1. The Pentagon, Strategy And Unexpected Consequences
The Pentagon has floor after floor of offices full of strategists and planners. One assumes they analyse first, second and third order effects of any conflict, prepare Plan Bs, timings and so on. They surely knew that this war was not going to work out the way Trump and Netanyahu thought it would work out they thought so and they said, three-star general Kaine said so, payborn Trump the military may not be able to complete the mission.
And indeed, the world’s strongest military by far finds itself twelve days into a conflict and the Strait of Hormuz remains closed. Iran is pushing out drone boats laiden with explosives, so no tanker will risk that a nor will any insurer.
Most commentary focuses on the obvious consequences: higher oil prices and disruption to global shipping. But there is an overlooked question. What thought has gone into the effect on America’s technological competition with China?
After all, American global leadership depends in part on winning the technology race, and today that race centres on Artificial Intelligence.
---
2. AI Runs On Electricity
Artificial Intelligence is often presented as a triumph of software and algorithms. In reality it is also a massive industrial system that runs on electricity.
Training large AI models requires enormous data centres packed with specialised processors. These installations consume extraordinary amounts of power.
Here the comparison with China is uncomfortable. Over the past two decades the United States has added relatively little to its electricity generation and transmission capacity. China, by contrast, has expanded its grid at breathtaking speed, reportedly adding the equivalent of the entire American electricity grid in roughly four years.
If the future of AI depends on access to abundant electricity, then the underlying energy infrastructure matters as much as the technology itself.
---
3. The Hyperscalers And The Infrastructure Race
At the centre of this system sit the hyperscalers.
These are the giant technology companies that operate vast global cloud computing networks. Their infrastructure forms the backbone of the modern internet, supporting Artificial Intelligence, cloud services, streaming platforms and corporate computing systems.
Companies such as Amazon, Microsoft, Google and Oracle are building ever larger data centres across the world.
These projects require two things above all: power and capital.
Much of the investment comes from the companies’ own balance sheets. But a substantial portion is financed through borrowing. That means the economics of AI infrastructure depend heavily on stable financial conditions and relatively low interest rates.
Wars complicate this equation. Military spending increases government borrowing, which pushes bond yields higher. Higher yields raise the cost of financing the massive infrastructure that AI development requires.
• Amazon – through Amazon Web Services (AWS)
• Microsoft – through Azure
• Google – through Google Cloud
• Meta – operating huge internal data-centre networks
• Alibaba – dominant hyperscaler in China
• Tencent – another large Chinese cloud provider
---
4. Energy Prices And The Geography Of Data Centres
Energy prices also matter.
Many hyperscale companies have been exploring locations in the Gulf region precisely because of abundant and relatively cheap energy. Large data centres require reliable electricity at competitive prices in order to remain viable.
A prolonged disruption in the Strait of Hormuz pushes oil prices upward, increases energy costs globally and introduces uncertainty into energy markets.
This is hardly the environment that technology companies prefer when planning multi-billion-dollar infrastructure projects.
---
5. The Strategy
The ingredients required for success in the AI race are surprisingly mundane.
A modern and expanding electricity grid.
Low and stable interest rates.
Reliable energy supplies.
Oil prices somewhere in the $60 range and certainly well below $100.
In short, the geopolitical conditions that allow hyperscalers to build the digital infrastructure of the future.
American hegemony ultimately depends on technological leadership, so these under appreciated economic conditions matter as much as aircraft carriers or missile systems.
---
6. Glossary
Artificial Intelligence (AI) – computer systems capable of learning from data and performing tasks that normally require human reasoning or pattern recognition.
Hyperscaler – very large technology companies that operate massive global cloud computing infrastructure supporting AI, internet services and corporate computing.
Data Centre – a facility housing thousands of servers and specialised processors used to store and process digital information. Cf data centre v. AI data centre.
Electricity Grid – the network of power generation, transmission and distribution systems that deliver electricity to industry and households.
Strait of Hormuz – the narrow maritime passage between Iran and Oman through which roughly one fifth of global oil trade normally passes.
---
References
International Energy Agency – Electricity 2024
https://www.iea.org/reports/electricity-2024
U.S. Energy Information Administration – Electric Power Data
https://www.eia.gov/electricity
Bloomberg – AI Data Centre Power Demand
https://www.bloomberg.com/news/articles/2024-05-09/ai-power-demand-data-centers
McKinsey – The Rise of Hyperscale Data Centres
https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/the-coming-hyperscale-data-center-boom
0 comments:
Post a Comment
Keep it clean, keep it lean