Iranian strikes on data centers in the Gulf states have spotlighted possible vulnerabilities in the U.S. government’s effort to foster American AI investments there and draw the region away from Chinese offerings.
Drones launched from Iran in March damaged two Amazon Web Service data centers in the United Arab Emirates and disabled another one in Bahrain, temporarily disrupting some banking and other cloud-based services in the region. There are no signs of a large-scale pullback in tech investment in the Gulf, but the growing AI ties between the region and U.S. companies face heightened security challenges as the war between the U.S. and Iran heats up again.
Later that month the Iranian Revolutionary Guard Corps declared U.S. tech companies and facilities they own or use in the Gulf to be “legitimate military targets.” It was less than a year earlier, in May 2025, that President Donald Trump signed an AI cooperation agreement with the UAE, alongside other major U.S.–UAE investments totaling over $200 billion. That initiative, the State Department has said, is meant to “position the United States and the UAE’s AI partner of choice.” A similar Strategic AI Partnership deal with Saudi Arabia was announced a few months after the UAE, leveraging the Kingdom’s $100B “Alat” tech fund.
Besides their commercial impact, those deals have a very real political and military value. They were meant to tilt the Gulf and its huge financial resources away from China, and to lock in cybersecurity provisions by barring the use of products by Chinese AI competitors such as Huawei. Abu Dhabi’s sovereign AI firm, G42, distanced itself from Chinese companies to gain expanded access to advances U.S. AI chips. Meanwhile, the U.S. has acknowledged using Anthropic’s Claude AI and Palantir’s Maven systems for decision making in the Iran war, putting data centers in Tehran’s gunsights.
The demand for data centers to power AI is rising sharply worldwide, said Mike Sexton, senior policy adviser for AI for the Washington think tank Third Way, giving the Gulf a clear incentive to get on board.
“By giving that economic partnership to these countries…creates an incentive for [them to say] we get these benefits from the United States, and the United States would prefer we not do these with Chinese companies,” Sexton said
U.S.’ AI Footprint in the Gulf
Depleting hydrocarbon assets is a real concern for the Gulf and AI hyperscalers are attracted to massive funding and cheap energy prices.
“I think that in the UAE’s case with the U.S.; it is out of desperation. They want to focus on an alternative path to make your economic possibilities come to life and their choice is AI,” said June Park, senior research affiliate at the Centre for Digital Law at Singapore Management University.
But the U.S. Commerce Department restricts the export of advanced AI chips to the Middle East unless governments provide guarantees that the hardware will not be used by Chinese entities.
“I would say that competition with China is probably the number one motivator on AI policy here in the United States,” added Sexton.
Anchoring its national AI framework to U.S.-led supply chain standards, the UAE formally joined the U.S. State Department’s Pax Silica, a flagship economic and technological security initiative. It allows approved UAE government bodies and companies, including G42, to buy advanced computing products such as Nvidia and AMD AI chips and AI servers without individual export licenses.
The U.S. has also authorized the export of advanced AI chips to Saudi Arabia’s state-backed AI venture, HUMAIN, conditional on meeting rigorous security and reporting requirements.
However, this does not mean that Gulf countries will stop doing tech business with China altogether. Countries like South Korea actively maintain technology relationships with many countries, Park said.
Additionally, G42 has significant financial backing from Mubadala, a state-owned global investment firm that acts as one of the sovereign wealth funds of the government of Abu Dhabi. Mubadala has over $200 billion investment portfolio in China and participates in the UAE-China Joint Investment Fund that funnels alternative capital into greenfield infrastructure and engineering tech.
“In essence, what the U.S. can compel countries to do and what they can do are different things.” Park said. “So, it’s a hedging strategy, as is the case in many U.S. allied countries.”
Chinese AI
Open-source models like DeepSeek out of China are already making waves as being just as effective in many applications as – and considerably cheaper than –U.S. models like OpenAI’s o1 and Anthropic’s Claude 3.5 . However, the way they behave may also be considerably different, especially if asked about matters Beijing considers sensitive, such as the Tiananmen Square uprising, the Uyghurs or Tibet. To what extent similar restrictions could be trained into models in the Middle East is unclear, Sexton said.
“While it is important that we understand the human rights implications of China winning, we all agree would be bad,” he said. “There is, I think, still much more work to be done to ensure as the United States is developing stronger technology relationships. These are grounded in a strong ethical foundation and are not going to be used to strengthen authoritarian governments.”
China is actively integrating nuclear power to support its artificial intelligence infrastructure, and so is the UAE, with its recent Barakah Nuclear Energy Plant. But Park notes that to keep going, they will likely have to keep building more plants. “I fear that if they enlarge those capabilities, it would not be geopolitically sound,” said Park.
However, China and the United States still also have a very a deep economic relationship in critical minerals, pharmaceuticals and manufacturing. According to the U.S.-China Business Council’s 2026 survey, 80% of surveyed American companies view the Chinese market as vital to their global competitiveness, up from 66% in 2025.
AI Use in War
As the U.S. military expands its use of AI tools to pinpoint targets for airstrikes in Iran, members of Congress are calling for guardrails and greater oversight of the technology’s use in war.
On June 12, the U.S. government issued an export control directive that forced Anthropic to abruptly disable global access to its newly released, advanced models: Fable 5 and Mythos 5. As of July 1, Anthropic patched the jailbreak loophole that prompted the concerns, and some highly sensitive requests will silently “fallback” to older models like Claude Opus 4.8.
The conflict has already seen examples of AI-assisted targeting errors. In March 2026, a strike hit the Shajareh Tayyebeh school in Iran, killing dozens of civilians. A preliminary investigation by U.S. Central Command (CENTCOM) military investigators revealed the facility had been converted from military barracks to civilian infrastructure a long time ago.
China’s loyalty to Iran, meanwhile, has been highly dependent on the situation there, Sexton said. While Beijing may look and see this as a valuable time to come in and partner with Iran, he said, but it is equally likely that it will look at Iran and say, this government is severely wounded.
At the same time, the war has created other entry points in the region for China, according to Park. The UAE has purchased and used Cheongung, an advanced Korean, medium-range missile system that is much cheaper than its American counterparts, she said, adding that Iranian-backed forces and proxy groups extensively utilize DJI drone systems, a Chinese manufacturer.
Despite the ongoing uncertainty of the war, Sexton sees the Gulf States’ technological alliance with the U.S. as sturdy and long-term.
“The economic implications have not necessarily been most profound for the artificial intelligence or high-tech industries [in the Gulf],” he said. “So, I think that that kind of cooperation is probably going to continue. It is one of the most important parts of America’s relationship with these countries right now.”
