How the Iran war could impact hyperscalers’ huge Middle East AI plans

Tech companies have been funnelling billions of dollars into AI infrastructure projects in the Middle East over the past few years, drawn in by cheap and readily available energy and land, alongside local government support.

But the Iran war spilling over into neighbouring countries in the Middle East throws questions over the future of the data center and digital infrastructure buildout in the region, particularly if it becomes a prolonged conflict, experts told CNBC.

Data centers have already been targeted. Iran’s wave of retaliatory attacks hit AWS facilities in the UAE and Bahrain, causing banking, payments, enterprise and consumer services to experience outages.

While the Iran war will likely not see hyperscalers walking away from existing AI infrastructure builds in the region, it could impact future investment in the case of drawn-out hostilities.

There could be a “shift in where the next wave of capacity gets built,” Patrick J. Murphy, executive director of the geopolitical unit at Hilco Global, told CNBC. 

“If geopolitical risk continues to rise in the Gulf, companies may accelerate projects in places like Northern Europe, India or Southeast Asia, where power supply, regulatory frameworks and security conditions are more predictable.”

Oracle, Nvidia and Cisco are all involved in OpenAI’s AI campus in the UAE — dubbed Stargate — which, in collaboration with Emirati firm G42, will span 10 square miles and include a 5-gigawatt capacity. Saudi company Humain is pouring billions of dollars into AI infrastructure buildouts and Microsoft said it would invest $15 billion into the UAE by 2029.

But security considerations around the facilities that power digital infrastructure in the region have come under scrutiny in the past week following attacks by Iran. 

Those strikes signal that data centers may now be “considered legitimate targets for attack in modern armed conflicts,” Aalok Mehta, director at think tank the Center for Strategic and International Studies. “This will significantly change how companies think about data center security going forward.”

AI infrastructure firms will likely be making contingency plans because of the situation, he added. “Either by considering shifting to less vulnerable regions or by hardening current and future data centers with missile defense and counter-drone technology.”