Within hours of markets opening after the start of the Iran/US conflict, Brent crude had jumped $10 a barrel. By the time tanker traffic through the Strait of Hormuz began to freeze up, prices were trading above $90, a level not seen since early 2023.
The CEO of Saudi Arabia’s largest oil exporter warned of dire consequences if the conflict persisted. On Aramco’s earnings call, Amin Nasser stated, “There would be catastrophic consequences for the world’s oil markets, and the longer the disruption continues, the more severe the impact on the global economy.”
The situation showed little sign of de-escalating. Reports emerged that Iran had begun laying mines in the region, while three ships were attacked off the Iranian coast — raising fears of a protracted closure of one of the world’s most critical oil chokepoints.
For most industries, higher oil means higher transport costs and a squeeze at the pump. For the data centre sector, the picture is more complicated and more alarming.
It’s well documented that Iranian drone strikes hit two AWS data centres in the UAE and damaged a third facility in Bahrain – the first confirmed military attack on a hyperscale cloud provider. Raising the concerns that in a live conflict, digital infrastructure is a target, not a bystander.
It is well documented that Iranian drone strikes targeted two AWS data centres in the UAE and damaged a third facility in Bahrain -the first confirmed military attack on a hyperscale cloud provider. This incident highlights a critical point: in a live conflict, digital infrastructure is not merely a bystander; it can become a direct target.
However, the secondary concern is that power is not a peripheral concern for data centre operators; it is the business. Energy typically accounts for up to 60 per cent of a facility’s operating costs, according to analysis by TechUK. The sector was already navigating a market in which electricity prices in the US jumped 6.9 per cent in 2025, more than double the headline inflation rate, according to Goldman Sachs.
Against that backdrop, a conflict in the Gulf (the route through which roughly 20 per cent of global oil supply and nearly a fifth of the world’s LNG trade passes each day) introduces a new and severe layer of cost pressure that operators cannot simply hedge away.
The immediate transmission mechanism is natural gas. Data centres across North America and Europe have been pivoting aggressively toward gas-fired generation, both as a primary power source where grid connections are unavailable and as behind-the-meter backup.
With utilities in many markets quoting connection wait times of three to seven years, natural gas generators have become the fastest route to guaranteed capacity for new AI-optimised campuses. In West Virginia alone, one campus under development is set to deploy 2 GW of fast-response gas generator sets. Thousands of smaller deployments tell the same story.
When gas price doubles, every assumption breaks
Wood Mackenzie analysts warned this week that a disruption to LNG flows through the Strait of Hormuz would be comparable in scale to the curtailment of Russian gas to Europe in 2022, when prices at European hubs briefly touched the equivalent of nearly $600 a barrel of oil.
After Russia’s invasion of Ukraine, European data centre operators that had locked in long-term power purchase agreements were largely insulated; those on spot or short-term contracts faced acute pain. Today, the exposure looks broader because the sector’s gas dependency has deepened significantly.
Qatar alone transited around 81 million tonnes of LNG through the Strait in 2025, accounting for roughly 20 per cent of global LNG supply, the bulk of it destined for Asian markets. But as Wood Mackenzie notes, a tightening in Asian markets rapidly ignites competition with Europe for available cargoes, squeezing prices continent-wide. UK natural gas futures have already nearly doubled since the first strikes, according to analysis from the Economics Observatory. For any data centre operator running on-site gas turbines or combined heat and power plant in the UK or continental Europe, the operating cost model built six months ago may now be materially wrong.
The diesel exposure is equally live. Despite years of pledges to decarbonise backup power, diesel generators remain the industry standard for emergency and demand-response generation. A single hyperscale facility may hold tens of megawatts of diesel capacity. With Brent trading close to $96 and some analyst models pointing toward $110 to $125 if the Strait closure persists, the cost of maintaining fuel reserves – let alone running generators during demand response events – is rising sharply.
