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Economy of Bahrain

The first Gulf state to discover oil, Bahrain's reserves are expected to run out in 10-15 years. Accordingly, Bahrain has worked to diversify its economy over the past decade and has stabilized its oil production at about 40,000 barrels per day (b/d). Revenues from oil and natural gas currently account for approximately 10% of GDP yet currently provide about 75% of government income. The state-owned Bahrain Petroleum Company refinery built in 1935, the first in the Gulf, has a capacity of about 260,000 b/d. Saudi Arabia provides most of the crude for refinery operation via pipeline. Through an agreement with Saudi Arabia, Bahrain also receives half of the net output and revenues from Saudi Arabia's Abu Saafa offshore oilfield.

The Bahrain National Gas Company operates a gas liquefaction plant that utilizes gas piped directly from Bahrain's oilfields. Gas reserves should last about 50 years at present rates of consumption. However, rising domestic demand spurred by a recent development boom has highlighted the need to increase gas supplies. The Gulf Petrochemical Industries Company is a joint venture of the petrochemical industries of Kuwait, the Saudi Basic Industries Corporation, and the Government of Bahrain. The plant, completed in 1985, produces ammonia and methanol for export. Growth in the hydrocarbons sector will be contingent upon new discoveries--Bahrain awarded exploration rights to Malaysia's Petronas and the U.S.'s Chevron Texaco after the resolution of Bahrain's long-standing territorial dispute with Qatar, but no meaningful finds have been announced to date. Bahrain's other industries include the majority state-owned Aluminum Bahrain (Alba)--which operates the largest aluminum smelter in the world outside Eastern Europe with an annual production of about 843,000 metric tons (mt) in 2005 after the completion of an expansion program--and related factories, such as the Aluminum Extrusion Company and the Gulf Aluminum Rolling Mill. Other plants include the Arab Iron and Steel Company's iron ore pelletizing plant (4 million tons annually) and a shipbuilding and repair yard.

Bahrain's development as a major financial center has been the most widely heralded aspect of its diversification effort. Bahrain is a regional financial and business center; international financial institutions operate in Bahrain, both offshore and onshore, without impediments, and the financial sector is currently the largest contributor to GDP at 30%. Over 370 offshore banking units and representative offices are located in Bahrain, as well as 65 American firms. Bahrain has also made a concerted effort to become the leading Islamic finance center in the Arab world, standardizing regulations of the Islamic banking industry. It currently has 32 Islamic commercial, investment and leasing banks as well as Islamic insurance (takaful) companies--the largest concentration of Islamic financial institutions in the Middle East.

Bahrain is working to develop other service industries such as information technology, healthcare, and education. The government has used its oil revenues to build an advanced infrastructure in transportation and telecommunications. The state monopoly--Batelco--was broken in April 2003 following the establishment of the Telecommunications Regulatory Authority (TRA). Since that time, the TRA has granted some 63 licenses in the interest of promoting healthy industry competition.

Bahrain plans to expand its airport, one of the busiest in the Gulf. More than 4.8 million passengers transited Bahrain International Airport in 2005. A modern, busy port offers direct and frequent cargo shipping connections to the U.S., Europe, and the Far East. To boost its competitiveness as a regional center, Bahrain is building a new port and has privatized port operations.

The government of Bahrain moved toward privatizing the production of electricity and water by licensing Al Ezzal to construct an independent power plant at a cost of $500 million. The company commenced operations in May 2006. In January 2006, the government announced the sale of the Al Hidd Power Plant for $738 million to Hidd Power Company, a consortium of British, Japanese, and Belgian companies.

Regional tourism is also a significant source of income. The government continues to favor large-scale tourism projects. It opened the only Formula One race track in the Middle East in 2004, and has awarded tenders for several tourist complexes. New hotel and spa projects are progressing within the context of broader real estate development, much of which is geared toward attracting increased tourism.

Government revenues continue to be largely dependent on the oil industry. Bahrain has received significant budgetary support and project grants from Saudi Arabia, Kuwait, and the United Arab Emirates. Buoyed by rising oil revenues, the 2007-2008 budget approved by the parliament in July 2006 provided for sizable increases in urban development, education, and social spending. Ministry of Defense spending was expected to account for 13% of current spending in 2007 and 2008 based on the new budget. The Ministry of Education and Ministry of the Interior also received substantial budget allocations. Significant capital outlays were allocated to improving housing and infrastructure in line with government efforts to raise the standard of living of the Shi'a population and to attract foreign investment.

