Saudi Arabia Plans Data Embassies Amid Push for Sovereign AI

As nations scramble to build sovereign AI infrastructure, Saudi Arabia is exploring a more unconventional model: the data embassy.

A data embassy stores a nation’s data outside its physical borders while remaining subject to the originating country’s legal regime, much like a diplomatic mission.

The idea is not brand‑new. Estonia launched the world’s first data embassy in 2017, followed by Monaco in 2022; both are housed in Luxembourg and serve as backup repositories for critical data, protecting against cyber attacks and climate‑related disruptions.

With artificial intelligence demanding ever‑larger compute capacity, the data‑embassy model could allow countries to locate massive data centers in regions with abundant power and favorable climate, yet retain jurisdictional control. Energy availability is a primary bottleneck for AI expansion, especially in Europe, where power constraints are slowing rollout.

Saudi Arabia is betting that this approach will help it transition from an oil‑focused economy to a data‑exporting powerhouse. The kingdom is heavily investing in solar power, but its limited water supplies—essential for cooling high‑density data centers—pose a logistical challenge. The initiative also reflects Riyadh’s broader ambition to outpace regional rivals and become the Middle East’s AI hub, attracting deep‑pocketed investors and a growing talent pipeline.

Operationalizing data embassies requires bilateral agreements on jurisdiction, yet no comprehensive legal framework currently exists. Viktor Mayer‑Schönberger, professor of Internet governance at the University of Oxford, notes that such treaties would hinge on mutual trust and detailed assurances that neither party breaches the terms.

Saudi Arabia aims to become the first G20 nation to codify a data‑embassy regime. Its draft Global AI Hub Law, released in April, outlines three tiers of embassies—from full autonomy for the guest nation to hybrid structures where Saudi courts can assist foreign judiciaries.

The proposal underscores how the AI competition is reshaping geopolitics. While the United States has established a “Strategic Artificial Intelligence Partnership” with Saudi Arabia that includes joint development of advanced AI infrastructure, there has been no indication that the U.S. will serve as a preferred partner for data‑embassy projects.

Data‑sovereignty has surged to the forefront as nations reassess globalization, national security, and economic competitiveness. Yet the regulatory path for data embassies remains vague. “Sovereignty means different things to France than it does to Spain,” says Nathalie Barrera, head of privacy and data regulations for the EMEA region at Palo Alto Networks. “There is no universally accepted definition.”

Palo Alto Networks identifies three core client concerns: autonomy (who can access the data and under what conditions), digital resilience (continuous service availability), and foreign‑government data access. In this framework, data embassies sit between full autonomy and partial jurisdictional overlap, offering a potential compromise for highly sensitive datasets such as tax, health, and administrative records.

Saudi Arabia’s appeal lies in its lower land and electricity costs, as well as its strategic position bridging Europe, the Middle East, and Asia. “If Saudi Arabia can deliver data‑center services at a lower total cost of ownership than traditional hubs, it becomes an attractive option for multinational enterprises,” notes Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics.

However, the sustainability trade‑off cannot be ignored. While the kingdom enjoys abundant sunshine, its power grid remains heavily dependent on fossil fuels—approximately 64 % of total energy came from oil in 2023, according to the International Energy Agency. The resulting carbon and water footprints raise ESG concerns that could offset the cost advantages.

Big‑tech firms such as Google and Microsoft already provide European customers with localized cloud regions and governance frameworks designed to limit U.S. government data access. Whether a data‑embassy model will offer comparable or superior protection remains uncertain.

“The nation‑state is still the dominant actor, and we are seeing a retreat from globalization,” Mayer‑Schönberger concludes. “Data embassies are an interesting concept, but they face steep legal, technical, and geopolitical hurdles before they can become mainstream.”