- Rising energy costs stemming from the conflict could impact data center operating costs globally
- Data centers in the Middle East have also suffered direct hits
- Middle Eastern investors who have been dragged into the war may reconsider data center spending
It’s been less than two weeks but the nascent war in Iran is poised to rattle data center operations across the globe. Why? The answer has a lot to do with how global energy markets and data center investments are structured.
Sandwiched between Iraq to the West and Afghanistan and Pakistan to the East, Iran notably includes a large segment of coastline along the Persian Gulf and Gulf of Oman. The channel between these two bodies of water is a narrow passage called the Straight of Hormuz. And it turns out the Straight is a key shipping lane for crude oil and liquefied natural gas exports from the region.
In response to the U.S. and Israel’s attacks, Iran has declared the Straight “closed,” a move that has already sent the price of oil skyrocketing and threatens to raise energy prices across the globe. Obviously, that would be a very bad thing for power hungry data centers.
“Even partial disruption to shipping through these routes can push energy prices higher and force cargo rerouting. Higher energy costs affect nearly every segment of the technology supply chain from semiconductor fabrication to logistics and data center operations,” Brad Gastwirth, Global Head of Research at Circular Technology, wrote in a note.
He continued: “For the technology sector the immediate risk is not a direct interruption in semiconductor production but a broader inflationary impact through energy and transportation costs.”
Though rising energy prices could be bad news for data centers across the globe, they could be especially felt by U.S. tech giants.
Four days before the U.S. began bombing Iran on February 28, President Donald Trump announced that Amazon, Google, Meta, Microsoft, OpenAI, Oracle and xAI had signed on to a new Ratepayer Protection Pledge, promising to negotiate special electrical rates for data centers and foot the bill for required utility upgrades. Notably, they’re on the hook to pay whether they end up using the electricity they expect to or not.
The pledge doesn’t contain any enforcement language, so it’s possible the tech titans could wiggle free. But if the war drags on and the abide by their publicly stated promise, it could be a tough pill to swallow.
“With oil prices going through the roof, at least for now, the cost of power to these massive consumers of electricity around the globe will go up too,” Jack Gold, founder and principal at J. Gold Associates, told Fierce. “What will that do to the cost structures for AWS, GCP, Azure, others? If I signed a long-term contract, does my cloud provider have to eat those additional costs and hence affect their bottom line? Or is there an inflated costs provision?”
The investment angle
Gold also pointed out that a lot of recent investment in the data center realm has come from countries in the Middle East, including Saudi Arabia and the United Arab Emirates (UAE). These countries sit right across the Persian Gulf from Iran and both have already been struck by retaliatory attacks. Data centers in the UAE and nearby Bahrain – including an AWS facility – have been hit.
“That’s a direct effect and it’s not yet clear how much repair will be needed once the shooting stops to make them fully operational again. But clearly that could get costly,” he told Fierce.
With a war of indefinite length on their doorstep and the risk of strikes on critical infrastructure rising, Gold added these countries could reconsider the hefty data center investments they were planning to make.
“It could have an effect on AI investments in general as the sovereign wealth funds pull back,” he concluded. “It might not last that long, but who knows how long the fighting will continue and divert the focus on these countries, or even if they have to enter the fighting directly.”