Petro-Compute and the Question of Gulf Leverage

If China sees the GCC as a deployment market for its own AI technologies, the United States, under the Trump Administration, has made the GCC a critical node in its AI ecosystem. That positionality comes with strings attached for GCC countries who see their path to near-to-mid term AI development through Washington and Silicon Valley. However, a major question remains: what forms of leverage and comparative advantages do the Arab Gulf states bring to the table, which give it bargaining power between the U.S. and China?

To answer this question, we must start with the GCC's comparative advantage.

Gulf states center their AI infrastructure advantage on converting hydrocarbon wealth into computational power—what analysts term "petro-compute." Abdullah Alzabin identifies what he calls a "triple advantage": Saudi Arabia and the United Arab Emirates enjoy some of the world's lowest electricity costs—unsubsidized power at $0.10/kWh versus $0.17 in the U.S.—driven by abundant natural gas and rapidly expanding solar generation. Their desalination systems produce roughly 40 percent of global desalinated water output, providing the cooling capacity that power-intensive data centers require. Geographic location matters too: Gulf states can serve four billion users across Africa, Central Asia, and the Middle East with sub-100-millisecond latency. Add nearly $5 trillion in sovereign wealth fund assets, and Gulf states possess the resources to build AI infrastructure at speeds and scales that would strain energy and water systems elsewhere. Yet whether these advantages generate genuine technological leverage or simply position Gulf states as well-capitalized landlords for technologies developed elsewhere remains sharply contested.

The distinction between AI training and inference divides analysts assessing Gulf leverage. Training new models requires advanced semiconductors—chips subject to U.S. export controls that Washington extended to Gulf states in October 2023. Running those models to answer user queries (inference) needs less sophisticated chips but consumes enormous power as billions of users make trillions of requests daily. Optimists see an opening: Gulf states can dominate inference through cheap energy even if denied access to cutting-edge training chips. Skeptics respond that hosting inference operations without developing the underlying models leaves Gulf states as well-capitalized landlords, not technology creators. Those who argue the Gulf is employing a hedging strategy observe a third option: the training-inference split creates optionality to play U.S. and Chinese technology providers against each other, securing better terms from both.

Writing in Foreign Affairs in December 2024, Daniel Benaim—former Deputy Assistant Secretary of State for Arabian Peninsula Affairs in the Biden administration—articulates an optimistic "diffusionist" view of Gulf petro-compute capacity. Benaim argues that Gulf states, "armed with chips, sovereign wealth, and abundant energy," are positioned to "surpass Europe and India in terms of AI infrastructure—eventually becoming the world's third biggest hub for AI computing power, behind the United States and China." In his framing, "computing power has now taken its place alongside crude oil as a pillar of the U.S.-Gulf relationship," transforming Gulf states into essential partners for U.S. AI firms seeking to escape domestic power and permitting bottlenecks. Benaim emphasizes that Gulf connectivity to Africa, Central Asia, and the Middle East could extend the reach of the U.S. "AI stack" to billions of users, while displacing China as the Gulf's primary technology partner—"a big win for Washington over Beijing."

In this paper's reading, Benaim's framing—while emphasizing U.S.-Gulf strategic alignment and mutual benefits—implies genuine Gulf agency and leverage in U.S.-China technological competition. The UAE, according to Benaim, now has "the highest rate of AI adoption of any country," while Saudi Arabia has invested billions in U.S. tech firms since 2016 and integrated AI into flagship ventures. Gulf regulatory flexibility, cheap energy, and massive capital pools create structural advantages that make partnership attractive—even compelling—for both American and Chinese technology providers.

