The Toll Booth

The ceasefire of 8 April remains formally in place but functionally fragile. Trump this week described its survival probability as "one percent."¹ Tehran's response has been to accelerate institutional consolidation of the Strait of Hormuz as a commercial and digital chokepoint rather than pursue settlement terms. The Persian Gulf Strait Authority, which went live on 18 May with an active X account and a published permit process, represents the operational formalisation of that strategy.² Iran has also explicitly named the US hyperscalers (Google, Meta, Microsoft, Amazon, Oracle, Nvidia and Palantir) as targets, a designation that appears to place the Gulf AI infrastructure built under Trump's May 2025 tour under direct physical threat.³

The Trump-Xi Beijing summit concluded on 15 May with more headline warmth than structural progress on technology. H200 licences were cleared for approximately ten Chinese firms during the summit, but Trump confirmed on Air Force One that China "chose not to" approve the purchases because "they want to develop their own."⁴ CSIS noted post-summit that the meeting revealed little progress on the most consequential dimensions: AI, cyber operations, export controls, and digital sovereignty.⁵ The energy side of the story moved more decisively: NextEra's $67 billion acquisition of Dominion Energy, announced 18 May, is the week's most consequential transaction for long-term PE infrastructure positioning.⁶

On 16 May, the chairman of Iran's Parliament National Security and Foreign Policy Committee confirmed that Tehran would "unveil soon" the full details of a new Hormuz transit mechanism. Two days later the Persian Gulf Strait Authority launched its official X account and published its permit process: vessels must submit ownership, insurance, crew manifest and cargo details before a transit permit is issued and a fee collected.² Reports indicate some commercial vessels have already paid fees of up to $2 million per transit, denominated in Chinese yuan. For submarine cables, the parallel regime, declared by Iran's military spokesman on 9 May, requires operators including Google, Meta, Microsoft and Amazon to obtain Iranian permits, pay transit charges, and cede maintenance rights to Iranian firms exclusively.⁸ Alcatel Submarine Networks suspended all Hormuz regional repair operations following the 9 May declaration, according to maritime intelligence provider Windward.⁹

A calibration worth noting: the International Cable Protection Committee has stated that Hormuz accounts for less than one percent of global international bandwidth, meaning the global internet exposure is more limited than some reporting suggests.⁸ The concentrated exposure is in regional Gulf connectivity, financial messaging systems including SWIFT, and cloud synchronisation for the Gulf hyperscaler infrastructure committed under Pax Silica. For PE portfolios with Gulf data centre or cable assets, the repair suspension may be more immediately material than the bandwidth figure implies; a cable fault cannot currently be remediated under any credible timeline.

Trump's May 2025 state visit to Saudi Arabia, Qatar and the UAE produced a series of AI infrastructure commitments that repositioned the Gulf as a global AI hub: Stargate UAE (5GW capacity in Abu Dhabi), Microsoft's $15.2 billion UAE investment, Amazon Web Services's $5.3 billion Saudi commitment, Google Cloud's $10 billion Saudi joint venture with PIF, and Saudi Arabia's Humain initiative backed by Nvidia GB300 chips.³ The conflict that began on 28 February has placed that architecture under physical threat. An Iranian strike damaged an Amazon data centre in Dubai in early March 2026.³ IRGC-affiliated media have since named Google, Meta, Microsoft, Amazon, Oracle, Nvidia and Palantir explicitly as entities whose Gulf infrastructure may face targeting.

The Pax Silica commitments were underwritten against a security framework that assumed US deterrence would be sufficient. The Iran conflict and its aftermath appear to have altered that calculus. For PE investors with exposure to Gulf co-location, hyperscaler tenancy, or sovereign AI development partnerships, the physical security of the underlying assets (not just the cable connectivity) appears to warrant reassessment against the current environment.

On 15 May, Governor Spanberger signed legislation directing Virginia's State Corporation Commission to take "all steps necessary" to ensure data centres pay their fair share of electricity costs, ending a period in which capacity market costs, which rose from approximately $28 per megawatt-hour in 2023 to $329 in 2025, had been partly socialised across the residential customer base.⁷ The legislation as enacted uses SCC discretion rather than an explicit cost-shift mechanism; the quantum remains uncertain, but the directional signal to the market appears unambiguous. Virginia's $1.6 billion annual data centre tax exemption also remains unresolved in the budget standoff between the Senate (seeking elimination) and the House (seeking environmental compliance tie-in).

On 18 May, NextEra Energy announced an all-stock acquisition of Dominion Energy for $67 billion, a 21% premium to Dominion's prior-Friday close, creating the world's largest regulated utility and combining two of the largest nuclear fleets in the United States.⁶ Dominion's CEO noted that the company had connected more data centres than any other US utility. The NextEra-Dominion combination positions the merged entity to serve over 30 active data centre hubs by year-end. Regulatory approval is expected to require 12 to 18 months, with Virginia rate proceedings likely to intensify during that window. The Wisconsin and North Carolina tariff reforms from Issue 008 now have a Virginia companion and a utility-scale M&A confirmation; assets with captive generation or fixed PPAs appear increasingly well positioned relative to grid-dependent peers.

The Trump-Xi summit in Beijing on 14-15 May produced headline trade stabilisation (tariffs held at 30% following the May 12 truce, a US-China Trade Council and Investment Council announced, Xi invited to Washington for 24 September) alongside notable gaps on the technology dimensions that most directly affect digital infrastructure investors.¹⁰ Reuters reported on 14 May, citing three people familiar with the matter, that the US Commerce Department had cleared roughly ten Chinese firms including Alibaba, Tencent, ByteDance, JD.com and Lenovo to purchase Nvidia H200 chips, with a 75,000-unit cap per customer; Lenovo publicly confirmed the approval.⁴ Trump confirmed on Air Force One, according to Bloomberg, that China "chose not to" approve the purchases because "they want to develop their own."¹² Tencent's chief strategy officer stated Chinese GPU supply would increase progressively through 2026; an Alibaba executive noted that its T-Head proprietary GPUs had reached scaled mass production. Chinese AI platforms appear to be operating under a domestic mandate to build on Huawei's Ascend compute stack rather than Nvidia hardware.

