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Strategic Technology in the Middle East: Gulf States’ Place in the AI Race
Strategic Technology in the Middle East: Gulf States’ Place in the AI RaceBy: ISPI
While the main impetus for the Gulf states to develop indigenous AI sectors is to diversify their economies, it comes with striking strategic implications for the region and beyond.
Commentary Middle East and North Africa.
Although artificial intelligence (AI) is still in its infancy, for many economists, business gurus, political leaders and media pundits AI will transform much of how we live and work. Indeed, AI is often talked of as a general-purpose technology (GPT), like electricity or the internal combustion engine or computers. For some theorists, nations rise and fall in the global power hierarchy of power based on how well they adopt and integrate these GPTs. It is little wonder then that the globe’s two biggest economies, China and the United States, are engaged in competition for AI supremacy.
Though much commentary about the geopolitics of AI focuses on great power competition, some countries are indeed seeking to establish their place in what is a global AI race. Some States are trying not to fall too far behind the technology leaders; others are attempting to find a niche area of AI in which to excel. Taiwan, for example, is a pivotal producer of some of the world’s semiconductors that provide the necessary hardware for complex computations crucial to AI.
Nations with both the intent and the resources to access computing, talent, cheap energy, and access to data can develop vibrant indigenous AI ecosystems. Indeed, this combination of intent and resources is increasingly evident in the Gulf states. In particular, the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) are throwing vast sums of money into AI-related investments, especially data center construction.
AI, the new oil?
The modern economic history of the Gulf states can be simplified as “top-down” efforts at economic diversification from hydrocarbons. While the 1973 oil shock saw a substantial leap in revenues for the Gulf states, the global recession and inflation that followed highlighted the vulnerability for economies based on the export of one commodity.1 The succeeding decades saw some of the Gulf states seeking such a diversification through export-oriented and import-substitution industrialization in non-hydrocarbon sectors. More recently, these efforts have shifted to developing knowledge-based economies that leverage emerging technology.
Technology investments are crucial to the Gulf states’ economic diversification agenda and none so more as AI today. As Qatar’s national AI makes clear: “Economic diversification has been identified in Qatar as an inescapable step towards becoming a knowledge-driven society. This implies that Qatar must become globally competitive in selective niche areas. As AI permeates into all sectors of human activity, not competing in the AI arena will significantly hurt Qatar’s plans of diversification.”
Throughout the Gulf, AI has already been integrated into various sectors, including healthcare, finance, transportation, and government services. But increasingly the Gulf states are establishing their own competitive AI sectors to lessen their reliance on oil.
The Gulf as an “AI hub”
The Gulf is attracting much attention and speculation about its emerging role in the global AI race. The UAE made headlines in 2023 after Abu Dhabi-funded Technology Innovation Institute (TII) developed Falcon, which became one of the world’s most advanced open-source large language models (LLMs). But it was the $1.5 billion investment in April 2024 by Microsoft in the Abu Dhabi AI-firm G42 that really grabbed industry analysts’ interest. This was compounded in August 2024 when the Microsoft-G42 partnership announced plans for two new joint AI centers in Abu Dhabi. As part of these developments and reflecting renewed US-UAE geoeconomic alignment, US officials authorized the sale of Nvidia H100 chips – critical for training AI models – to G42 after actions were taken to prevent the spillover of this intellectual property. The UAE also announced this year a $100 billion fund, MGX, comprising $30 billions of equity provided by U.S. groups BlackRock and Microsoft as well as Abu Dhabi sources, to increase global chip production.
KSA, the largest Gulf Arab state in terms of geography and population, is also attempting to establish itself as a premier hub for AI innovation. To support this ambition, KSA is making significant investments in AI-related infrastructure, including a $40 billion tech fund and targeted investments in AI companies and startups with an emphasis on cloud computing and digital infrastructure. In September 2024, the Kingdom partnered with US-based semiconductor startup Groq (Nvidia competitor) to build the world’s largest data center specialized for AI processing. Its most recent foray into the AI sector came in October 2024 with the Saudi Public Investment Fund (PIF) and Google Cloud announcing a strategic partnership. This partnership includes a PIF-funded and Google-operated data center with associated cutting-edge tensor processing units (TPUs) and graphics processing units (GPUs), joint global marketing of Google’s AI products, and a Saudi workforce upskilling initiative.
Other Gulf states have also launched their national AI strategies. Qatar has even created its own Arabic-centric LLM, Fanar, which means “Lighthouse” in Arabic. Bahrain, which is home to robust financial and telecom industries has strategy to integrate AI into these sectors. But it is its dynamic FinTech sector that sits at the heart of its AI ambitions.
Although the UAE and KSA have made the largest leaps into AI, the Google-PIF partnership and the Microsoft-G42 deal could incentivize other Gulf states – Bahrain, Oman, Kuwait, and Qatar – to strike similar deals, collectively transforming the region into an “AI hub” for global tech companies. Many of them can deliver cheaper power than in many other places making running data centers and training of AI models more cost-efficient.
Strategic implications of AI
While the main impetus for the Gulf states to develop indigenous AI sectors is to diversify their economies, it comes with striking strategic implications for the region and beyond.
First, the demographic disadvantages the Gulf states face vis-à-vis more populous regional rivals could be nullified by the greater employment of AI-powered autonomous systems. More specifically in terms of the regional military balance, uninhabited and autonomous systems hold out the promise offsetting personnel constraints. AI, therefore, evens the playing field for small states against more populous rivals with quantitative advantages in conventional arms and human capital.
Secondly, AI-controlled drone swarms may prove to be a battle-determining weapon of future war. Those able to translate commercial AI prowess into military effects will hold a distinct advantage over those who cannot.
And lastly, AI will very likely magnify offensive action in the cyber domain. Based on previous records of cyber-attacks in the Gulf region, it is safe to assume that AI will be used to destabilize the region. The only solution to this will be to leverage AI to reinforce autonomous cyber defense.
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