Key insights
- The Strait of Hormuz is a critical chokepoint not only for oil but also for approximately 20% of global data flows via undersea cables. Threats to these cables, highlighted by potential fees from Iran, pose a significant risk to major tech companies and AI infrastructure investments in the region. Developing alternatives is costly and time-consuming, potentially introducing a new geopolitical risk premium to tech infrastructure, which could negatively impact related equity investments.
Investing.com -- The Strait of Hormuz has emerged as a potential vulnerability for global internet infrastructure, with threats to undersea fiber-optic cables raising concerns among major technology companies and investors, according to a note from Yardeni Research.
Recent comments from Iran about imposing fees on internet cables passing through the strategic waterway have highlighted risks to a network that carries a significant share of global internet and financial data traffic.
Subsea cables running through the Strait of Hormuz handle as much as 20% of global internet and financial data flows, making the route a critical link between Europe, the Middle East, and Asia.
Major technology companies, including Amazon, Alphabet’s Google, Meta Platforms, and Microsoft, are assessing potential vulnerabilities tied to the route amid heightened geopolitical tensions in the region.
The report said alternatives such as overland fiber routes, Red Sea connections, and new links through Oman and Saudi Arabia would require substantial investment and could take years to develop.
The global network of more than 500 undersea cables carries over 95% of international data traffic. Previous disruptions caused by earthquakes, accidental damage, and suspected sabotage have highlighted the infrastructure’s exposure to physical risks.
The report noted that concerns over potential cable disruptions could add a new geopolitical risk premium to technology infrastructure investments, similar to the impact geopolitical tensions have had on energy markets.
The issue could also complicate efforts by Gulf nations to establish themselves as major artificial intelligence hubs. Saudi Arabia, the United Arab Emirates, and Qatar have invested heavily in AI infrastructure, data centers, and partnerships with global technology firms.
Companies including Microsoft, OpenAI, xAI, Nvidia, and AMD have been involved in projects tied to the region’s AI expansion plans.
At least seven major cables serving Gulf-based AI projects pass through the Strait of Hormuz, creating a potential bottleneck for cloud computing, financial transactions, e-commerce platforms, and data centers.
The report said investment in alternative cable routes and overland fiber networks is likely to accelerate as governments and technology companies seek to reduce reliance on a single strategic chokepoint.
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