The investor implication is distinct from the reversal risk this publication tracked in Issues 008 and 009. The prior concern was that US export controls would tighten again, blocking Nvidia access to China. The emerging concern is that even where licences exist, the Chinese market for US AI hardware may be closing by domestic policy choice. For investors underwriting AI data centre positions whose revenue model assumes Chinese customer demand for US-standard GPU compute, the Beijing framework appears to warrant a structural review rather than a policy-monitoring posture.

• 01
  For assets with Gulf data centre or cable exposure: has physical security been independently assessed since the Amazon Dubai DC strike in March? Does the operator's insurance confirm coverage for intentional state-linked physical attack under current conflict conditions?

  Iran naming of hyperscalers; Amazon Dubai DC strike — CNN Business, 31 Mar 2026
• 02
  For assets dependent on Hormuz or Red Sea cable connectivity: does the SLA contain a force majeure carve-out that applies to the PGSA permit regime? Has legal counsel confirmed whether the PGSA declarations constitute a trigger under the contract's applicable law?

  PGSA institutionalisation — Windward / Al Bawaba, 18 May 2026
• 03
  For Gulf AI infrastructure positions with sovereign co-investors: have the original Pax Silica deal structures been reviewed against the current conflict security environment? Does the co-investment agreement address physical asset loss or operational suspension in an active conflict zone?

  Pax Silica commitments; Iran threats to hyperscalers — Digitimes, 23 Mar 2026

• 04
  For Virginia data centre assets: has the underwriting model been updated for the Virginia SCC legislation signed 15 May? The $329/MWh capacity market cost trajectory appears to be the variable most likely to move further as the SCC exercises its new discretion.

  Virginia Mercury / Inside Climate News, 15-18 May 2026
• 05
  For US data centre assets in Virginia specifically: does the deal model account for the NextEra-Dominion merger approval proceedings over the next 12-18 months? Virginia rate politics are active and the SCC proceedings during this window may produce cost outcomes that diverge from current assumptions.

  NextEra / Dominion announcement — CNBC / SEC Form 425, 18 May 2026

• 06
  For AI data centre positions with Chinese customer revenue: does the revenue model assume Chinese customers will continue to procure US-standard GPU compute as the primary training and inference hardware? If so, has the Huawei Ascend domestic mandate been modelled as a base-case scenario rather than a downside?

  H200 licences issued but not taken up; Huawei Ascend mandate — AI News, 19 May 2026
• 07
  For infrastructure positions where Nvidia holds equity in the anchor customer: has the deal team validated what proportion of contracted capacity is supported by demand from entities in which Nvidia holds equity versus independently contracted end-customer demand? Exit buyers appear likely to apply a discount to the former.

  Nvidia equity positions — CNBC, 21 May 2026

• 08
  For fund structures with Gulf sovereign co-investors in AI-adjacent assets: has a CFIUS posture review been initiated in light of the Pax Silica security environment deterioration? A preventive review appears likely to require less remediation than a reactive one.

  Gulf sovereign co-investment; CFIUS elevated risk
• 09
  Does the ownership chain include any entity within scope of the BIS 50% Rule effective 10 November 2026? Five and a half months remain. Has external export compliance counsel been engaged to map the full structure? The Beijing summit produced no signal of deadline relaxation.

  BIS 50% Rule; Beijing summit technology outcomes — CSIS, 21 May 2026

• Conduct a physical security review of Gulf data centre and cable landing station assets. The PGSA permit regime and Iran's explicit naming of US hyperscalers indicate a materially changed threat environment. For PE portfolios with direct Gulf exposure, an independent physical security assessment before the next deal committee appears prudent; the Amazon Dubai DC strike in March suggests the threat is not purely declaratory.
• Reassess Virginia and adjacent US market power cost models. The SCC legislation signed 15 May, the NextEra-Dominion regulatory overlay, and the unresolved $1.6 billion annual tax exemption standoff may each affect cost assumptions independently. Models underwritten before May 2026 may not reflect the current Virginia regulatory trajectory.
• Review AI data centre revenue models that assume Chinese GPU demand for US-standard hardware. The Beijing framework appears to indicate that Chinese platforms are adopting a domestic hardware mandate regardless of licence availability. This appears to be a structural revenue risk for positions dependent on Chinese enterprise or hyperscaler tenancy, not a policy-monitoring item.

• Develop captive power and fixed PPA strategies for data centre holdings across Wisconsin, North Carolina, and Virginia. Three states have now moved in the same direction on data centre power cost allocation. The NextEra-Dominion transaction suggests that utility-scale regulated power access may become a distinct underwriting differentiator. Assets with dedicated generation appear likely to command a durable multiple premium over grid-dependent peers as this pattern continues to spread.
• Develop exit narratives that address the Nvidia circular investment discount. As Nvidia's equity position in the AI infrastructure stack becomes better understood by the financial sponsor community, exit buyers may apply a discount to contracted capacity that cannot be validated as independent end-customer demand. Building the evidence base before the exit process begins, not during it, appears to be the lower-risk approach.

• Commission BIS 50% Rule compliance mapping before Q3 2026. 10 November is five and a half months away. The Beijing summit produced no relaxation of the deadline or framework. Operators with indirect PRC-linked counterparties would benefit from external counsel engaged well in advance, given the complexity of ownership-chain mapping required.