Semiconductors

Semiconductors have become the arena of a global strategic contest among the world’s major powers, a rivalry so intense that some now refer to these tiny chips as “the new oil.” Their economic and security value is immense, for microchips permeate every aspect of modern life, from consumer electronics and automobiles to advanced weapons systems. This pivotal role has fuelled a fierce technological race between the United States and China, one whose repercussions extend deep into the geopolitical sphere. Specialist reports underscore that the outcome of this innovation race in semiconductor manufacturing will ultimately determine which nation leads the development of artificial intelligence and its applications, a contest with profound strategic and economic implications.   The United States has taken decisive steps to safeguard its technological supremacy. Since 2022, it has gradually imposed stringent export controls on semiconductor technologies and equipment bound for China. These restrictions include bans on exporting advanced chipsets, supercomputers, and manufacturing tools, while dozens of Chinese firms have been placed on blacklists. The declared objective is to cripple China’s ability to access the technologies required to produce next-generation chips that could enhance its military or intelligence capabilities. This policy has been partially effective: it disrupted China’s semiconductor sector and pushed up the prices of certain rare chips. Yet it also provoked an assertive Chinese response aimed at mobilising domestic resources. Beijing has channelled vast financial and institutional support into developing indigenous innovations capable of surpassing existing technologies, raising the possibility of a sudden Chinese leap that could upend Western technological dominance. In other words, the weaponisation of technological sanctions has made Beijing even more determined to achieve semiconductor self-sufficiency, despite the formidable challenges it continues to face.   On the other hand, China has not remained idle in this confrontation. In addition to massive investments in its domestic firms, Beijing has leveraged trade pressure as a strategic tool against the West. A recent example came in October 2025, when China banned the export of chips produced by Nexperia, a European company operating factories in China, in retaliation for a Dutch decision to place it under state supervision and remove its Chinese chief executive. This abrupt Chinese move triggered a crisis for automobile manufacturers across Europe and Japan. The European Automobile Manufacturers Association warned that factories were on the brink of shutdown within days due to an acute shortage of essential chips. Major firms such as Volkswagen and Nissan cautioned that their semiconductor reserves were nearly depleted unless a swift diplomatic solution could be reached. Europe was also affected by other Chinese restrictions on the export of rare earth minerals, a countermeasure to U.S. sanctions. This escalating technological trade war is now threatening global industrial supply chains and prompting high-level political manoeuvres. Senior European Union officials have since sought negotiations with Beijing to mitigate the severity of these measures.   The politicisation of semiconductors has reached a point where they have become a strategic bargaining chip in the global geopolitical arena. The United States is not merely exerting pressure on China; it is also expanding the scope of its restrictions to encompass third countries, driven by fears that sensitive technologies might reach Beijing. In October 2023, Washington broadened its export controls to include any state suspected of re-exporting chips to China or other competitors, effectively requiring special licences even for the transfer of advanced semiconductors to its own allies in the Middle East. This position generated implicit discontent among regional states, which viewed it as an obstacle to their technological aspirations. Yet it also encouraged them to deepen cooperation with Washington while simultaneously developing their own national capacities in semiconductor manufacturing, a path both Saudi Arabia and the United Arab Emirates have recently pursued with growing determination. It is widely recognised that the epicentre of the global semiconductor industry lies in East Asia - specifically Taiwan, South Korea, and Japan - a reality that heightens the political sensitivities surrounding Taiwan, home to the semiconductor giant TSMC. Any military escalation in the region could send shockwaves through global chip supply chains, binding the semiconductor issue to international security as closely as to economic stability.   Thus, the competition over semiconductors has evolved into a driver of policy and diplomacy alike, shaping new trade alliances and security-linked agreements that grant technological privileges in fields such as artificial intelligence in exchange for strategic assurances. It is, in essence, a technological confrontation bearing the hallmarks of a modern Cold War, one that will profoundly reshape the maps of global alliances and conflicts in the years to come.   Investment in artificial intelligence (AI) has become a global priority, reflecting its immense economic potential and its transformative impact across virtually every sector. Recent analyses suggest that AI could add around $15.7 trillion to the global economy by 2030, a staggering figure that underscores the profound structural transformation expected to accompany its widespread adoption. The Middle East, too, anticipates substantial gains. AI is projected to contribute approximately $320 billion to the region’s economy by 2030, equivalent to 11% of its total GDP. The figure is even higher in technologically advanced Gulf states, where AI is expected to account for about 13.6% of the UAE’s economy (roughly $96 billion) and 12.4% of Saudi Arabia’s (around $135 billion) by 2030. These projections explain the mounting competition among governments and corporations to channel investments into AI and to design national strategies that will secure a foothold in the fast-evolving digital economy.   Globally, spending on artificial intelligence research and applications has more than doubled in recent years, as leading technology giants, including Microsoft, Google, and Amazon, compete to embed AI models into their services and products. This competition has sent semiconductor company valuations soaring. A striking example is Nvidia, whose market capitalisation reached $2.6 trillion by mid-2024 following its overwhelming success in the AI chip market. This technological revolution has also compelled policymakers to act. Today, more than sixty countries have adopted national AI strategies or established dedicated agencies to oversee their implementation. Major economies are now racing to secure the largest share of a global AI market projected to exceed $1 trillion annually over the coming decade.   For the Middle East, artificial intelligence represents a historic opportunity to diversify economies and transition toward knowledge-based societies. The Gulf states, particularly Saudi Arabia and the United Arab Emirates, stand at the forefront of this transformation, investing heavily in education, training, and AI-related research and development. In 2020, Saudi Arabia announced its National Strategy for Data and Artificial Intelligence, aiming to rank among the world’s top 15 nations in AI by 2030. The Kingdom has allocated substantial financial and human resources to realise this ambition, including the launch of a national company with a capital of $15 billion as a “national AI champion,” as well as a $40 billion global investment fund established in partnership with international investors. These figures reflect the seriousness of Saudi Arabia’s efforts to restructure its economy around knowledge, innovation, and technological leadership.   The United Arab Emirates has likewise taken an early lead. As far back as 2017, it appointed a Minister of State for Artificial Intelligence and launched the UAE Artificial Intelligence Strategy. In 2023, Abu Dhabi’s Technology Innovation Institute (TII) unveiled its large language model, Falcon 180B, trained on 180 billion parameters —a milestone that positioned the UAE firmly on the global map of algorithmic innovation. Meanwhile, Abu Dhabi’s G42 Innovation Hub has drawn worldwide attention after announcing a partnership with American technology companies to establish a supercomputing complex for artificial intelligence with a capacity of five gigawatts — the largest of its kind outside the United States. Under a special U.S.–UAE agreement, the facility will import up to 500,000 advanced Nvidia AI chips annually starting this year. The deal has been hailed as a major triumph for the UAE in its quest to become a global AI powerhouse, particularly after a period in which it was constrained by U.S. export restrictions under the previous administration.   Hence, nations that invest early and decisively in artificial intelligence stand to reap immense economic and strategic rewards. They will possess the capacity to boost productivity, enhance public services such as healthcare, education, and transportation through intelligent solutions, and create entirely new industries and employment opportunities. In other words, the balance tilts toward innovation-driven growth and job creation that far outweigh the potential risks, provided that sound legislation and adaptive policy frameworks accompany this technological evolution. It is from this perspective that the region’s determination to achieve AI leadership becomes clear: a drive embedded within a broader global race that will define the contours of the world’s most resilient and competitive economies in the decades to come.