Abdullah Alzabin develops the most comprehensive case for Gulf strategic opportunity in AI infrastructure. Alzubin argues that U.S. domestic power constraints—projected 130 GW of additional AI data center demand by 2030 against only 30 GW of new U.S. gas generation capacity—will force American policymakers to "prioritize power capacity for strategically vital AI model training while moving inference operations, the less critical task of running these models, abroad." This creates an opening for GCC states to become "major suppliers of AI inference through gigawatt-scale computing infrastructure," leveraging what Alzubin terms a "triple advantage" of power infrastructure, strategic geography, and financial capability. Unlike training, he notes, "inference computing requires less advanced semiconductors—which face fewer export restrictions—enabling the GCC to build substantial capacity even under current U.S. export controls." Alzubin frames this as a potential transformation analogous to Kuwait's 1938 oil discovery—a moment when "centralized planning and execution" combined with structural advantages could enable GCC states to "embed themselves in an industry that could transform their economies and build vital complexity." He argues that "the cumulative power needs from billions, and eventually trillions, of daily inference operations will exceed training requirements" as AI evolves toward "inference-time reasoning—where models perform complex calculations while serving users rather than at training."

Yet even Alzubin acknowledges critical value capture risks, warning that GCC states could end up "investing in infrastructure that, while necessary, lacks differentiation—a potentially commoditised asset with high fixed costs and limited pricing power." He points to the telecom sector's cautionary tale: AT&T's exclusive iPhone partnership in 2007 saw the carrier valued at $250 billion to Apple's $105 billion; today "AT&T's market capitalisation stands at $165 billion, while Apple has reached $3.5 trillion—demonstrating how value can accrue to higher layers in the technology stack."

Yet other analysts frame petro-compute capacity more skeptically, viewing it less as a path to technological sovereignty than as a new dependency relationship. Layla Ali, in a broader analysis of Gulf states as unconventional middle powers with rising strategic autonomy, warns that "much of the Gulf's AI ecosystem relies on imported technologies, foreign-owned platforms, and expatriate expertise. This dependency raises questions about technological sovereignty and the long-term sustainability of innovation ecosystems." While Ali sees Gulf states successfully exercising agency through multi-vector diplomacy and norm-setting, she flags technological reliance as a key vulnerability that may constrain these ambitions. Her assessment is blunt: "Without a strong domestic base in research and development, the region risks becoming a technologically advanced consumer but not a true producer of frontier technologies."

Mohammad Rashed Albousa, et al writing in Nature Humanities & Social Sciences Communications, reinforce these concerns in their empirical analysis of Gulf workforce preparedness. Examining data-center and cloud investments across all six GCC states, Albousa and colleagues find that large-scale capital deployment has not produced a commensurate rise in locally owned innovation outputs, particularly where highly skilled technical roles are dominated by expatriates. Their study asks whether "investments in compute infrastructure [are] matched by an equally robust build-out of skills, incentives, and governance," finding gaps between infrastructure spending and indigenous capability development. This empirical pattern—combined with Layla Ali's strategic-autonomy concerns and Alzabin's value-capture warnings—suggests Gulf states risk trading oil dependence for chip and cloud dependence, becoming infrastructure providers while core intellectual property, algorithms, and technical talent remain external.

The fact that Gulf cooperation attracts both U.S. and Chinese technology firms—the very dynamic Benaim celebrates—may not be a reflection of Gulf leverage but rather the Gulf's structural position as a well-capitalized deployment market rather than a source of indigenous innovation. Gulf states must still import advanced chips, whether from the United States (as Benaim advocates) or potentially from China; external providers develop cloud architectures and AI platforms that Gulf firms adapt locally; and the U.S. can withhold semiconductor shipments if Gulf states "violate terms" (as Benaim acknowledges), underscoring ongoing dependency rather than genuine autonomy. Alzubin himself identifies geopolitical vulnerability as a critical risk: "Expanding U.S. export controls to less advanced semiconductors threaten to curtail GCC ambitions," while technological dependence "mirroring their reliance on U.S. military equipment—could further constrain diplomatic flexibility."

A third perspective treats Gulf petro-compute as deliberate hedging between Washington and Beijing. Sam Winter-Lev argues that "although the Gulf states are eager for advanced AI chips that for now only the United States can provide, they also have strong and enduring incentives to hedge their bets, playing the major powers off against each other to extract concessions." He notes that "Saudi Arabia and the UAE both have powerful incentives to hedge their bets, given American domestic political instability and the enduring, if eternally frustrated, U.S. desire to 'pivot' to Asia," while China remains Saudi Arabia's largest oil customer and trading partner and the UAE's top non-oil trading partner.

