Gulf Autocracy gets powerful AI chips subjected to export ban, and pursues legal changes to make foreign computing companies feel comfortable about putting data there
Saudi Arabia (KSA) has made progress in its attempt to become one of the most developed data markets on the planet. The US and Saudi Arabia have taken measures to encourage investors to construct artificial intelligence (AI), datacentres, in the country.
KSA is closer to finalising its plans to treat foreign computers as “data ambassadors”reassuring companies that their customer data will be safely stored within the authoritarian Gulf kingdom. The US has lifted export controls on its advanced AI chips that threatened to prevent KSA from becoming a global leader of AI. These legal preparations bore fruits this week, before either was actually implemented, when Nvidia, which is the subject of US Export Controls on its advanced AI chips, said it had The Saudi Public Investment Fund has signed a contract for 18,000 of these chips to be shipped. The chips were part of a plan that aims to install “several hundreds of thousands” Nvidia Grace Blackwell AI chip in five years. This will consume 500MW energy.
Political experts and industry insiders claimed, before KSA unveiled its plans this week, that the proposed Global AI Hub Law allowed KSA to obtain banned AI chips, which both it and other foreign firms would require to build AI systems within the country. The draft law would grant foreign computer systems the status of embassy, so that their operators would only be subject to the laws in their home countries. It would prevent the Saudi state from interfering.
KSA completed a public consultation about the law the day following an Investment Summit at which US President Donald Trump and Saudi Crown Prince Mohammed bin Salman Al Saud had signed a broad economic agreement and presided over trade deals worth $600bn, the White House stated in a press release. The prince said that they had already done $300bn worth of deals at the start of the conference and hoped to reach $1tn. The deals covered defence, energy and tech, as well as health.
The ambition of KSA was evident in data that showed in February, according Computer Weekly analysis, that among 20 of Europe, Middle East and Africa’s (EMEA) most notable data markets, Saudi capital Riyadh ranked second in terms of operational, planned and incomplete datacentres. Only Athens ranked higher.
According to Cushman & Wakefield, with 125MW of computing power planned at the time, Riyadh was only 5% the size of the EMEA leader London and not even 15% the size of its neighbour and rival, the United Arab Emirates. Saudi firm DataVolt announced a $20bn investment in the US, the largest datacentre deal among those announced at Forum.
The US scrapped on Monday the AI Diffusion Rule that had been implemented by former president Joe Biden to block exports of powerful AI chip to all but a few countries. According to US AI tzar David Sacks, this rule stifled strategic partner such as KSA and prevented US technology from spreading around the globe.
Instead, the US decided to model AI policy after Silicon Valley’s software eco-systems, where firms gained dominance by publishing application programming APIs that others could use.
Sacks said, “They are able to create these ecosystems even without lawyers.” “There is no need for a contractual agreement. You simply publish an API. In a similar manner, the US must encourage the world to build upon our tech stack.
President Trump said that the US must win the AI race. How can we win the AI race? We need to build the largest partner ecosystem. We need to build our tech with our friends, like the Kingdom Saudi Arabia, as well as other strategic partners and ally.
He said, “We want to spread our technology.” “We want people using it.” “We want to become the standard.”
Data Sovereignty
KSA’s attempt to encourage foreign companies to build AI datacentres by allowing them to retain sovereignty over the data of their home countries was widely praised as a strategic genius.
The market is still young, but there are huge opportunities, said Stephen Beard of Knight Frank in Dubai, who deals with real estate. In a decade, KSA could become one of the top seven datacentre markets in the world. His firm estimated that US cloud computing companies had recently committed $9bn in investment there by the year 2027.
Knight Frank handled $7bn in datacentre deals, for firms that were attracted to the local market by the opportunity. The country has 20% lower electricity costs than the UK and a growing population, as well as a non-democratic, non-parliamentary government, which can digitise quickly without the inconvenience of the parliamentary process. In a speech this week in Riyadh, President Trump praised the ruling family of KSA for their efforts.
Beard said, “The AI Hub Law is optically fantastic.” “It will go a long way in easing investor concerns.” But we’re talking about Saudi Arabia. Who decides Saudi Arabia’s laws? Developers are looking for a higher return due to macro-risks.”
But, computer firms would invest in KSA to serve it. The idea that KSA would become a “super hub” was flawed.
Munir suboh, an attorney at Taylor Wessing, in Riyadh said that the law would give KSA a “unprecedented edge” over other nations who hesitate to cede their sovereignty over foreign facilities. Compare Saudi Arabia’s efforts to make it easier for foreign investors and Europe’s obsession with safety standards.
“Traditionally, cross-border data transfer requires compliance with multiple data localisation laws, especially in industries that are data-heavy,” said Oliver Subhedar of Burlingtons, a commercial dispute attorney. KSA wants to gain a competitive advantage over other states, by regulating its own datacentres.
Costs of risk and compliance
KSA will reduce the cost of compliance and risk for multinationals who have to comply with a variety of regulations around the globe, said Jade Masri of R Consultancy, an investment advisory in Dubai. This would reduce capital costs for investors. Amrik Sangha is a consultant at Gateley in Dubai. He said that hyperscalers need this law to import large language models into KSA and generate meaningful AI.
However, KSA must address the issue of “grey”fibre optic cables which would allow foreign data transfers to be carried out “without monitoring”according to Sangha. Grey cables, also known as “dark” cables, are private point-to-point communication lines that do not depend on local connections.
Despite the unexpected U-turn by the US, Juliana Rordorf Middle East director of political consultancy Albright Stonebridge Group said that the law could influence the global debate on data localisation and AI export controls.
Since 2018, Bahrain, which is next door, has a data embassy. The UAE, whose planned datacentre construction dwarfs KSA’s, recently signed bilateral data embassy agreements in France and Italy.
A similar law was proposed as a way to encourage European investors who are discouraged by Europe’s strict data protection laws. It was first introduced in Estonia and then copied in Monaco as a method to secure government backup datacentres located in Luxembourg because they had no other place to store them.
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