BREAKINGVIEWS-Desert mega-deals test Washington’s AI sovereignty

By Karen Kwok

LONDON, June 6 (Reuters Breakingviews) - When local resources are scarce, outsourcing can be a smart business. But U.S. President Donald Trump’s decision to farm out the critical infrastructure for artificial intelligence looks like a risky move.

Framed as a win for Washington, Trump last month greenlit several headline deals with Gulf states, including a $1.4 trillion investment agreement with the United Arab Emirates. A big part of that is a 5-gigawatt campus in Abu Dhabi to store and crunch data used in AI models, which will be jointly developed by U.S. firms including OpenAI, Nvidia NVDA.O and Oracle ORCL.N. The deal also paved the way for Trump to allow the Gulf to import critical Nvidia chips, which had previously been restricted by the Biden administration.

There are reasons why desert data centres might appeal both to Trump and U.S. firms. For one, they’re cheap. Construction costs average $8.80 and $10.80 per watt in the UAE and Saudi Arabia, respectively, compared to more than $12 per watt in U.S. locations like New Jersey, according to consultancy Turner & Townsend. Getting data centres approved and completed also takes longer in the United States.

Building an offshore AI infrastructure may also help persuade Gulf states to use U.S. AI providers, rather than Chinese ones like Huawei and Alibaba, who are a growing competitive threat. So far this year, Chinese companies were able to generate $34 billion of revenue globally from AI models, nearly half the U.S. figure, the Atlantic Council estimates. That’s in spite of the fact they last year spent just $9 billion developing the models, under a tenth of U.S. AI spending.

An offshore data centre could, however, make it harder for U.S. companies to stop technology or data from falling into the wrong hands. One solution under discussion, according to three people familiar with the matter, is to create “data embassies”, in which a campus may be based in one country, but subject to the law of another, in this case the United States. The concept was first adopted by Estonia when it began backing up its data in Luxembourg. Saudi Arabia is also preparing legislation.

Yet this data centre diplomacy also has weak foundations. For one, it undercuts Trump’s own long-held reshoring narrative to bring tech jobs and production back home. A bigger concern is that even with a new legal framework, offshore data centres may not have strong enough protections to stop U.S. technology from reaching China, especially as China remains one of the Gulf’s biggest trading partners. And, unlike real world embassies, they will rely on bilateral agreements rather than an international treaty, leaving greater scope for disputes.

Trump’s desert data centres may well become a reality. The danger, however, is that he, or a future president, decides the risks outweigh the benefits. Companies that raced to build them may then find that cheap AI is just a mirage.

Follow Karen Kwok on LinkedIn and X.

CONTEXT NEWS

The United Arab Emirates and the United States on May 15 signed an agreement for the Gulf country to build the largest artificial intelligence campus outside the United States.

The AI agreement “includes the UAE committing to invest in, build, or finance U.S. data centers that are at least as large and as powerful as those in the UAE,” the White House said.

Central to the agreement is the 10 square mile (25.9 square km) AI campus in Abu Dhabi with 5 gigawatts of power capacity for AI data centres.

The campus will be built by Abu Dhabi state-backed firm G42, but U.S. Secretary of Commerce Howard Lutnick said in a release that “American companies will operate the data centers and offer American-managed cloud services throughout the region.”

The U.S. fact sheets also described chip company Qualcomm working on an AI-related engineering centre and that Amazon Web Services, the cloud unit of the tech and commerce company, would work with local partners on cybersecurity and fostering cloud adoption.

On April 14, Saudi Arabia’s Communications, Space and Technology Commission (CST) issued a consultation draft of a Global AI Hub Law, which lays out a legal framework of the concept of a data embassy and provides a roadmap for investment in and development of data embassies.