The United Arab Emirates enjoys thinking of itself as the Switzerland of the Gulf. The limits of China and the United States' ability to remain neutral partners, particularly in the field of artificial intelligence, are demonstrated by Microsoft's $1.5 billion investment in the artificial intelligence startup G42 in Abu Dhabi, which was revealed on Tuesday. Despite being ostensibly a private sector agreement, the major effect is to force the United Arab Emirates into the American side.
As part of the agreement announced on Tuesday, Microsoft President Brad Smith will be joining the G42 board, and the $3 trillion group will be able to sell a certain amount of cloud capacity to G42, according to a person with knowledge of the situation. Likewise, G42 is free to employ its AI models on any platform run by Microsoft. G42 must, however, cease using Huawei telecommunications equipment, which the US believes the Chinese government uses for spying purposes. This is an additional political condition.
China and the UAE are somewhat close, in part because China purchases a significant amount of oil from Abu Dhabi. In 2022, trade between China and the Middle East and North Africa (MENA) region reached $505 billion, a 75% increase from the previous decade. The UAE's relations with Washington have also been strained by the building of a covert Chinese port facility close to Abu Dhabi. However, there have already been indications of a change as the Gulf state makes big investments in creating an AI hub as part of a larger strategy to diversify away from oil. Because of fears that the chips would be shared with China, the United States banned the shipment of Nvidia-designed chips to the United Arab Emirates last year.
Microsoft does benefit greatly from this new deal. Despite having only entered the UAE in 2019, the Gulf has proven to be a challenging market for the company to sell its cloud products in due to regulations on the kinds of data that can be kept there. With the announcement on Tuesday, it now has an advantage over other cloud providers like Amazon Web Services. According to consultant McKinsey, the oil and gas sectors alone might produce $82 billion in EBITDA for the cloud storage industry by 2030. Additionally, G42 uses Microsoft's technology for a non-political reason: According to a person acquainted with the matter, Huawei's cloud storage service was not mature enough to meet the UAE's needs.
Nevertheless, with regards to the security procedures for the Microsoft agreement, US Commerce Secretary Gina Raimondo communicated with counterparts in Abu Dhabi. This gives the impression that it is comparable to Intel's recent participation in a $25 billion semiconductor contract in Israel, which was supported by the Washington government. According to the New York Times, the G42 purchase gives Microsoft the authority to audit how the software giant uses its technology, and also requires G42 to obtain consent before sharing its innovations with other countries. The UAE's portrayal of Switzerland, at least in AI, is becoming less and less credible.