Microsoft just sealed an AI energy deal with ADNOC, one of the largest oil companies in the UAE. This comes after a year of intense diplomacy, where Microsoft played a key role in a U.S. strategy to curb China’s influence in the Gulf.
This partnership is part of a broader push by the U.S. to align the UAE with American technological interests. The UAE is trying to transform its oil wealth into an AI powerhouse, and this agreement comes on the heels of a September pact aimed at strengthening ties between the two nations.
The deal is significant because it positions Microsoft in the middle of the climate conversation. On one hand, Microsoft is committed to helping ADNOC achieve net-zero carbon emissions; on the other, it needs support in developing renewable energy to power its data centers, which have a huge appetite for electricity.
This tension was clear at the recent COP 28 climate conference in Dubai, where Microsoft was finalizing a $1.5 billion investment in G42, another UAE entity focused on AI and data infrastructure. This investment occurred while ADNOC’s head, Sultan Ahmed Al Jaber, led discussions to cut fossil fuel reliance.
One pressing question arises: why does Microsoft need this partnership to explore renewable energy? A significant amount of electricity for data centers already comes from renewables, largely due to heavy investment from major U.S. tech firms. Masdar, the renewables division of the UAE’s sovereign wealth fund, is a partner in the deal, further linking this initiative to the country’s broader energy transition strategy. Masdar holds stakes in key projects like the Dogger Bank wind farm in the UK, poised to be the world’s largest.
The UAE wants to position itself as a leader in AI, highlighted by developments like the Falcon language model, the first of its kind in Arabic. However, it faces challenges as the global shift away from fossil fuels threatens its oil-dependent economy. Al Jaber acknowledges a looming crisis fueled by rising energy demand from AI data centers, especially given that hot weather in the region makes cooling these facilities particularly energy-intensive.
Cooling energy costs can jump by 50% in the Middle East compared to cooler areas where most data centers are based. While energy prices are generally lower in the Gulf, the overall expenses for running these centers still add up significantly.
In response to these energy challenges, the UAE is broadening its cleaner energy approach, emphasizing liquid natural gas as a less polluting option compared to oil. Al Jaber made this point clear at a recent global energy conference, focusing on the countries of Africa and Asia that are experiencing rapid population growth and industrialization—regions where the UAE plans to strengthen its investments in AI, energy, and infrastructure.
Microsoft’s business strategy aligns with this, having already committed $1 billion to AI initiatives in Kenya. The UAE’s AI minister, Omar Sultan Al Olama, underscored the country’s role as a critical gateway to markets in Africa and Asia. He drew parallels to the Cold War arms race, highlighting the importance of competition in developing AI technologies.
The UAE has made moves to steer clear of Chinese tech, paving the way for deeper cooperation with the U.S. This includes a significant investment fund that Microsoft has set up with BlackRock and other financial institutions.
As Microsoft works with ADNOC, it aims to make the UAE’s gas exports more competitive while enhancing the environmental performance of its energy systems. The company will help establish an infrastructure for battery storage to support the output from what is expected to be the world’s largest solar farm in the coming years. Al Jaber and Microsoft’s Brad Smith will be key players in driving this effort forward.