Bahrain is eyeing a digital transformation.
Under Bahrain’s national artificial intelligence (AI) policy and its Economic Vision 2030, the Gulf country has begun work on shaping an AI-embedded economy.
In both private and public initiatives, Bahrain has adopted an approach to AI that emphasizes the practical application of the technology. This includes a significant focus on expanding AI in education and partnering with other countries on equipping the workforce to navigate the future AI economy.
Despite these efforts to integrate AI into the workforce, there is a gap in Bahrain’s current strategy. Yet Bahrain has a unique opportunity to advance robust AI-related technologies, given it is surrounded by water. The surrounding waters are shallow, with limited depth relative to open-ocean environments. Bahrain, therefore, could test the possibility of placing AI infrastructure, specifically data centers, under water. And doing so would contribute not only to Bahrain’s AI vision but also to wider climate-resilience and technology-related research.
High cost, but high potential
Underwater data centers (UDCs) offer several advantages, in that they use power more efficiently, being cooled by surrounding waters instead of water pumped in over land. China launched a UDC last year and reported that the data center reduces power consumption by more than 20 percent. Of course, such projects do face their own challenges, such as high deployment costs and concerns surrounding maintenance and the impact on marine life, such as localized thermal pollution and echolocation disruption.
Although it is more costly to build a data center underwater than to put one on land, such a cost could be well worth it for Bahrain. The kingdom encompasses only about three hundred square miles of physical land, but about 2,800 square miles in territorial water area. UDCs can help Bahrain optimize its space. Moreover, placing UDCs offshore offers a shorter distance for data to travel, reducing latency and enhancing local internet speeds if placed near densely populated coastal cities
A key challenge to the success of a UDC in Bahrain includes the high temperatures during the warmer seasons. UDCs operate on a temperature gradient, meaning that they are most efficient in low-temperature waters. But the waters around Bahrain are generally warm. In warmer temperatures, the power usage effectiveness of UDCs would start to decline and could require costly mechanisms such as liquid-cooling servers. But there are ways to optimize UDC design to support this. For example, Bahrain could connect renewable energy technologies such as wind turbines and solar panels to the UDCs. Powering them using offshore renewable power would reduce strain on local networks, as they would not be connecting to the electric grid. China has incorporated such technologies into its UDC in Hainan.
Capital expenses for data center builds are on the rise. It cost about $7.7 million per megawatt in 2020 and $10.7 million per megawatt in 2025 to build a facility. The global average for 2026 is forecasted at around $11.3 million per megawatt. UDCs are similarly expensive, though their pricing is not standard, with the technology in such early stages. But, for example, China said that it spent about $230 million for a twenty-four-megawatt facility off the coast of Shanghai. Assuming Bahrain constructs a small pilot UDC, such as a five-megawatt facility, this project would cost around $56.5 million, based on standard data center cost estimates. Such a small facility is probably more fitting to be an experimental data center rather than a commercial one. But it would be technologically relevant: A project of this magnitude would convey technological leadership without overstating the country’s comparative advantage or capacity to finance and construct a UDC.
With such an ambitious project, opportunity costs will always be present. Yet the high capital expenditures will contribute to long-term resilience against land scarcity, desert-related hardware degradation, and water depletion. Such a project would signify technological innovation and leadership, making a UDC a strategic long-term investment and high-value sovereign asset for Bahrain. Furthermore, it could help Bahrain contribute insight into technological approaches to boost climate-change resilience by offering a testing ground for hybrid and liquid cooling systems in warmer waters.
An investment opportunity
To limit the challenges associated with UDCs, Bahrain could turn to outside expertise to construct a smaller UDC facility. To be sure, there are financing roles that Bahraini sovereign investment funds should play, and there are also opportunities to bring in financing from existing US-Bahrain frameworks. But Microsoft, for example, has an ongoing presence in the country and has already built a UDC for research purposes through its Project Natick. While the project is no longer active, the findings from it indicated that UDCs are reliable, are practical, and use energy more efficiently.
Given the UDC’s potential role in climate research, the stakeholders involved could structure this financing as a joint research and resilience initiative tied to climate-resilient infrastructure grants or bilateral technology cooperation. Additionally, the facility could host limited sovereign cloud workloads, particularly for sensitive government data. Lastly, this facility can support AI workloads that are intertwined with maritime analytics, port logistics optimization, or regional security coordination, a purpose that is relevant to Bahrain’s geography and existing security partnership with the United States today.
For example, an initiative like this would align with the Comprehensive Security Integration and Prosperity Agreement (C-SIPA) and show the United States’ continued interest and investment in C-SIPA. This agreement aims to increase cooperation in fields such as science and technology and promote a more prosperous Middle East. A jointly anchored US-Bahrain project would strengthen the existing alliance infrastructure, deepen technological alignment, and tie US capital and standards more firmly to Bahrain’s digital ecosystem, creating long-term dependencies and reinforcing the credibility of US commitment in the digital domain.
Additionally, Bahrain has established a United States Trade Zone in Salman Industrial City and is one of the few nations in the region with a free trade agreement with the United States. Once qualified by Bahrain’s Ministry of Industry and Commerce, US firms can capitalize on the free trade agreement, including exemptions from customs duties on imported raw materials and 100 percent foreign ownership in Bahrain, which they may not come across elsewhere in the Middle East.
But more broadly, given China’s advancements in the AI industry and its establishment of the first UDC, the United States should consider Bahrain as a potential testing ground for gaining a competitive edge against China. The United States is, after all, seeking reliable, politically aligned digital partners in the region.
UDCs present an opportunity for Bahrain and, by consequence, the United States—if the two countries decide to set sail on this partnership together.
Minwa Alkhalifa is an undergraduate student at Boston College studying international studies. She previously served as a junior fellow with Atlantic Council’s Scrowcroft Middle East Security Initiative, where her research focused on Gulf security and artificial intelligence policy in the Middle East.
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Image: Boats are seen at a shore in Manama, Bahrain on March 3, 2024. Photo by Jakub Porzycki/NurPhoto via Reuters.