The government has also started to extend protections to workers. Private sector employees won permission to form unions in late 2002; King Hamad has given his tentative approval for the formation of unions in government departments. In June 2006, Bahrain passed laws legalizing the existence of multiple trade federations and codifying several protections for workers engaged in union activity. As part of the government's labor reform program, it has formed a Labor Market Regulatory Authority and established a fund to support the training of Bahraini workers.

In 2006, bilateral trade exceeded $1 billion for the first time, representing almost 50% growth over 2005. The U.S.-Bahrain Free Trade Agreement took effect on August 1, 2006 and is generating increased U.S. commercial interest in Bahrain.


GDP (2009): $20.59 billion.
Real GDP growth rate (2010): 4.5%.
Per capita GDP (2009 est.): $38,400.
Natural resources: Oil, aluminum, textiles, natural gas, fish, pearls.
Agriculture (less than 1% of GDP): Products--fruit, vegetables, poultry, dairy products, shrimp, fish.
Industry: Types--oil and gas (10% of GDP), manufacturing (12.4% of GDP), aluminum.
Services: Finance (30% of GDP), transport and communications (8.9% of GDP), real estate (9.2% of GDP), government services (14.8% of GDP).
Trade (2009 est.): Exports--$12.5 billion: oil and other mineral products, aluminum, textiles. Major markets--Saudi Arabia (3.4%), U.S. (3%), India (2.7%), Japan (2.3%). Imports--$10.37 billion: crude oil, machinery and appliances, transport equipment, foodstuffs. Major suppliers--Saudi Arabia (26.7%), Japan (8.9%), U.S. (7.8%), China (6.2%), Germany (4.8%), South Korea (4.7%), U.A.E. (4.2%).

Geography of Bahrain

Location: Middle East, archipelago in the Persian Gulf, east of Saudi Arabia Map references: Middle East Area: total area: 620 sq km land area: 620 sq km comparative area: slightly less than 3.5 times the size of Washington, DC Land boundaries: 0 km Coastline: 161 km Maritime claims: contiguous zone: 24 nm continental shelf: extending to boundaries to be determined territorial sea: 12 nm International disputes: territorial dispute with Qatar over the Hawar Islands; maritime boundary with Qatar Climate: arid; mild, pleasant winters; very hot, humid summers Terrain: mostly low desert plain rising gently to low central escarpment Natural resources: oil, associated and nonassociated natural gas, fish Land use: arable land: 2% permanent crops: 2% meadows and pastures: 6% forest and woodland: 0% other: 90% Irrigated land: 10 sq km (1989 est.) Environment: current issues: desertification resulting from the degradation of limited arable land, periods of drought, and dust storms; coastal degradation (damage to coastlines, coral reefs, and sea vegetation) resulting from oil spills and other discharges from large tankers, oil refineries, and distribution stations; no natural fresh water resources so that groundwater and sea water are the only sources for all water needs natural hazards: periodic droughts; dust storms international agreements: party to - Climate Change, Hazardous Wastes, Law of the Sea, Ozone Layer Protection; signed, but not ratified - Biodiversity Note: close to primary Middle Eastern petroleum sources; strategic location in Persian Gulf through which much of Western world's petroleum must transit to reach.

Government of Bahrain

Shaikh Hamad bin Isa Al Khalifa acceded to the throne in March 1999, after the death of his father Shaikh Isa bin Hamad Al Khalifa, Bahrain's ruler since 1961. He championed a program of democratic reform shortly after his accession. In November 2000, Shaikh Hamad established a committee to create a blueprint to transform Bahrain from a hereditary emirate to a constitutional monarchy within 2 years. The resulting "National Action Charter" was presented to the Bahraini public in a referendum in February 2001. In the first comprehensive public vote in Bahrain since the 1970s, 94.8% of voters overwhelmingly endorsed the charter. That same month, Shaikh Hamad pardoned all political prisoners and detainees, including those who had been imprisoned, exiled or detained on security charges. He also abolished the State Security Law and the State Security Court, which had permitted the government to detain individuals without trial for up to 3 years.