Microsoft, Google, and Amazon have all committed to phasing out petroleum-based diesel by 2030, but the transition is far from complete, and renewable diesel substitutes such as hydro-treated vegetable oil are themselves under supply pressure when fossil feedstocks tighten.
The Grid isn’t a safe haven either
It might be tempting to conclude that operators drawing from the grid are better insulated. The reality is more nuanced. Natural gas remains the primary dispatchable fuel for electricity generation across most Western markets. In the United States, gas-fired plant provides the marginal megawatt across most grid regions during peak demand, meaning that sustained gas price inflation feeds directly into wholesale electricity prices.
In the UK, the correlation between gas prices and grid electricity costs is well established and near-instantaneous. Data centres that have signed fixed-price power purchase agreements will be protected for the duration of those contracts; those on variable tariffs or approaching renewal will face a renegotiation environment that is substantially harder than anything seen for several years.
The capacity crunch pre-dating this conflict was already producing record auction prices. PJM Interconnection, the largest grid in the United States, saw capacity prices hit a record $333.44 per megawatt-day in its December 2025 auction, with data centres identified as the primary driver of tightening. Grid tipping points, the analysts conclude, are already emerging. Superimpose a Middle East energy shock onto that pre-existing stress, and the headroom for error becomes very narrow.
For operators in Europe and Asia-Pacific, the dynamics are not identical, but the direction of travel is the same. Asian refiners are beginning to report cargo shortages as Gulf shipments slow; the Philippines and Thailand are considered most exposed to inflationary pass-through, according to Nomura. Singapore, a significant data centre hub, is highly sensitive to LNG price movements. In Europe, the ECB’s chief economist Philip Lane has already flagged renewed upward pressure on near-term inflation from energy costs, making further rate cuts unlikely and keeping the cost of capital for data centre construction elevated.
What operators should be doing now
There is no clean hedge for an energy shock of this potential magnitude, but there are actions that distinguish well-prepared operators from reactive ones. The first is visibility. Many operators lack real-time granularity on their gas price exposure across every site in their portfolio. Establishing that picture – which sites are on fixed contracts, which are exposed, and what diesel reserve costs look like at $100 oil – should be an immediate priority for any COO or CFO who has not already done it.
The second is contractual. Long-term power purchase agreements with renewable generators look substantially more attractive in the current environment than they did when gas prices were benign.
Solar and wind PPAs, particularly in markets with good resources and grid access, offer genuine insulation from fossil fuel price volatility. The operators most aggressively pursuing renewable PPAs have done so partly on ESG grounds; in 2026, the financial case is arguably just as compelling on its own.
The third consideration is fuel diversity. The shift from diesel to natural gas for backup power has accelerated sharply, driven by permitting pressures and straightforward economics. But operators now building or expanding facilities should weigh whether a portfolio that is heavily gas-dependent for both prime and backup power creates unacceptable concentration risk at precisely the wrong moment.
Battery energy storage systems, HVO-capable diesel sets, and on-site renewables all reduce that concentration – and in markets where grid stress is driving demand response programmes, BESS assets can also generate meaningful revenue.
None of this is to suggest that the data centre industry faces an existential threat from events in the Gulf. Demand for compute capacity – driven by AI workloads that are proving resilient to broader economic uncertainty – is unlikely to pause because oil prices are elevated. Hyperscaler capex commitments for 2026 remain enormous. But margin compression is real, PPA renewals will be harder, and any operator whose financial model assumed energy costs would remain near 2024 levels is now operating on assumptions that need revisiting urgently.
The Strait of Hormuz has long been the single most consequential chokepoint in global energy supply. For the first time in years, the scenario planners who labelled it a tail risk are watching it play out in real time.
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Datacloud Global Congress
Industry heavyweights from the data centre sector will convene at this year’s Datacloud Global Congress, to explore strategies for managing power and energy, ensuring operational resilience, and planning for geopolitical disruptions. Attendees can expect in-depth discussions on how recent initiatives are reshaping the economics, operations, and global strategy of hyperscale and edge data centres.
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