From the Middle East to Data Centers & much more
We explore Middle East strategic deals and how they are trying to up the AI game, while Iranian oil is still making its way. And is Turkey going the conventional way?
The Saudi Arabia - Israel deal
While the headlines for the last two weeks have been concentrating on the disaster that’s happening through the Israel – Hamas war, many believe that one of the reasons behind the timing of the Hamas attack came at a moment when a deal between Saudi Arabia and Israel (once sworn enemies) was about to get finalised. We explore the salient contents of this deal facilitated by the US and if it gets officially signed off by the end of 2023, how this can reshape the dynamics of the Middle East.
Historically the Saudis had been instrumental in keeping world oil prices at reasonable rates. However, as they are embarking upon their economic diversification, the nation’s policy has shifted to “Saudi first”.
The Saudis have been pressing for higher oil prices as they pour tens of billions of dollars into megaprojects aimed at transforming the kingdom’s economy. So using oil prices as the bargaining chip, Saudi Arabia has said it would be willing to boost oil production early next year if crude prices are high in return for a defense pact with the US.
The deal is centered on Saudi’s recognition of Israel as a sovereign nation and a deal establishing diplomatic relations would expand Israel’s ties to the Arab world.
Saudi’s gain from the deal: enhancing their defense system with access to US weapons, security guarantees from the US, and helping build a civilian nuclear program.
The deal would also benefit Israel, which would gain a powerful partner in the region and access to new markets and opportunities. Israel has already normalized relations with four Arab countries in the past year: the United Arab Emirates, Bahrain, Sudan, and Morocco.
The gain from the US perspective will not just be the huge sales of arms and nuclear technology to the Saudis, it would try to balance China’s increasing influence in the region, as well as counter Iran’s military ambitions.
Oil from Iran going to China
China has not been deterred by sanctions from buying Iranian oil in the past, as the crude was often masked as coming from other sources, especially Malaysia.
Iranian oil has been in high demand among China’s independent refiners.
China’s imports of Iranian oil surged to 1.5 million barrels a day in August, the highest level in 10 years.
However, there’s the risk that if the USA comes up with stringent sanction enforcement, which probably is not happening right now, then this flow might be hampered, and alternate sources (like Russia) are likely to capitalise on the same.
Is Turkey going the more conventional way?
For a period between 2003 to 2013, Turkey grew consistently with an average growth of 5.5% (inflation-adjusted). Fueled by the low cost of credit, big investments in construction, infrastructure, and industry enabled that growth. However, growth at all costs has resulted in huge inflation since 2021. But Turkey’s leadership, to date, never touched the low-interest rates and instead had mentioned that high-interest rates cause inflation and do not arrest that.
In 2023, President Erdoğan announced a plan that contradicts the unconventional policies he has advocated for years.
He said he would use strict monetary policy to reduce inflation to single digits.
This came after the official data showed that consumer prices rose by about 60 percent.
It is reported that Turkey has spent a few billion dollars since 2021 for currency interventions aimed at steadying the lira, which has been facing a rapid fall since 2021.
AI focus in the Middle East
Saudi Arabia has been trying to lead the development of AI, especially in LLM, in the Middle East (along with UAE) with a focus on bespoke models for Arabic speaking population. Currently, there’s a battle going on between China and the US on technology transfer not just in AI services, but also helping Saudi Arabia in obtaining AI chips and building the supercomputers.
While Chinese organisations have been cut off by the US in getting chips from Nvidia and AMD, that blockage is not applied to middle east countries.
On the other hand, China has signed deals with the Middle East to provide access to Chinese university’s research outputs as well as talent exchange programs.
A newer version of the Falcon model, potentially more powerful than Meta’s Llama 2, has been launched by UAE. They have also released an Arabic language LLM model.
Some numbers for data and Data Centers
In 2022, around 100tn gigabytes of data were created and consumed across the world. To give a perspective, this would account for 4.5tn times the entire Wikipedia.
The above number is estimated to be doubled by 2025.
ChatGPT 3 has been estimated to cost between $3.2 million & $4.5 million. As to the cost of training of GPT-4, it is estimated to cost around $100 million.
In 2022, it is estimated that data centers across the world had consumed electricity to the tune of around 1% of the world’s total energy demand.
Ireland leads as the country with a major amount of data centers - around 82 of them. These data centers consumed around 19% of total Ireland’s energy in 2022. This is estimated to rise to 28% by 2031.