The Grid is Not the Middle East’s Advantage in the AI Race
At least not right now.
Summary
There’s a common perception that the natural energy abundance of Gulf states1 means that they also have abundant and cheap grid-connected electricity, making Gulf states naturally well-suited for supplying energy to data centers.
This is probably not right. While it’s true that the Gulf is energy-rich, most of that energy is in the form of oil, which is ill-suited for electricity production. Because of this, most Gulf states import natural gas to produce electricity, and subsidize electricity prices to keep them artificially low. Even subsidized electricity prices in the Middle East are often higher than prices in the US. The Gulf also has much lower grid capacity — with combined capacity less than a fifth of the US grid — and can likely grow its absolute capacity less quickly. For now, the US grid remains better positioned to power data centers.
The Gulf’s Grid
You can get cheap electricity from natural gas, but not oil
Most Gulf states are rich in oil, but scarce in natural gas.2 Countries like the UAE and Saudi Arabia do not have a natural gas surplus the way they do with oil (see figure 1).
Natural gas, not petroleum, is usually used to produce electricity. Petroleum is more expensive than natural gas, and oil-fired power plants are less efficient than natural gas power plants: oil-fired power plants have a thermal efficiency of around 30%, while combined cycle power plants (a type of natural gas power plant3) have a thermal efficiency around 60%.4
The UAE imports natural gas to support its domestic electricity production. Saudi Arabia, somewhat unusually, does burn oil to produce electricity, producing more electricity with oil than any other country. Saudi Arabia has indicated that it aims to transition to more natural gas for electricity production to mitigate the high costs of oil.5
Importing natural gas and burning oil are expensive ways to generate electricity. To keep electricity prices low, most Gulf states subsidize fossil fuel consumption for electricity production (see figure 2); energy subsidies are generally common in the Arab region. The US, by contrast, is a net exporter of natural gas, which accounts for about 40% of US electricity generation. The US has no broad federal subsidies for electricity consumption.6
Even with subsidization, Gulf electricity prices are comparable to the US
Before getting into price levels, it’s worth emphasizing a notable difference between the US and Gulf electricity rate systems: the United States has much more heterogeneity in electricity prices than Gulf countries, because US electricity rates vary at a sub-state level.
Saudi Arabia, Qatar, and Bahrain each have one rate system for the whole country. One region in Oman, Dhofar, has separate rates, but the rest of the country faces one rate system. In the UAE, each Emirate or group of Emirates (the Northern Emirates set rates together) sets standard electricity tariffs that apply across the whole region.
Meanwhile, electricity rates vary at the sub-state level in the US. In total, the US has around 3,000 local utilities each able to set different rates. This means that nation- or state-level average prices can hide local utilities with notably cheap (or expensive) electricity, with utility-level rates differing by a factor of more than 15 across the US.7
Figure 3 shows industrial electricity prices in different regions in the United States and the Gulf. Kuwait, Oman, and Saudi Arabia’s industrial rates are cheaper than the average industrial rates of any state in the US, while Qatar, the UAE, and Bahrain have rates that are more expensive than some US states (notably, the UAE has especially expensive electricity compared to the US).
Importantly, however, because of US sub-state variation in electricity prices, even countries like Kuwait have more expensive rates than several sub-state regions in the United States. I’ve only included a few as examples here, but local utilities like Oklahoma Gas & Electric and Chelan County Public Utility Department offer cheaper electricity rates than any of the lowest industrial rates in the Gulf.8 In short: there is cheaper industrial electricity to be found in the United States compared to the Gulf, even if many US states have more expensive electricity.
Remember, as well, that these are mostly subsidized rates. In addition to standard subsidization across all rates (with the exception of Qatar), several of the rates included in this chart have been lowered through additional targeted subsidization. For example, Saudi Arabia announced a special low rate for cloud computing operators in 2021, and Abu Dhabi announced the Electric Tariff Incentive Program (ETIP) in 2021 to provide lower rates to economically valuable facilities, with the most valuable facilities receiving the greatest amount of subsidization (ETIP A). It’s entirely possible that hyperscalers would face rates even lower than these if the region’s utilities wanted to offer additional incentives to data center companies – though the Gulf’s advantage there would be their ability to provide subsidies, not, intrinsically, their grid.
The Gulf’s grid is small
US grid capacity is much larger than the grid capacity of GCC states. The combined grid capacity of Saudi Arabia, the UAE, Bahrain, Qatar, Oman, and Kuwait was only 17% of the capacity of the US grid in 2024 (see figure 4).
