Crude prices are retreating after Brent touched $100 again last week, but Oilprice.com argues the risk to Big Tech’s planned $725 billion of AI spending is building. War-driven supply losses in the Middle East and a drop in Kazakh output have disturbed as much as a quarter of the world’s oil, and energy costs feed straight into data center budgets.
Big Tech’s leaders now plan to spend a combined more than $725 billion this year to pursue their artificial intelligence plans — and that money now runs through the oil market. Crude prices are retreating after Brent hit $100 again last week, as the United States and Iran paused hostilities over the weekend, yet the outcome of the war remains highly uncertain and the outlook for stock markets has weakened.
Last week stacked up adverse developments for anyone betting on growth. The oil price spike came as the Middle East war expanded to the Red Sea, where Yemeni Houthis attacked two tankers. Investors also faced President Donald Trump’s latest tariff salvo and a drop in Big Tech stocks after Alphabet revealed it had burned through $6 billion in cash in the second quarter because of its AI spending — the first negative quarterly cash flow since Google’s parent went public, the Financial Times noted.
The war spreads beyond Hormuz
The Houthis declared a maritime blockade on Saudi Arabia last week, then struck tankers in the Bab el-Mandeb Strait, showing market watchers that the war had spilled beyond the Strait of Hormuz — which remains almost entirely closed as well. More barrels are therefore blocked from reaching markets.
Ukraine’s war added to it, as drone attacks on the Caspian Pipeline Consortium network prompted a sharp reduction in Kazakh oil production. Together, these developments have disturbed as much as a quarter of the world’s oil and a solid portion of its gas. According to Helima Croft, head of global strategy at RBC Capital Markets, quoted by CNN: “The conflict has entered a decidedly more dangerous phase.”
Bearish oil scenarios keep evaporating
China cut its imports and tapped inventories to weather the initial shock, but those inventories are not endless, and China is getting nervous about the war — as shown by the 4% drop in oil prices last Friday after Reuters reported it was pushing for peace. Inventories are depleting elsewhere too, with governments pulling millions of barrels to cap retail fuel prices.
Refilling them costs money that is running low, given war-related inflation: CNBC reported that the Iran war was costing the average American household some $1,200 annually, per Moody’s Analytics chief economist Mark Zandi.
Why the hyperscalers cannot sit this out
Big Tech is already short on energy supplies given its planned AI data center growth, so any disturbance to energy commodity supply would aggravate that and push its spending higher still. Higher oil and gas prices inevitably result in higher inflation everywhere else, because energy costs underpin all other costs in an economy.
The chief market strategist of F.L. Putnam told Bloomberg last week he did not see how oil was going to really impact the hyperscalers. Oilprice.com’s Irina Slav counters that it can, and directly: when the price of oil goes up, so does the price of everything else, from food to semiconductors and other equipment.
Source: Oilprice.com
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