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The Middle East’s dilemma in the US-China tech standoff

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Jonathan Fenton Harvey 

As the United States and China continue to jostle for technological superiority, particularly in the semiconductor industry, Middle Eastern nations are finding themselves caught in the crossfire.

The ongoing trade war, which has largely had an indirect impact on the Middle East up until now, seems poised to have direct implications on the region’s technological landscape and geopolitical alignments.

Arab Gulf states like Saudi Arabia and the United Arab Emirates (UAE) have been eager to implement advanced Artificial Intelligence (AI) technologies in various sectors, making semiconductors an integral part of their digital transformation strategies.

At the same time, their growing proximity to China has raised eyebrows in Washington. The US is increasingly concerned that its broader trade competition with China could be undermined by the Middle East’s tech ambitions.

“As the United States and China continue to jostle for technological superiority, particularly in the semiconductor industry, Middle Eastern nations are finding themselves caught in the crossfire”

In late August, reports surfaced that the US had restricted the sale of AI chips to the Middle East, particularly targeting tech companies Nvidia and AMD (Advanced Micro Devices, Inc). While the US Department of Commerce denied these claims, Nvidia, a leader in semiconductor manufacturing, revealed in a regulatory filing that from Q2 2024, they would require a special license to sell A100 and H100 chips in certain Middle Eastern countries.

AMD reportedly received a letter from the Commerce Department with similar restrictions, indicating that Washington has indeed sought to curtail these tech giants’ activities in the Middle East.

More widely, it is part of a strategic game from Washington to ensure its own tech and economic supremacy. Economic historian Chris Miller’s book ‘Chip War: The Fight for the World’s Most Critical Technology‘ clarifies that such moves are not isolated incidents but part of a broader US strategy. This strategy employs technology as a leverage point to safeguard US interests and slow down Beijing’s technological progress.

Yet the chip war is not just a one-sided affair. In August, China thwarted Intel’s $5.4 billion bid to acquire Israeli chipmaker Tower Semiconductor. It also suggests China is actively engaging in countermeasures to impede US technological advancements.

The Gulf’s tech aspirations

For Gulf states keen on digital transformation, the trade war in the semiconductor industry introduces a host of challenges. As technology becomes a more integral part of geopolitics, the Gulf’s ability to navigate this new landscape will be crucial in defining its role in a future global order.

Saudi Arabia and the UAE are emerging as significant regional players in the tech sector. Saudi Arabia previously purchased at least 3,000 of Nvidia’s H100 chips through the King Abdullah University of Science and Technology.

Riyadh has aimed to become a leader in AI, with Abdullah Alswaha, Minister of Communications & Information Technology proclaiming last year that “Saudi Arabia, led by Mohammed bin Salman, is a data centre and AI hub”.

The UAE has also invested considerably in Nvidia chips and launched Falcon earlier this year, an open-source AI model developed under the government’s guidance. Both nations aim to become less dependent on external technology by attracting top talent in AI and other advanced sectors.

As the US and China edge closer to tech decoupling, countries like Saudi Arabia and the UAE find themselves in a precarious position, balancing relations with both global powers. The restricted access to advanced chips could disrupt their digital strategies.

“For Gulf states keen on digital transformation, the trade war in the semiconductor industry introduces a host of challenges”

This is particularly concerning for the UAE, which was the first nation to establish a Ministry of Artificial Intelligence in 2017 and has launched several initiatives like the “Generative AI Guide” to strengthen its global tech positioning.

Most recently, on 30 August, an artificial intelligence group linked to Abu Dhabi’s ruling family, including the UAE’s national security adviser, launched Jais, touted as the most advanced Arabic AI software, designed to power generative AI applications. Abu Dhabi in particular has also tried to position itself as a regional leader in AI per its National Strategy for Artificial Intelligence 2031.

“AI will contribute to the UAE’s net zero strategic initiative by 2050,” said Dr Sultan Al Jaber, UAE Minister of Industry and Advanced Technology, in April.

US scrutiny and Chinese influence

With the US declaring the UAE a “country of focus” in March concerning nations that may be helping Russia to avoid Western sanctions, it indicated a heightened scrutiny over countries that undermine US foreign policy interests.

In September, reports emerged that US – as well as British and EU – officials were actively persuading the UAE to curtail its ties with Moscow. The restrictions on chips clearly come as the Biden administration amplifies regulatory pressure on Middle Eastern partners over ties with Washington’s rivals.

As Washington ramps up the regulatory pressure, China may hope to capitalise on these restrictions. Huawei’s decision on 4 September to open a cloud data centre in Riyadh follows closely on the heels of US export restrictions on AI chips to the Middle East. The centre will support government services for the Saudi kingdom and allow for AI applications and language models in Arabic.

“The implementation of Huawei cloud is not just about us, but is a bridge that will bring other Chinese companies to Saudi Arabia,” said Steven Yi, the company’s regional president.

The move highlights a possible unintended consequence of US policy: pushing Middle Eastern partners toward Beijing’s technological ecosystem.

In June, Saudi Arabia’s King Abdulaziz City for Science and Technology (KACST) inked a deal with two Chinese firms to create a microchip design and manufacturing centre, aimed at advancing smart grids and cities. And as Huawei plans a further $400 million investment in Saudi Arabia and advances in chip technology, China could seek to fill any void left by US trade barriers.

Ultimately, Gulf nations are taking proactive measures to diversify their technological partnerships and reduce dependency on traditional superpowers. To hedge against geopolitical uncertainties, these nations are expanding their semiconductor alliances. For example, both Qatar and the UAE recently entered talks with Japan to make a substantial investment in its semiconductor industry.

“Gulf nations are taking proactive measures to diversify their technological partnerships and reduce dependency on traditional superpowers”

This builds on past initiatives, such as a consortium involving Abu Dhabi and Israeli entities in May 2022 investing$3 billion in a chip-making facility in Karnataka, India, operated by the Indian Semiconductor Manufacturing Company.

Navigating the complex tech rivalry between the US and China presents unique challenges for regional states. As these nations work to diversify their semiconductor partnerships, they still remain entangled within the far-reaching dominance of the US and China within the AI sector.

Jonathan Fenton-Harvey is a journalist and researcher who focuses on conflict, geopolitics, and humanitarian issues in the Middle East and North Africa.