Saudi Arabia’s global ‘data embassy’ plan challenges traditional digital sovereignty

While countries rush to construct computer data facilities within their own territories for artificial intelligence, Saudi Arabia has announced plans for something different: data embassies spread across the globe.

So what is data embassy? Think of a data embassy as a regular embassy, but for information. The data sits in another country, yet the laws protecting it come from the nation that owns it. It’s an unusual approach that only two countries have tried before.

Estonia pioneered this idea back in 2017. Monaco followed later. Both nations keep backup copies of important government information in Luxembourg, designed as protection against hackers and natural disasters.

Now, as artificial intelligence demands grow, this concept might catch on. Countries facing power shortages, especially in Europe, could store data in regions with abundant electricity and resources. The information would still follow the home country’s rules.

Saudi Arabia sees an opportunity here. The kingdom wants to export data storage services instead of just oil. The country plans major investments in solar power, though experts worry about one problem: water. Data centers need massive amounts of water for cooling, and

This comes as Middle Eastern nations compete to become technology hubs. Global investors and tech companies are looking to the region for its wealth and growing talent pool, potentially changing where power sits in the technology world.

Making deals presents challenges

Setting up these data embassies won’t be easy. Viktor Mayer-Schönberger, who teaches internet governance at the University of Oxford, explained to CNBC that countries would need international agreements on legal authority. Right now, no such framework exists.
Both the country hosting the data and the country owning it would need guarantees that neither side breaks the agreement. “This will ultimately depend on the trust of the parties involved,” Mayer-Schönberger said.

Saudi Arabia wants to be the first G20 nation with such a system. This April, officials released a draft law outlining three types of data embassies. These range from the guest country keeping complete control to shared arrangements where Saudi courts could help foreign courts.

The move shows how competition in artificial intelligence is changing relationships between nations. Saudi Arabia has grown closer to the United States, though no specific partnership on data embassies has been announced. The two countries have established a “Strategic Artificial Intelligence Partnership” focused on “building and developing advanced AI infrastructure.”

Nations worldwide have pledged enormous amounts for AI projects. The European Union set aside $230 billion for such efforts.
Could this solve disputes like the TikTok situation, where American officials worried China accessed user data and influenced the 2024 election? Mayer-Schönberger doubts it. “It would require a complex bilateral treaty between China and the US that would take very long to negotiate,” he said. Given the mistrust between the nations, Americans wouldn’t believe China would keep the data secure.

Major technology companies Google and Microsoft already provide European customers with local data storage for sensitive information, along with special rules limiting U.S. government access. Whether these arrangements truly protect data “remains to be seen,” Mayer-Schönberger noted.

Unclear rules and real concerns

As globalization weakens and countries focus more on national security and economic competition, data sovereignty has become important. But regulations remain unclear.

Nathalie Barrera, who leads privacy and data regulations for Europe, Middle East, and Africa at Palo Alto Networks, pointed out that sovereignty means different things to different countries. “Everyone’s talking about it, but no one has defined it,” she told CNBC.

Her company’s clients want three things: control over their data and who sees it, reliable service that doesn’t stop, and protection from foreign governments accessing information.

Barrera compared data embassies to existing European laws. “This is not unsimilar than the extra territoriality effect of GDPR,” she explained. Data in America can still fall under European regulations. These embassies just offer another way to protect sensitive government information like tax records, health data, and administrative files.

Saudi Arabia offers attractive prices. Land costs less there, as does electricity and investment capital. The country sits between Europe, the Middle East, and Asia, making it geographically convenient.

“It makes sense if Saudi Arabia can offer data centre services at a lower cost than countries that need them,” said Hortense Bioy, who heads sustainable investing research at Morningstar Sustainalytics.

However, she warned about environmental concerns. “The rise of data centres introduces new ESG considerations which are now widely recognised, with carbon emissions and water intensity among the most pressing concerns.”

Despite abundant sunshine, Saudi Arabia still runs mostly on fossil fuels. Oil provided 64% of the country’s total energy in 2023, according to International Energy Agency figures. Countries might have to choose between controlling their data and protecting the environment.
Mayer-Schönberger remains doubtful about data embassies becoming widespread. “The nation state remains too powerful, and globalization is waning,” he said.

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