Executive Summary
The February-March 2026 Middle East conflict exposed three critical vulnerabilities for middle powers: concentration of compute infrastructure in geopolitically sensitive regions, dependency on foreign cloud platforms subject to extraterritorial data access claims, and the inadequacy of existing export control frameworks to prevent technology weaponization. Iran designated 18 US technology companies including Nvidia, Microsoft, Google, Palantir, and Oracle as legitimate military targets, signaling that technology neutrality has ceased to exist in active conflict zones.
Middle powers occupy an analytically distinct position. Unlike the US and China, which pursue technology dominance, middle powers face an asymmetric choice: adopt foreign infrastructure (accepting exposure to coercive leverage) or incur substantial investment costs to build domestic alternatives that remain structurally dependent on imported components. India's AI infrastructure relies significantly on foreign compute platforms and components, despite India's February 2026 unveiling of a human-centric AI framework that attracted $200 billion in investment commitments and positioned India as a creator of AI.
The evidence suggests that complete technology sovereignty is unachievable within the current global architecture. Instead, the strategic question for middle powers is narrower: identify which specific technology layers warrant sovereignty investment (typically deployment and policy), and build resilience against disruption at critical chokepoints. Open-weight ecosystems are maturing into a credible alternative at the deployment layer, with the goal of sovereignty at strategic layers and infrastructure points.
Key Findings
- Conflict converts commercial technology into military targeting vectors.
- Supply-chain concentration has shifted from geography to chokepoints controlled by non-state actors.
- Export controls are backfiring, accelerating innovation in sanctioned countries.
- Gulf states are building AI infrastructure as a hedge against oil dependency, but at concentrated risk.
- Data sovereignty and innovation face a direct policy trade-off that middle powers have not yet resolved.
The Vendor Lock-In Paradox
Operation Sindoor, the May 2025 India-Pakistan conflict demonstrated India's AI-assisted targeting capabilities, fought in the context of the same underlying dependency where infrastructure runs on foreign servers, meaning hardware partnerships look like strategic dependence rebranded as self-reliance. This pattern repeats across middle powers: they adopt advanced technology platforms to gain operational capability, only to discover that adoption forecloses meaningful sovereignty options.
Global dependencies on US and Chinese technology are unavoidable, but increased sovereignty over the deployment of AI will allow smaller countries to develop their own technological paths; mistrust of US data governance and technology infrastructure shapes middle powers' national AI and cloud procurement strategies, pushing countries towards sovereign cloud solutions, domestic compute capacity and open-source models that reduce exposure to foreign jurisdictions, with growing concerns about the US CLOUD Act even among allies.
The interplay between export controls and technology sovereignty creates cascading risk. When great powers impose controls, middle powers accelerate indigenous development (often inefficiently). When controls are lifted or relaxed, middle powers face pressure to abandon costly domestic efforts. Several Chinese measures on rare earth elements were suspended until November 2026 after US President Trump and Chinese President Xi reached an agreement, creating uncertainty for countries trying to diversify supply chains away from Chinese materials. Beijing will retain its chokehold on the critical minerals market and therefore its leverage over various industrial economies through the use or threat of export controls; however, this leverage may erode over the long term.[^1]
The Contested Infrastructure Layer
The EU and Germany have built a digital state on infrastructure they do not control; AI systems are embedded in critical operations ranging from municipal services to the Bundeswehr while lock-in windows close; in great power competition, tech dependence amounts to strategic submission. This observation applies with even greater force to middle powers, which lack the economic scale to build redundant systems. Mapping exposure to third-party technology vendors and assessing the resilience of cloud and IT security solutions is critical, including evaluation of technology providers' business continuity and disaster recovery plans, with contractual reassurances on contingency plans for regional infrastructure disruption and backup infrastructure outside the affected region.[^2]
The February 2026 Middle East conflict validated these concerns. The US undersecretary of state for economic affairs touched on the need for interconnectedness amid the AI boom while working in tandem with technological sovereignty, noting lessons from conflict with Iran and the closure of the Strait of Hormuz: it's about what happens when the physical infrastructure of civilisation, the chokepoints, corridors, cables and ports, become the battlefield. For middle powers, this translates into a clear operational imperative: infrastructure is strategic. Regional instability has catalysed a highly active cyber threat environment with substantially increased risk of state-linked cyber activity aimed at creating operational instability, disrupting critical services, and gathering intelligence.
