For three years the Gulf states have pitched themselves as the natural home for the next generation of AI infrastructure. The argument rested on three pillars: abundant and cheap energy, deep sovereign capital, and political alignment with Washington. The war that closed the Strait of Hormuz at the start of March has tested all three, and it has added a fourth consideration that investors had largely ignored: physical security.
On 1 March, drones struck three Amazon Web Services data centre facilities, two in the United Arab Emirates and one in Bahrain. According to AGBI, the strikes disrupted services for customers for at least 48 hours. The Guardian reported that what is thought to have been an Iranian Shahed 136 drone hit an AWS facility in the UAE at 4.30am, starting a fire and forcing a shutdown of the power supply, with further damage caused as water was used to suppress the flames. Rest of World reported that AWS told customers to consider migrating workloads out of the Middle East, warning that the regional operating environment remained unpredictable. AGBI noted reports that it was the first time a hyperscale data centre had been struck in wartime.
The physical risk is now priced
Before the war, security was not a major consideration for Gulf data centre investors, according to Arthur Atkinson of the digital infrastructure adviser Teledata, quoted by AGBI. That has changed. Large AI campuses are hard to hide. They occupy hundreds of hectares, draw hundreds of megawatts and sit next to substations and cooling infrastructure that are visible from the air. Hardening them means underground halls, air defence, redundant power feeds and dispersed sites. Atkinson argued that building underground is not particularly more expensive and is a well-trodden route. Even so, redesigns take time, and time is what AI developers are least willing to give up.
The Guardian quoted the observation that defending data centres now means missile defence. For governments that have promoted AI as the successor to oil, that is an awkward message, because it puts digital infrastructure in the same category of strategic target as refineries and export terminals.
The connectivity risk
Data centres need fibre as much as power. Rest of World points out that about 17 submarine cables pass through the Red Sea, carrying the vast majority of data traffic between Europe, Asia and Africa, and that additional cables run through Hormuz to serve Iran, Iraq, Kuwait, Bahrain and Qatar. With both passages contested, specialised repair ships cannot safely reach damaged cables. The precedent is recent. In February 2024 three Red Sea cables were cut by the dragging anchor of a ship struck by a Houthi missile, disrupting about a quarter of traffic between Asia, Europe and the Middle East, and one took five months to repair.
The UAE has more cable diversity than most of its neighbours, but The Guardian notes that many landings are concentrated on the east coast at Fujairah, a partial geographic chokepoint. A data centre with ample power but impaired connectivity cannot serve the global customers that justify its scale.
The supply chain risk
AGBI's reporting suggests that the near-term effect will be delay rather than cancellation. None of the projects in the pipeline from Microsoft, Oracle and AWS, worth tens of billions of dollars, had been officially postponed as of late March. But disruption to shipping slows the delivery of transformers, switchgear, cooling equipment and servers, almost all of which arrive by sea. Justin Alexander of Khalij Economics told AGBI that the war will delay things by a couple of months or six months or more, which is a long time in AI. AGBI described hopes for a rapid tripling of Gulf data centre capacity to 3.3 GW as possibly in jeopardy.
The energy advantage grows
The paradox is that the war strengthens the Gulf's core selling point even as it weakens others. The surge in oil and gas prices caused by the Hormuz closure raises electricity costs in energy-importing countries, several of which have their own AI ambitions. Gulf producers generate power from domestic gas, and increasingly from solar and, in the UAE, nuclear, at costs insulated from import prices. AGBI quotes Imad Al-Abdulqader of DGA-Albright Stonebridge Group arguing that, over the long term, global supply chain risks highlight the region's advantages, while acknowledging that higher energy costs would be detrimental to investment.
Construction costs point the same way. The Guardian cites Turner & Townsend's Global Data Centre Index, which found that data centre construction costs rose by 5.5 per cent globally in 2025, while the UAE ranked 44th of 52 markets for unit cost per watt, near the cheapest end of the table. Low build costs plus low power costs are a powerful combination, provided the facilities can be protected and supplied.
That advantage is real but conditional. Gulf gas used for power is gas not exported as LNG, and with Qatari exports disrupted, the opportunity cost of burning gas at home has risen. Governments that subsidise domestic power prices will face pressure to divert more gas to export markets when prices are high.
The capital question
The final pillar is capital. The Gulf states have committed vast sums to AI. Rest of World notes that President Trump's tour of the region in May 2025 produced $2.2 trillion in investment pledges, and the Stargate UAE campus announced that month by OpenAI, G42, Oracle, Nvidia and SoftBank was a flagship. Sovereign wealth funds can absorb delays that private investors cannot. But the foreign hyperscalers whose customers fill the data halls make decisions on risk-adjusted returns, and a war that damages their facilities changes the calculation.
What to watch
The key signals over the coming months are whether hyperscalers proceed with announced Gulf regions, whether Stargate UAE and Saudi Arabia's Humain projects keep their schedules, and whether cable repairs and shipping normalise. If Hormuz reopens and the strikes are not repeated, the Gulf's energy advantage may outweigh the episode. If the conflict becomes a recurring risk, AI investors will price the region as they price other strategic chokepoints, and some of the capacity planned for the Gulf will move to places with costlier power but fewer missiles.