From this perspective, the UAE's willingness to "rip out and replace its Huawei hardware" (as Benaim notes occurred after 2023 U.S. chip export restrictions) represents tactical positioning rather than strategic commitment to either camp. The UAE's trajectory illustrates this hedging in practice: deep AI partnerships with Chinese firms through 2023, followed by a sharp pivot to U.S. alignment through the Microsoft-G42 deal, which the U.S. Commerce Department's Bureau of Industry and Security conditioned on G42 severing ties with ByteDance and Huawei. Yet even as G42 divested from Chinese firms, Winter-Levy notes, "a new Abu Dhabi investment vehicle has taken over the management of G42's Chinese-focused fund, and, like G42, the new vehicle is overseen by the Emirati national security adviser." Rather than signaling weakness, this maneuverability demonstrates precisely the optionality petro-compute creates: if U.S. terms become too restrictive or enforcement too intrusive, Chinese alternatives remain available; if China cannot match U.S. capabilities, American partnerships deliver superior technology. Petro-compute, in this framing, generates bargaining power to credibly threaten alternative partnerships in negotiations with both Washington and Beijing.

The competing views among Western analysts, however, may obscure a more fundamental dynamic visible in Chinese assessments. From a Chinese analytical perspective, Gulf petro-compute ambitions—however grounded in genuine structural advantages in energy, water, geography, and capital—reinforce rather than challenge the complementarity framework. Chinese sources consistently note that Gulf investments in AI and semiconductors—however massive—do not translate into technological self-sufficiency but rather create dependencies on external providers.

Gulf capital finances the infrastructure through which Chinese (and Western) technology achieves global reach, but the core capabilities—chip design, AI algorithms, systems integration—are only accessible from external markets. This assessment aligns closely with Layla Ali's conclusion that Gulf states risk becoming "consumers but not producers" of frontier technologies, regardless of the scale of infrastructure investment—a concern that persists even alongside the indigenous model development and the strategic positioning opportunities that Alzubin identifies.

Whether the Arab Gulf states partner primarily with U.S. or Chinese firms, the underlying dynamic remains constant in Chinese analysis. Gulf resources, in China's view, enable others' technologies to scale, but do not generate indigenous capabilities that shift the relationship from complementarity to genuine interdependence. This makes petro-compute capacity valuable to China as a scaling partner and alternative deployment zone, but not as a technological peer. Chinese analysts would likely interpret the urgency of both Benaim's and Alzubin's arguments—and the Trump administration's willingness to export advanced semiconductors despite "chip hawk" concerns about leakage—as validating their assessment that great powers compete for Gulf capital and markets precisely because Gulf states control resources but not underlying technology. The Gulf's ambition to become "the world's third biggest hub for AI computing power" (as Benaim writes) or to leverage AI inference as what Alzubin terms "compute as the new currency for power" does not, in Chinese framing, translate into becoming the world's third source of AI innovation. Instead, it positions Gulf states as a strategic arena where Chinese and American technologies compete for deployment, investment, and political alignment—a role that is valuable but fundamentally different from the technological self-sufficiency Gulf diversification strategies officially pursue.

The evidence suggests that petro-compute generates tactical bargaining power rather than strategic leverage. Gulf states demonstrably possess the ability to extract concessions from both Washington and Beijing—the UAE's pivot from Huawei to Microsoft while maintaining Chinese partnerships through alternative investment vehicles proves this maneuverability is real, not rhetorical. Yet this optionality operates entirely within parameters set by external technology providers. The urgency with which both American and Chinese firms compete for Gulf capital and deployment markets reveals the Gulf's value proposition: not as innovation partners but as well-capitalized infrastructure providers. When Benaim celebrates Gulf states becoming "the world's third biggest hub for AI computing power," he inadvertently highlights the limitation—third in infrastructure deployment, not third in technological capability. The Gulf can credibly threaten to switch partners, but cannot credibly threaten to develop indigenous alternatives that would render either partner dispensable. This is bargaining power, certainly, but it is bargaining power that evaporates the moment Gulf states attempt to move beyond complementarity toward genuine technological interdependence.

