Energy prices continue to spike and supply chains keep being disrupted, as the Iran-US war continues. It has been suggested, after markets have become more unpredictable, that essential infrastructure like data centres could be impacted further by the conflict.
At the start of the month, four AWS data centres were struck and damaged by drones in the UAE and Bahrain. After Iran took responsibility, it raised questions over whether a new type of war – an “infrastructure war” – was imminent.
It also highlighted the strategic significance of data centres in the Middle East, as disruption to facilities could impact connectivity, latency and cloud service availability.
The impact of Gulf supply chain disruptions
The data centre industry in the Middle East has become increasingly tied to energy security and geopolitics across the region.
As digital infrastructure markets boom worldwide, the Middle East market has grown very quickly on account of budding AI interest. The Gulf Cooperation Council (GCC) expects the data centre market to grow to nearly US$9.5 billion by 2030 and PwC predicts capacity in the region to triple from 1GW in 2025 to 3.3GW over the next five years.
Several Gulf states – including the UAE, Saudi Arabia and Qatar – have garnered plenty of major investments and attracted hyperscalers to build in the region. Investors have been driven by demand for low latency, data sovereignty and the AI hype.
While the market remains attractive for these reasons, ongoing conflict could impact investments with regard to resilience, connectivity and heightened risk – all of which could make data centres more expensive to build or less reliable to operate.
In particular, the Strait of Hormuz, one of the most important shipping routes in the world, remains blocked by Iran in the wake of Israeli-US strikes on the country. It has led to fears over price spikes, particularly with regards to oil and energy supplies.
Already, according to the BBC, oil prices have spiked about 8% and European gas prices about 20%, as of early March. Although it surmised that prices are lower than prices seen earlier in the conflict.
With shipping severely disrupted, it has been estimated that data centre operators and hyperscalers could face short-term price hikes, resource scarcity and project delays as new supply chain routes may need to be found.
“One of the biggest short‑to‑medium term impacts we’re seeing is in data centre supply chains. Getting big ticket items delivered to the region safely has become difficult,” explained Scott Roots, sales director EMEA at DC Byte. “As a result, shipping costs have already increased substantially, and the region is being hit with further delays and price increases as the conflict escalates.”
With the situation expected to remain unstable for the foreseeable future, DC Byte shared that investors and insurers would change the way they evaluate risk.
DC Byte CEO Bernard Johnson added: “The most likely impact may be around increased focus on redundancy and resilience design, more detailed risk modelling for physical infrastructure and adjustments to investment and insurance assumptions.”
The wider energy picture: Calls for greater resilience in Europe
Impact is already being felt further afield, as prices rise amid market uncertainty – including in Europe, which, after Russia invaded Ukraine, committed to phasing out reliance on Russian gas, oil and coal to become more energy independent. However, a dependence on gas remains.
Europe relies strongly on Norway and the US for its energy, sparking concerns over the region’s long-term energy security.
Tesh Durvasula, CEO of AtlasEdge Data Centres, said the current conflict is only amplifying how closely linked Europe’s digital economy is with energy prices.
“In the face of rising costs, the priority for the data centre industry has to be resilience,” he said. “It’s important that operators double down on efficiency, diversify energy sources and strengthen long-term planning in order to continue operating reliably and deliver the capacity the market is demanding.”
He added: “This is a defining moment for the European data centre industry to prove it can deliver for customers in an unpredictable global environment.”
Long-term, there have been calls for Europe to think more critically about how to build energy stockpiles or reorganise energy consumption to have greater control when supply chains are disrupted.
It remains to be seen if the ongoing Iran-US war will be the catalyst for this to take place.
It’s clear that the Gulf is already playing a significant role in the global data economy, but will industry leaders and international investors now take into account heightened risks and energy insecurity when looking to build?
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