It seemed like nothing could stop the AI boom, but the war in Iran may just do the trick.
What happened: The World Trade Organization’s chief economist warned that high energy prices “could put a crimp on the AI boom” given the energy-intensive nature of the technology and the data centres that undergird it.
Around 75% of the on-site power for data centres comes from natural gas, which is set to get more expensive after attacks on Qatar’s Ras Laffan liquefied natural gas (LNG) complex wiped out nearly a fifth of the country’s LNG export capacity.
Zoom out: It’s not just the electricity for data centres that’s going to get more expensive; production of the advanced semiconductors used in the data centres is also being disrupted. Asia’s chip industry — South Korea’s Samsung and SK Hynix dominate memory chips, while Taiwan's TSMC makes nearly all the world’s advanced AI chips — depends on gas and chemicals (like helium and sulphur) from the Middle East to keep its production lines running.
Delays in deliveries of chips would slow data centre buildouts and could slow the progress of frontier AI labs. That, in turn, could fuel investor fears about an AI bubble and trigger a market sell-off.
And don’t forget: Much of the funding for AI megadeals has come from the Gulf states, which will now need to redirect at least some of their wealth towards local reconstruction. AI companies may soon find the seemingly endless pools of capital they’ve been able to draw on suddenly shallower.
Why it matters: AI investment — approaching US$1.5 trillion in 2025 — was (by some measures) the driving force behind whatever growth most developed economies saw last year and fueled a run-up in stock markets. Subtract that spending, and we could very quickly be staring down a nasty global recession.—TS