How far can Gulf tech ambitions go amid U.S.-China rivalry?

Saudi Arabia (KSA) and the United Arab Emirates (UAE) are investing heavily in digital technology to drive their economic diversification away from oil. While the Gulf countries are exploring a range of tech partners, including from China, KSA and the UAE are eager to secure access to U.S. non-military digital technology, particularly AI components, semiconductors, cloud computing, and surveillance technologies. However, U.S. legal and regulatory restrictions have made it difficult for Gulf states to acquire it.

Over the past ten years, the U.S. government has tightened control over sensitive digital technologies, their value chains, and who can access them. The U.S. government has adopted a more conservative economic statecraft in regulating access to U.S. digital technology because of the growing U.S.-China competition. For KSA and the UAE, this means stricter export controls and trade regulations. Their expanding economic ties with China have raised red flags with U.S. lawmakers over the potential transfer of U.S. sensitive technologies. Washington fears that U.S. tech or foreign products containing U.S. components – such as Taiwanese microchips - could be accessible to China through Gulf partnerships.

Export controls and regulatory barriers

The Department of Commerce’s Bureau of Industry and Security (BIS) enforces rigorous regulations and export controls under the Export Administration Regulations (EAR) and the Foreign Direct Product Rule (FDPR) to control the flow of U.S. sensitive technologies. The EAR governs the transfer of U.S. digital tech to U.S. competitors and restricts sales to listed entities based on national security concerns. Meanwhile the FDPR extends Commerce’s jurisdiction and allows BIS to restrict the foreign sales of products that incorporate U.S.-origin technology, software, or manufacturing to blacklisted entities. Through these measures, U.S. regulators have expanded greater control over foreign-made products containing U.S. equipment, particularly in the artificial intelligence field, semiconductor industries, and advanced computing industries, by restricting which foreign companies they can be sold to.

These measures aim to insulate the global supply chain of U.S. digital technology from competitors, like China. They also make it difficult for states who do expansive business with China to obtain U.S.-origin AI and semiconductor technology. This has created a major regulatory hurdle for KSA and UAE. Under their national development plans, both countries increasingly rely on cooperation with leading Chinese tech giants, like Huawei, SenseTime, and Bytedance, which remain on the U.S. trade restriction list. This gives the U.S. considerable leverage in its ability to restrict and control export licenses for Gulf companies doing business with blacklisted Chinese entities. The restrictions also impact Saudi and Emirati tech firms which work with Chinese suppliers to source critical components. As a result, Gulf-based companies doing business with listed Chinese entities are unlikely to source semiconductors or AI components from key supplies like TSMC or Samsung.

Concerns over transfer & rights abuses

U.S. policymakers are increasingly concerned that providing KSA and the UAE with non-military digital technology could result in unauthorized Chinese access and technology transfer. These concerns, while not new, have deepened as GCC countries have expanded economic ties with China. Chinese companies are enmeshed in the Gulf region’s AI ambitions, and play a critical role in its digital infrastructure projects, ranging from smart cities to cloud computing. Growing U.S. concerns also extend to dual use items which are prompting more stringent export licensing and scrutiny for U.S. companies working with Gulf companies. For their part, Gulf companies which choose to enter the licensing process to acquire export approval often face complex and politically-sensitive vetting processes, which often result in denial and occasionally negative public attention. However, in some cases, Gulf companies, like the UAE’s AI-firm G42, were forced to fully divest from Chinese investment to reassure U.S. regulators. This helped secure U.S. government approvla for Microsoft’s $1.5 billion investment into G42, and with it, G42’s access to advanced AI chips and Microsoft’s .

Some U.S. officials also remain skeptical of the Gulf’s use of sensitive technologies–artificial intelligence, cybersecurity, and encryption tools–for intelligence or surveillance purposes, following high-visibility scandals like the UAE’s DarkMatter scandal. Both Saudi Arabia and the UAE face deep mistrust in Washington over what scholars term as the Gulf’s “digital authoritarianism” for their use of surveillance technology for domestic repression, surveillance, and monitoring of dissidents. BIS also includes restrictions which limit third party access to surveillance technologies. KSA and the UAE could face the Magnitsky Act sanctions if accused of using U.S. digital tools for human rights abuses. Furthermore, their collaboration with blacklisted Chinese companies like SenseTime, which develops surveillance tools used on nations in China, is likely to deepen U.S. concerns over potential misuse.

U.S. legal obstacles, while not insurmountable, pose near-term hurdles for Saudi and Emirati tech ambitions. As both navigate U.S.-China competition, they will face increasing pressure to choose a preferred long-term partner.