EU Cloud Sovereignty – Emerging Geopolitical Risks

Cloud computing, powered significantly by US-based hyperscalers like AWS, Azure, and Google Cloud, is fundamental to innovation and business operations across Europe. However, using these powerful platforms brings the critical challenge of maintaining control over data and digital infrastructure, commonly referred to as cloud sovereignty. While these concerns traditionally focused on legal compliance, the landscape is shifting. Recent geopolitical shifts and economic pressures have made cloud sovereignty a renewed topic of concern for CIOs, CTOs, and business leaders. This article provides an overview of the current landscape and the key risks, and it explains the increasing relevance of this topic.

The Established Risk: Compliance with Data Protection Laws and the CLOUD Act

For years, European organizations’ primary cloud sovereignty concern has been navigating the complex legal environment surrounding data protection. European regulations, notably the General Data Protection Regulation (GDPR), impose strict rules on how personal data is handled, demanding high levels of control and limiting data access. The extraterritorial reach of US laws, notably the CLOUD Act, creates a potential conflict with European data protection principles, allowing US authorities access to data controlled by US providers regardless of their physical location. 

The Court of Justice of the European Union’s Schrems II judgement further complicated this landscape by invalidating the EU-US Privacy Shield framework for data transfers [1]. This significantly increased the compliance burden. Organizations transferring data to the US must conduct case-by-case Transfer Impact Assessments (TIAs). Often, “supplementary measures,” such as strong encryption with keys controlled within Europe, are necessary to guarantee operational access control. Regardless, a fundamental tension remains: data stored in Europe with a US provider might still be subject to US jurisdiction via the CLOUD Act, creating persistent legal uncertainty and compliance risks for European companies [2]. Non-compliance with GDPR carries severe penalties, including fines up to €20 million or 4% of global annual turnover, highlighting the gravity of this established legal conflict [3].

The New Frontier: Geopolitical Instability and Trade Wars

Beyond the legal data access framework, the current geopolitical climate and trade wars introduce new risks for European cloud users. The threat of tariffs presents a direct financial risk. Existing US tariffs on IT components are already impacting the global IT hardware supply chain, increasing the underlying costs for cloud providers to build and maintain data centers [4], putting upward pressure on customer service pricing. Additionally, escalating trade friction between the EU and the US could lead to direct tariffs on digital services imported from the US [5]. While initial discussions focused on areas like digital advertising, retaliatory measures could broaden to cloud computing, potentially increasing subscription costs significantly or leading to [5]. 

Increasing global trade tensions, protectionist policies, and the potential for politically motivated sanctions mean that critical digital infrastructure is no longer immune to international disputes. Cloud services, data flows, and technology access can become leverage points or targets in disagreements between nations. This situation creates significant operational vulnerability, as European companies exhibit a deep dependence on critical digital infrastructure controlled by US providers. This high degree of dependency means political decisions or escalating tensions could lead to sudden restrictions on access to essential cloud services, potentially disrupting or even crippling business operations in Europe.

The Urgency of Addressing Cloud Sovereignty

The risk landscape for European cloud users has broadened significantly. While managing GDPR compliance and the CLOUD Act conflict remains essential [1, 2], it’s no longer the only major sovereignty challenge. The possibility of service disruption, unpredictable cost increases due to tariffs [4, 5], or restricted access driven by geopolitical events moves cloud sovereignty from a primarily legal and compliance issue to a pressing strategic, operational, and financial one. 

Organizations must now assess their cloud strategies not only through the lens of data protection law but also considering the tangible risks posed by global trade instability and international political friction.

In our next post, we will explore the strategic options available to European organizations to develop a more resilient Sovereign Cloud Strategy, from enhancing safeguards within US clouds to leveraging European alternatives and adopting hybrid approaches.

Need help assessing your organization’s specific cloud sovereignty risks and developing a tailored strategy? Contact us today.

Sources:

1. European Parliament Briefing: The CJEU judgment in the Schrems II case (https://www.europarl.europa.eu/RegData/etudes/ATAG/2020/652073/EPRS_ATA(2020)652073_EN.pdf)
2. ISACA Industry News: Cloud Data Sovereignty Governance and Risk Implications… (https://www.isaca.org/resources/news-and-trends/industry-news/2024/cloud-data-sovereignty-governance-and-risk-implications-of-cross-border-cloud-storage)
3. GDPR Fines Database (https://gdpr-fines.inplp.com/) 
4. Forrester Blog: CIOs: Use Scenario Planning To Prepare For The Impact Of Tariffs On IT Costs (https://www.forrester.com/blogs/cios-use-scenario-planning-to-prepare-for-the-impact-of-tariffs-on-it-costs/)
5. Financial Times: Germany warns against EU hitting Big Tech in retaliation for Trump tariffs (https://www.ft.com/content/a0c081a7-b230-429a-8a3c-92bcfd32ff2d)