Infrastructure assets such as desalination plants and data centres across the Gulf are being targeted by Iranian attacks as the war with the US and Israel intensifies.

This is causing growing concerns among infrastructure investors over the safety of their assets, but also underlying the strategic nature of these assets and reinforcing the need for more private capital in the sector.

The drone strike, which sources told Infralogic was carried out against the Ras Abu Jarjur facility operated by the Bahraini government, struck deep into the heart of the Middle East’s scarcest and most vital resource – water – given its heavy dependence on desalination.

“Striking Bahrain’s water desalination facility today is a concerning escalation for the GCC states,” Dania Thafer, executive director at Gulf International Forum, wrote in a social media post on 8 March, citing that between 70% and 100% of drinking water in several Gulf states comes from desalination.

“They are the backbone of national security and damaging them can quickly produce country-wide water crises affecting millions of people, making them extremely sensitive and dangerous targets,” Thafer added.

The attack in Bahrain hit a government-owned facility, but it also raised concerns for many private infrastructure investors such as Marubeni, Sumitomo, Engie and ACWA Power, as well as their lenders, which in the past decades have poured billions of US into desalination plants dotted around the Arabian Gulf, industry experts said.

With a capacity of 16 million imperial gallons per day (MIGD), the reverse-osmosis-based Ras Abu Jarjur plant is small compared with the dozens of giant desalination plants owned by these investors.

The majority of these desalination plants, which convert seawater into potable water using energy intensive processes, were developed starting in the late 1990s, and are integrated with gas-fired power generation plants that run 24/7, supplying millions of populations with potable water through extensive network of pipelines.

Source: Infralogic

The concern with desalination plants in particular is that they are highly concentrated and energy-intensive facilities, which makes them vulnerable if they become military or strategic targets, Mhamed Biygautane, senior lecturer of public management lecturer at University of Melbourne, told Infralogic.

An escalation of attacks targeting civilian infrastructure – with Israel also hitting large oil storage facilities in Tehran over the weekend – means the war is “entering dangerous territory”, Karen Young, senior research scholar at Columbia University’s Centre on Global Energy Policy, told Infralogic.

This means concerns are also growing that other strategic infrastructure assets – including privately-owned ones – could be next.

Other infra targets

Drone strikes also hit Amazon’s data centres in Abu Dhabi on 1 March causing widespread service outage, while government-owned and run airport facilities in the UAE and Kuwait, and the DP World-run Jebel Ali Port in Dubai have sustained damages leading to service disruptions or closure.

A senior executive with a Gulf-based data centre developer acknowledged that current data centre infrastructure across the region are “very vulnerable”, drawing concerns over private and government-led initiatives to build gigawatt-scale data centres particularly in Riyadh and Abu Dhabi, which both intend to become global AI hubs.

KKR, for instance, made its first data centre investment in the Middle East last year by acquiring a stake in the UAE’s Gulf Data Hub, with the two firms agreeing to invest USD 5bn in developing data centres in the region.

The fact that data centres require massive water for immersive cooling, and that the water infrastructure is being attacked, just doubled the risk, according to Jessica Obeid, energy policy consultant and Partner at New Energy Consult.

Morgan Stanley analyst Devin McDermott said that an extended outage of up to one month by Qatar could obliterate the global gas supply surplus. This has led to oil and gas prices soaring, with Brent Crude climbing to a high of USD 107.5 a barrel in the early hours of 9 March, up by 46% compared to prices before the war broke out.

“We still do not see attacks on major oil production sites, but shut ins start the same effect,” noted Columbia University’s Young.

Aside from upstream assets, global infrastructure investors have also poured vast sums of capital in recent years in oil and gas pipelines owned by regional giants ADNOC and Saudi Aramco, which are likely to be closely monitored.

One senior executive at an infrastructure fund with multiple assets in the region said the immediate focus is ensuring personnel security.

“We are looking at our most important assets, our employees and their safety. Do they want to leave, do they prefer to stay, and how do we accommodate [them]?” he explained.

The next priority is the safety of their physical assets, added the executive, who committed to deploy substantial capital in a port in one of the Gulf states, and keeping LPs updated. “Are these assets safe and if ports here are high targets, then could similar attacks happen again?”

Shipping disruptions in the Strait of Hormuz are meanwhile resulting in the delays of materials delivery. Investors and contractors are now fearing construction delays on some of their projects, and are reviewing contracts to determine who should shoulder which risks, and whether force majeur clauses need to be invoked, said one infrastructure lawyer in the region.

Long-term impact

Beyond the most serious immediate concerns, some industry experts said the conflict is drawing attention to the crucial role of infrastructure investment in the region.

“The unfolding events underscore the strategic importance of the region’s energy infrastructure in the global market,” said the regional infrastructure fund executive. “For us, it’s also a time to assess if this crisis offers opportunities long term.”

One short-term consequence is that some investors may be looking to selling their assets following the crisis, offering opportunities to the more committed investors.

“The region still needs a lot of infrastructure to be built, and we will be here when others will head for the hills. I expect infra funds and pension funds continuing to play a big role in building regional infra,” the executive said.

In terms of GCC water infrastructure specifically, Biygautane at the University of Melbourne noted that rather than reducing investment, the recent incidents are likely to reinforce the strategic importance of water infrastructure and accelerate investment in the sector.

“What may change is the logic of investment,” Biygautane said, citing that governments and investors will increasingly prioritise resilience, redundancy, and security alongside efficiency.

“This means more attention to backup capacity, storage reserves, diversification of water supply systems, and infrastructure protection,” he said, suggesting that the main direction of innovation is toward making water systems more resilient and less dependent on a small number of highly concentrated facilities, with the use of modular desalination technologies being a top measure reducing their vulnerability.

“In short, water infrastructure is likely to be treated even more explicitly as a matter of national security,” Biygautane said.