decade undertaking.

The conflict has forced a pragmatic recalibration: Gulf states still possess the capital and incentives to be major AI hubs, but delivering that ambition will now require higher capital costs, more robust security planning, and a broader approach to geographic diversification. The question for global cloud providers, sovereign funds and private investors is whether the strategic caseand projected returnsstill outweigh the newly apparent risks. For now, most are proceeding cautiously but not abandoning the regions long-term potential.