Neil Thompson Informed Comment
Last week, China’s President Xi Jinping made his first state visit to Egypt since 2016, amid deepening economic and security ties between Beijing and one of Washington’s major Arab allies. Egypt’s government said the two sides agreed to launch the third phase of a cooperative industrial zone in the Suez Canal, as Cario seeks to diversify its major foreign policy relations beyond just the US. The latter still supplies Egypt with $1.3 billion in military aid each year but faces growing geopolitical competition from China.
In a statement clearly designed to appeal to Egyptian audiences, where the Suez Canal is a major economic engine, Xi said that China “stands ready to work with countries in the region to safeguard the security of international shipping lanes, advance development cooperation … and eliminate the breeding grounds for conflict.” Instability in the Red Sea since 2023 and the US-Iran conflict since February have caused maritime traffic through the canal to drop sharply, though the major Maersk and Hapag-Lloyd shipping lines signalled last month that they were planning a phased return.
China Dangles Growth, Security Partnership
Beijing has also made Egypt’s government another offer of economic and technological development through state-linked firm Huawei. Egypt has ambitious plans to expand AI’s contribution to its economy to 7.7% of GDP by 2030, offering China an opening to challenge the US lead on global AI infrastructure by starting with a small project in the Middle East. Huawei bid on an Egyptian government tender in August to build public sector AI data centers there, in partnership with iFlytek, a Chinese surveillance company. Both Chinese companies are on a US blacklist, and Washington has approached US firms including Nvidia, AMD and Microsoft to put together a counterbid. Egypt has yet to announce a decision, but the move signals an intensifying race between Beijing and Washington to recruit more regional states into their respective AI stacks.
China’s Middle Eastern AI Footprint Expands Elsewhere
China and the US have each launched their own multinational AI alliances; in China’s case, this is the World AI Cooperation Organisation (WAICO), while the US set up the Pax Silica in December. Both groups contain a few Middle Eastern states so far, with Iran, Algeria and Oman joining WAICO, and Israel, Qatar, and the UAE have joined the Pax Silica. However, Chinese companies have launched AI-related projects in multiple Middle Eastern countries prior to WAICO’s launch, and Beijing’s AI-infrastructure footprint is likely to extend well outside the alliance’s formal Middle Eastern members. Middle Eastern firms are increasingly willing to use Chinese technology to launch their own AI models indigenous to the region, too.
In October, Chinese firm Alibaba opened a sector data centre in Dubai. In January, the UAE’s Emirate of Sharjah signed an agreement with Chinese AI infrastructure and cloud computing services provider DataCanvas to examine establishing data centers there. Finally, in September Saudi technology firm Humain released an Arabic-language AI model based on a Chinese one created by Chinese AI firm MiniMax. Chen Jing, a vice president of China’s Technology and Strategy Research Institute, told state media there that: “Unlike in the past, when Chinese LLMs primarily entered overseas markets through APIs or application products, in this collaboration, MiniMax M3 has directly become the foundational model for overseas indigenous model development.” Humain is financed by Riyad’s Saudi Public Investment Fund, indicating Saudi state backing for the firm’s project, despite Saudi Arabia not being a member of WAICO.
AI Growth, Environmental Cost?
Officials, activists and academics have warned that while economically Middle Eastern states may benefit from the race between the US and China to offer them investment and technology, this will likely come at an environmental cost. In April, the Qatar-based Middle East Council on Global Affairs research centre published a report warning that water and power demand for AI data centres presented a significant ecological challenge to Gulf Cooperation Council (GCC) states. GCC members already struggle to meet power and water demand during the summer months, when temperatures traditionally soar. This issue is getting worse. In December, the World Meteorological Organization issued its first report on the state of the climate in Arab states. It warned that these states had their hottest year on record in 2024, and that heatwaves there are becoming longer and more intense.
It is also during these months that the region’s new AI infrastructure needs the most water and energy to cool its server farms, too. Even without higher temperatures, the average data centre has the equivalent water demand of around 1,000 households per day, while a large one uses around 5 million gallons a day, the same as a town of up to 50,000 residents. Gulf countries like the UAE are engaged in massive construction of more desalination plants to meet this expected AI-related upsurge in water (and power) demand as a result. UAE regulators have denied the increase in water demand will cause them problems, with the head of regulatory affairs at Abu Dhabi’s Department of Energy saying in April: “We rely on desalination [plants] that have proven in the last 50 years to be a very reliable source for potable water.”
Photo of Egypt’s Suez Canal by Rafik Wahba on Unsplash
Conclusion
Middle Eastern countries outside the GCC will face similar problems with rising temperatures driving household power and water demand just as AI-related demand also increases. AI infrastructure projects may outpace regional water and power development without careful planning. In May, Egypt said it planned to meet future AI data centre power demand there using renewable energy. It is investing significantly in wind farms and other projects, including expanding regional interconnections with other countries’ power grids in Saudi Arabia, Europe and Sudan. However, these projects are vulnerable to timetable slippages from obstacles like construction sector supply chain disruption or port congestion at Egyptian terminals. With a growing population seeking jobs, Egypt’s government seems likely to press ahead regardless.
China’s expertise in both AI and green technology could likely help ease many Middle Eastern countries’ attempted transition to a digitalised and clean-energy powered economic future. But geopolitical competition with the US will add a political and diplomatic dimension to any projects with Chinese participation. The US is still a major security partner for many Middle Eastern governments, and Washington could threaten to withdraw military aid in response to a growing dependence on Chinese AI systems in allied regional governments or economies. The US fears Egypt allowing Chinese AI systems in its public sector would create cybersecurity risks for its agents and companies there. US fear of China could impede Middle Eastern states’ uptake of Chinese AI infrastructure and models, but also their uptake of Beijing’s greener gifts.
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