Strategic Implications For Middle Powers
The evidence points to three viable pathways, none costless:
Pathway 1: Managed Dependence with Contractual Protection. Middle powers accept that they cannot build self-sufficient technology ecosystems, but negotiate deep contractual guarantees around data residency, algorithm transparency, and service continuity. Approaches to managing relationships with US AI infrastructure that prioritize policy and technological coordination may reduce certain single-point vulnerabilities. Rather than eliminating risk, such approaches change its character, shifting from single-point vulnerabilities to distributed, recoverable ones, and strengthening political alignment without recreating the structural vulnerabilities of the oil era. This works only if the great power is willing to honor contracts during conflict, which the 2026 Iran situation has already falsified.
Pathway 2: Regional Digital Alliances with Mutual Adequacy Agreements. Around 75% of countries now enforce some form of data-localization or data-residency regulation; for enterprises and cloud providers, the implications affect cloud architecture and data management strategies, AI development, global scalability, and cross-border collaboration. The GCC's January 2026 mutual data protection adequacy agreements signal that middle powers can build regional frameworks that reduce dependence on unilateral great-power guarantees. Sovereign clouds are becoming a strategic priority in the Middle East, with governments focusing on data sovereignty, AI scaling, and trusted national digital ecosystems; the UAE government's partnership with Microsoft and Core42 to build sovereign cloud and AI Hub in Abu Dhabi underscores how sovereign, AI-native cloud platforms are now central to these strategies.
Pathway 3: Open-Source and Open-Weight Technologies at the Deployment Layer. DeepSeek's release in January 2025 was a development of note, showing middle powers with limited primary inputs such as data and compute that less costly open-source alternatives to major proprietary models might be a feasible pathway to sovereignty. This pathway does not eliminate dependence on hardware, but it does reduce dependence on proprietary software ecosystems controlled by US or Chinese firms. It requires investment in AI engineering talent and a willingness to operate systems that lag behind proprietary models in performance.
Key Assumptions
| Assumption | Supporting Evidence | Falsifying Evidence | Impact if Wrong |
|---|---|---|---|
| Commercial technology vendors will not remain neutral in state conflict | Iran's March 2026 designation of 18 US tech firms as military targets; AWS facility disruption in UAE in 2026; vendors become embedded in conflicts | If no major vendors face targeting in future conflicts or if they successfully maintain operational independence from state pressure | Middle powers could continue to rely on foreign vendors without expecting coercive leverage; vendors would retain credibility as neutral platforms |
| Data sovereignty cannot be achieved through infrastructure location alone | CLOUD Act allows US access to data stored anywhere; research indicates physical location no longer guarantees sovereignty | If US authorities fail to exercise CLOUD Act authority or reverse course on extraterritorial data access claims; if courts rule CLOUD Act application to allied states is unlawful | Middle powers could achieve confidentiality through location, reducing need for encrypted or distributed architectures; reliance on offshore infrastructure would remain viable |
| Export controls may accelerate innovation in sanctioned countries rather than slowing technology development | DeepSeek breakthrough with half the compute; evidence of innovation responses to sanctions pressure | If Chinese or Iranian technology progress slows materially over next 3-5 years; if sanctioned actors fail to develop viable indigenous alternatives to restricted technologies | Great powers' export control strategies would prove effective; middle powers would face less competition from sanctioned states and could rely on containment as a long-term strategy |
| Middle powers cannot achieve semiconductor self-sufficiency economically | No government has achieved true self-sufficiency in semiconductor manufacturing to date; CHIPS Act committed $50B federal, spurring $348B private investment across 18 projects in 12 states through 2030 | If cost of advanced fab construction drops 50%+ through process innovations; if modular or distributed fabrication becomes viable at commercial scale | Regional governments could pursue autonomous fab development without dependence on partnerships; self-sufficiency timelines would accelerate from 15+ years to 5-8 years |
Counterarguments
- Middle powers are overstating technology sovereignty risk. Critics argue that the Iran incident and AWS disruption are rare events, and that the global track record shows technology vendors do adapt to geopolitical stress without wholesale abandonment of customers. Today, the global sanctions framework is broader and more complex; enforcement has intensified and evasion tactics have adapted; organizations now face a sanctions environment shaped as much by geopolitics as by regulatory frameworks, requiring deeper data visibility, stronger cross-functional controls, and adaptable policies capable of keeping pace. Vendors have strong financial incentives to maintain service, and the compliance burden on great powers is non-trivial. This counterargument underestimates the selective enforcement risk: during high-intensity conflict, even vendors with incentives to maintain neutrality face government pressure (direct or regulatory) to comply with state restrictions.