And the US lead is growing in absolute terms – over the last 5 years, the United States added 135 GW, while all GCC states combined added about 33 GW.9 (In relative terms, the Gulf is growing somewhat faster than the US’s grid – the Gulf’s grid capacity has increased by about 3.4% annually over the last 5 years, compared to about 2.2% in the US, mostly driven by growth in the UAE’s electricity capacity. Even so, the Gulf is a long way from consistently adding more capacity annually than the US).
The fact that the US has more total grid capacity does not necessarily mean that there’s more available grid capacity in the US, since the larger population and industrial capacity of the US means that there is also greater demand for electricity. However, the US’s larger grid is probably still a real advantage in accommodating additional data center demand, for a few reasons:
The US likely has more grid-related resources, including skilled labor, infrastructure manufacturers,10 and specialized construction equipment. This probably makes the US better-equipped to build capacity quickly.
Because the US’s grid is larger, grid improvements that are proportional to grid capacity unlock greater capacity in the US. For example, curtailment policies could theoretically unlock around 98 GW of extra capacity in the US, including several regional systems that could each accommodate at least 10 GW of extra capacity.11 Assuming comparable grid utilization in the Gulf, these practices could probably unlock less than 20 GW in the Gulf.12
The US likely has more unused interconnection locations. For example, US data centers could potentially use the interconnection points from retiring coal plants, rather than having to build new interconnection infrastructure.
What does this mean for the US?
The US has a structural advantage when it comes to supplying energy to data centers. It has a large grid with varied energy sources. It also has abundant domestic natural gas, mitigating reliance on imported energy (or oil).
That being said, the supremacy of the US grid is not guaranteed. Although the US grid has grown more quickly in absolute terms, countries like the UAE have seen faster grid growth in percentage terms and begun to reduce their reliance on hydrocarbons. And efforts to improve the US grid often face mammoth permitting requirements (literally), among other regulatory barriers.
The factors working against the US are mostly regulatory, not structural. Permitting reform for generation and transmission projects and streamlining the load-side interconnection process are certainly not trivial, but are doable. Structurally, the grid is well-positioned to remain a US advantage.
Thank you to GovAI research staff and Georgia Adamson for feedback on a draft of this post.
Specifically, GCC member states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE).
There are two main types of natural gas power plants: simple-cycle and combined-cycle. Simple-cycle systems have a single turbine that converts natural gas into electric power. Combined-cycle power plants use the heat emitted by the first turbine to produce steam that powers a steam turbine, reducing the heat loss.
Thermal efficiency measures the percent of input energy that is converted into electricity. A 30% efficiency rate means that 30% becomes electricity and 70% is lost as heat.
About 40% of Saudi Arabia’s electricity generation came from oil and around 50% came from natural gas in 2023. Saudi Arabia aims to produce about 70% of its electricity with natural gas by 2030.
The total amount of explicit energy subsidization in the US is quite low compared to other countries. Most federal energy subsidies in the US in 2022 took the form of tax credits to producers, and about half of subsidies were associated with renewable energy production. The US has some direct consumption subsidies, the largest being the Low Income Home Energy Assistance Program (LIHEAP). However, these affect a small number of consumers (as of FY2024, LIHEAP served about 6 million households, or less than 5% of households in the US).
Chelan, WA offers industrial electricity at around 3 cents/kWh. Certain customers in Lanai, HI pay over 50 cents/kWh for electricity. (Despite the high electricity costs, Hawaii actually has 9 data centers, including a 1.5 MW one. Hawaii is usefully located for low-latency trans-Pacific traffic).
The method of electricity generation varies among these US utilities with notably inexpensive electricity. Chelan County produces its electricity through hydropower, using several dams on the Columbia River. Oklahoma Gas & Electric produces the vast majority of its electricity using natural gas and coal, with plans to add another 0.5 GW of natural gas capacity by 2026.
Since 2000, the US added 525 GW; the GCC added 173 GW.
For example, a majority of US distribution transformer consumption is sourced domestically. This is very likely not true in the UAE.
According to estimates by Norris et al. 2025, PJM, MISO, and ERCOT could respectively accommodate an additional 17.8, 14.8, and 10.0 GW at 0.5% curtailment.
Assuming the load factor (i.e., the ratio of average demand to peak demand) is similar in the US and the Gulf, the Gulf could unlock an additional 213/1294*98 ≈ 16 GW. The Gulf’s grid is sufficiently different that the curtailment estimate probably doesn’t scale precisely, so this should be treated as a ballpark estimate.
An excellent debunk here. Will we get to read more about the UAE's exagerrated timelines and unmet commitments for data center construction?