The Chinese analytical perspective—that Gulf investments reinforce rather than challenge dependency relationships—may prove more predictive than the optimistic diffusionist view or even the hedging framework. Whether Gulf states partner with U.S. or Chinese firms, the fundamental dynamic persists: external providers control chip design, AI algorithms, and systems integration while Gulf capital finances the infrastructure through which those technologies scale globally. Alzubin's telecom analogy is instructive precisely because it captures how value accrues to creators rather than hosts—AT&T's exclusive iPhone partnership generated infrastructure revenue but Apple captured the transformative economic gains. Yet the diagnosis does not exclude Gulf agency, but it underscores the challenges to it.

For Gulf states pursuing genuine technological sovereignty as part of economic diversification, petro-compute (like hydrocarbons) creates optionality. Infrastructure advantages generate bargaining power to negotiate technology transfer, attract research partnerships, and fund indigenous capability development in ways that pure capital deployment could not. The leverage question, then, is not whether petro-compute advantages are real—they demonstrably are—but how Gulf states choose to deploy them. This remains the leading long-term challenge and opportunity for GCC states.

Strategic choices matter: using cheap energy merely to host others' inference operations would indeed create a more sophisticated form of resource dependence where computing infrastructure replaces crude oil as the Gulf's primary export commodity. Yet deliberately leveraging infrastructure advantages to incentivize technology transfer, build research institutions, develop indigenous models, and cultivate local expertise could convert deployment capacity into genuine technological depth. Petro-compute advantages are tools, not outcomes; whether they generate strategic autonomy depends on whether Gulf states use infrastructure leverage to climb the value chain or accept the role of well-capitalized landlord.

The December 2025 launch of the U.S. State Department's Pax Silica initiative—bringing together Japan, South Korea, Singapore, the Netherlands, the United Kingdom, Israel, the UAE, and Australia to build a "secure, prosperous, and innovation-driven silicon supply chain"—crystallizes the strategic tensions outlined in this paper. The UAE's participation validates optimists' claims that petro-compute generates genuine strategic value: Washington explicitly prioritizes "energy grids and power generation" and "compute" alongside semiconductors and recognizes that AI scaling requires Gulf energy advantages. Yet Pax Silica's structure reinforces skeptics' dependency concerns. Pax Silica focuses on semiconductor manufacturing as the coalition's nucleus and is set to expand to countries contributing minerals and other inputs. This risks positioning the GCC precisely where Chinese analysts already place it: as resource provider rather than technology innovator. The initiative centers countries that control critical nodes in the semiconductor supply chain—advanced lithography equipment, materials production, packaging capabilities, and chip design—while the UAE contributes energy and infrastructure: the deployment layer, not the technology layer.

More critically, Pax Silica formalizes the "trusted partners" framework that could limit Gulf hedging. The initiative explicitly requires participants to protect "sensitive technologies" from "countries of concern" and build "trusted ecosystems," requiring that members accept limitations on alternative partnerships. The U.S. conditions on the 2024 G42-Microsoft deal (severing Chinese ties, submitting to U.S. export controls) previewed what Pax Silica may now systematize in more rigorous form. This transforms GCC hedging from strategic optionality into tactical maneuvering within increasingly narrow bounds. Yet the UAE's inclusion also confirms that petro-compute advantages matter enough to earn a place at the table of the flagship U.S. economic security architecture. It will be interesting to see if Saudi Arabia will join at a later time. The remaining question is whether Pax Silica enables genuine technological advancement for Gulf states to secure technology transfer and the development of its core AI capabilities or whether it formalizes complementarity as permanent architecture. The answer depends on whether Gulf states leverage infrastructure advantages to climb the value chain or accept well-capitalized landlord status in exchange for semiconductor access and coalition membership.