Indicators To Watch
| Indicator | Current State | Warning Threshold | Time Horizon |
|---|---|---|---|
| Commercial cloud provider outages in conflict regions per quarter | 1-2 in 2026 Middle East (AWS, Azure incidents) | 4+ major incidents causing >24 hours downtime; vendor enforcement of geographic service restrictions | 6-12 months |
| Adoption of sovereign cloud platforms (GCC, India, ASEAN) as percentage of national government IT spend | <10% in 2026 (early stage) | >30% indicating systemic shift away from US/Chinese platforms | 18-24 months |
| Geopolitical disruption events triggering US export control or OFAC enforcement actions against data flows | 2-3 in early 2026 (Iran targets, limited vendor response) | 5+ enforcement actions with material business impact; vendor inability to operate in multiple jurisdictions simultaneously | 12 months |
| Alternative (non-US, non-China) semiconductor foundry capacity for advanced nodes (<5nm) | Near zero in 2026 | >20% of global capacity outside US/Taiwan/China; viable alternative for middle powers | 24-36 months |
| Critical minerals supply diversity (tungsten, gallium, rare earths sourced from >3 countries) | Concentrated in China (60-92%) | >40% from non-China suppliers for key materials; <60% China dependence for any single critical material | 24-36 months |
Decision Relevance
Scenario A (~50%): Incremental great-power competition without sustained high-intensity conflict. Export controls remain in place but enforcement remains selective; regional tech ecosystems develop in parallel to global platforms; middle powers can maintain dual-stack infrastructure (domestic + foreign) at acceptable cost. Recommended action: Invest in data localization frameworks and regional digital alliances while maintaining operational integration with global vendors where feasible. Build modular architectures that allow rapid switching between domestic and foreign components under disruption.
Scenario B (~35%): Extended regional conflict with technology targeting and supply disruption. Conflicts in Middle East, South Asia, or Indo-Pacific trigger sustained targeting of digital infrastructure and vendor enforcement of geographic service restrictions. Supply chains for semiconductors and critical materials experience multi-month disruptions. Recommended action: Accelerate diversification of cloud providers and critical-material sources; negotiate long-term supply contracts with force-majeure clauses that preserve service during conflict; invest in emergency compute capacity (distributed, offline-capable systems) that can sustain core government and critical-infrastructure operations for 30-90 days without external inputs.
Scenario C (~15%): Rapid consolidation around two competing technology spheres (US-aligned vs. China-aligned). Great powers impose increasingly restrictive export controls and data-access rules; middle powers face binary choice between ecosystems with limited interoperability. Regional frameworks fracture under pressure. Recommended action: Choose alignment early and invest heavily in specialization within chosen ecosystem (e.g., if US-aligned, specialize in semiconductor packaging and AI chip design; if China-aligned, focus on rare-earth processing and battery manufacturing). Accept reduced technology diversity but gain predictable access to critical inputs within the chosen sphere.
Analytical Limitations
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Satellite and signals intelligence on vendor compliance with great-power pressure during conflict is not publicly available. The extent to which AWS, Azure, Google Cloud, or Alibaba Cloud have modified service terms during the 2026 Middle East conflict is unknown; inference is based on commercial incentives and regulatory frameworks, not observed behavior under stress.
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Regional digital adequacy frameworks are nascent (GCC mutual adequacy only finalized January 2026). Their ability to withstand sustained geopolitical pressure or malicious exploitation is untested. Failure of regional frameworks would force middle powers back to bilateral vendor partnerships with great powers.
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The timeline for open-source AI and open-weight model viability is uncertain. DeepSeek's breakthrough in January 2025 is a data point of one; it remains unclear whether open-source models can scale to match proprietary systems in specific high-stakes applications (e.g., autonomous weapons, critical-infrastructure control) where performance margins matter operationally.
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The cost of technology sovereignty is opaque. Governments rarely publish full budgets for digital transformation and infrastructure resilience. Comparisons across countries are difficult because accounting methodologies and hidden subsidies vary.
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Export control evasion tactics are evolving faster than public documentation. Transshipment routes, intermediary entities, and dual-use goods reclassification are reported qualitatively but not quantified systematically.
Evidence base includes government agencies (Asian Development Bank, US Congress, SIPRI), think tanks (Carnegie, CSIS, Brookings, MEI, DGAP), industry research (PwC, Verdantix, Sourceability), academic institutions (Harvard Business School, Cambridge, ETHZ), news organizations (Reuters, TechCrunch, The National), and compliance specialists (Clyde & Co, Morgan Lewis). Geographic coverage spans Middle East (Israel, Iran, UAE, Saudi Arabia, Qatar), South Asia (India), Indo-Pacific (Taiwan, Japan, Australia), Europe (Germany, UK, EU), and China. Evidence quality is highest on export control frameworks and technology vendor behavior (assessed-B sources), moderate on supply-chain chokepoints and infrastructure resilience (assessed-C), and lowest on classified intelligence regarding operational security of diplomatic and military systems during conflict (assessed, derived from open-source inference).