Gulf Nations Invest Billions in Water Security to Power AI and Industrial Growth

Gulf countries are keen to grow their industrial base and are pouring hundreds of billions into data centres and AI infrastructure to write the next chapter of their new-age economies. However, none of that is possible without the very basic resource: water.

The UAE, the Arab world's second-largest economy, is leading the race for AI investment. The capital, Abu Dhabi, is building Stargate UAE, a massive 1 gigawatt artificial intelligence supercomputing and data centre project, expected to cost more than $30 billion. AI-related investments for 2024-2025 in the UAE exceeded Dh543 billion ($147.9 billion), with global firms including Microsoft and KKR announcing major investments in the UAE.

The availability of water is critical for the UAE and its peers' push to expand their industrial base and lead the global AI and data centre race.

While water is an essential operational element to cool heat-generating data centres and water-guzzling industrial units, growth in population across the Gulf countries is also set to boost demand. Data centres, consisting of incredibly powerful servers with thousands of central processing units and graphic-processing chips, need to stay cool to avoid overheating. Chilled water systems and refrigeration towers, or air cooling, is required to keep temperatures in data centres in check. A typical data centre uses 300,000 gallons of water each day, equivalent to the demands of about 1,000 households, but large data centres can use an estimated 5 million gallons of water daily, according to Brookings.

Apart from the data centre push, the UAE is home to major industrial projects, and more are on the cards under the country's Make It In The Emirates push. The UAE is targeting an increase in the industrial sector's contribution to the country's gross domestic product of Dh300 billion by 2031, from the Dh133 billion level achieved in 2021. Global industrial water usage is estimated at 20 percent of the world's total consumption.

Abdulaziz Alobaidli, director general for regulatory affairs at Abu Dhabi's Department of Energy, stated that the UAE does not see water shortages affecting its new economy ambitions, as new desalination plants are expected to meet the rapidly rising demand. Abu Dhabi is currently building a desalination plant in Shuweihat, and another project was commissioned earlier this year. Safeguarding the marine source of water remains a top priority to ensure a reliable future supply, with the UAE utilizing multiple sources including the Arabian Gulf and the Gulf of Oman.

Meanwhile, the broader region faces severe water stress. Populations are growing rapidly, with Saudi Arabia reaching 37 million and the UAE reaching about 11.5 million at the end of last year, according to World Bank data. Gulf countries rank among the most water-stressed in the world, with the Middle East holding only 2 percent of the world's renewable freshwater. Between 2006 and 2024, the Middle East spent $53.4 billion on increasing desalination capacity, and an additional $26 billion is expected up to 2028.

Saudi Arabia, the Arab world’s largest economy, is diversifying its economy away from oil with multi-billion-dollar infrastructure investments and AI ventures, including $40 billion allocated through platforms like Humain. Qatar has similarly established Qai to manage AI infrastructure. To combat water scarcity, regional companies such as Khazna in Abu Dhabi, along with DataVolt and Alfanar in Saudi Arabia, are testing next-generation cooling systems like liquid cooling to cut water usage by up to 90 percent.