Sr (Dr) Samuel Tan, Founder & CEO, Olive Tree Property Consultants, discusses the impact of the US/Israel and Iran war on data centers in Southeast Asia in an exclusive interview with w.media.
1. What is the impact of the war on data centers in Southeast Asia?
Southeast Asia is a critical node in the global digital economy, home to major hubs like Singapore, Malaysia (Johor), and Indonesia. The conflict affects this region through three primary channels:
i) Shipping & Logistics Bottlenecks: The Strait of Hormuz blockade and instability in Middle Eastern maritime routes force a massive rerouting of cargo. For SEA data centres, this means “big-ticket items”—such as specialized cooling systems, generators, and UPS (Uninterruptible Power Supply) components face longer lead times and substantially increased shipping costs.
ii) Energy-driven Inflation: SEA nations, many of which are net importers of energy or rely on global oil/gas pricing benchmarks, are seeing operational expenditures (OpEx) soar. Data centres are power-hungry; as global energy prices spike (oil up 8 per cent, gas up 20 per cent), the cost of running existing facilities in SEA increases, potentially leading to higher pricing for colocation and cloud customers.
iii). Shift in Investment Flows: There is a potential data centre exodus from the Middle East. Southeast Asia stands as a primary beneficiary of this shift. As the Middle East is reassessed for infrastructure war risks, hyperscalers (Google, Microsoft, AWS) may accelerate their “China Plus One” or “Middle East Plus One” strategies, diverting capital toward the perceived relative safety of SEA and India.
2. How will the supply chain disruption affect SEA data centers?
The infrastructure war changes the risk profile for data centers. Firstly, there is a risk of resource scarcity. As global supply chains tighten, SEA operators compete with Europe and North America for the same limited pool of Tier 1 infrastructure components. Secondly, there may be project delays. New builds in regions like Malaysia or Indonesia may face delays of 6 to 12 months as equipment is diverted or stuck in transit.
3. What are the possible mitigating actions?
For data center operators and investors in Southeast Asia, the following strategies are becoming essential:
- Operators need to localise their supply chains. To bypass maritime volatility, operators are looking to source more components from regional manufacturing hubs (e.g., Vietnam, Thailand, and China) rather than relying on shipments that must traverse Middle Eastern waters.
- Adopt advanced risk modelling by moving beyond traditional uptime redundancy (N+1); operators are now incorporating “geopolitical resilience” into their designs. This includes more detailed modelling for physical infrastructure threats and diversifying the geographic location of backup data sites.
- Enable energy autonomy and efficiency to mitigate energy price volatility; there is an accelerated push towards self-generated power (on-site solar or fuel cells) and “extreme efficiency” cooling technologies (like liquid cooling) to lower the total power draw.
- Implement inventory buffering by moving away from “Just-in-Time” delivery toward “Just-in-Case” stockpiling.
- Operators are pre-ordering critical infrastructure components (transformers, switchgear) years in advance and storing them locally to insulate projects from sudden shipping disruptions.
- As the conflict puts subsea cables on a knife-edge, SEA operators are investing in more diverse cable landing points to ensure that a disruption in the Red Sea or Gulf does not sever connectivity between Asia and Europe.
4. Your final thoughts?
There is a significant shift in the global data centre landscape due to the escalating Iran-US conflict. While the immediate physical damage has been felt in the Gulf (such as the drone strikes on AWS facilities in the UAE and Bahrain), the ripple effects are profoundly impacting supply chains and operational costs globally, including in Southeast Asia. It is forcing Southeast Asia to transition from a focus on rapid growth to hardened resilience. The region is likely to see an influx of investment as a “safe harbour,” but only if it can manage the rising costs of energy and logistics.