On February 14, 2002, 1 year after the referendum endorsing his National Action Charter, Shaikh Hamad pronounced Bahrain a constitutional monarchy and changed his status from Amir to King. He simultaneously announced that the first municipal elections since 1957 would be held in May 2002, and that a bicameral parliament, with a representative lower house, would be reconstituted with parliamentary elections in October 2002. As part of these constitutional reforms, the government created an independent financial watchdog empowered to investigate cases of embezzlement and violations of state expenditure in July 2002.

Turnout for the May 2002 municipal elections was 51%, with female voters making up 52% of voters. Turnout for the 2002 parliamentary elections--the first in almost 3 decades--was 53% in the first round and 43% in the second round, despite the fact that four political societies, including the largest Shi'a society, organized a boycott to protest constitutional provisions enacted by the King that gave the appointed upper chamber of parliament voting rights equal to the elected lower chamber. The new parliament held its first joint sitting in December 2002. Bahrain held its second set of parliamentary and municipal elections in November and December 2006. All registered political societies participated in the elections and a Shi'a society, Al Wifaq, represented the largest single bloc inside the Council of Representatives. Thirty-two of the Council's 40 members represented Sunni and Shi'a Islamist societies. One woman, Lateefah Al-Qauod, ran uncontested and became the first woman elected to parliament in Bahrain. Parliamentary and municipal elections were held again in 2010.

In February and March 2011, Bahrain experienced a period of civil unrest inspired in part by recent revolutions in Egypt and Tunisia and in part by local dissatisfaction with government policies. Bahraini security forces moved quickly to restore order. Bahrain hosted military forces from Saudi Arabia, U.A.E., and Kuwait under the aegis of the GCC Peninsula Shield Force to secure critical infrastructure while Bahraini security forces contained unrest. An ongoing National Dialogue seeks to address political grievances between political societies, civil society groups, and the government to prevent further instances of unrest.

Bahrain has a complex system of courts, based on diverse legal sources, including Sunni and Shi'a Sharia (religious law), tribal law, and other civil codes and regulations created with the help of British advisers in the early 20th century. In 2001, Shaikh Hamad created the Supreme Judicial Council to regulate these courts and separate the administrative and judicial branches of government.

Principal Government Officials
King--Hamad bin Isa Al Khalifa
Crown Prince and Commander in Chief of the Bahrain Defense Force--Salman bin Hamad bin Isa Al Khalifa
Prime Minister--Khalifa bin Salman Al Khalifa
Deputy Premier--Jawad bin Salem Al Arrayed
Deputy Premier--Mohammad bin Mubarak Al Khalifa
Deputy Premier--Ali bin Khalifa Al Khalifa
Foreign Minister--Khalid bin Ahmed Al Khalifa
Ambassador to the United States--Houda Nonoo
Ambassador to the United Nations--Tawfeeq Al-Ahmed Al-Mansoor

Bahrain maintains an embassy in the United States at 3502 International Drive N.W., Washington, D.C. 08; tel: [1] (202) 342-1111; fax: [1] (202) 362-2192.200

Government Type: Constitutional Monarchy (as of February 14, 2002).

Independence: August 15, 1971.

Constitution: May 26, 1973; suspended August 26, 1975, amended and ratified again February 14, 2001.

Branches: Executive--Amir (chief of state), prime minister (head of government), Council of Ministers (cabinet). Judicial--independent judiciary with right of judicial review. Appointed Consultative Council (40 members) may review and propose legislation.

Administrative subdivisions: Five governorates.

Political parties: None.

Suffrage: There are municipal elections, and in February 2001 Bahrain held a free popular constitutional referendum in which both men and women over the age of 18 voted. However, this is the extent of Bahrani enfranchisement.

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History of Bahrain

The site of the ancient Bronze Age civilization of Dilmun, Bahrain was an important center linking trade routes between Mesopotamia and the Indus Valley as early as 5,000 years ago. The Dilmun civilization began to decline about 2,000 B.C. as trade from India was cut off. From 750 B.C. on, Assyrian kings repeatedly claimed sovereignty over the islands. Shortly after 600 B.C., Dilmun was formally incorporated into the new Babylonian empire. There are no historical references to Bahrain until Alexander the Great's arrival in the Gulf in the 4th century B.C. Although Bahrain was ruled variously by the Arab tribes of Bani Wa'el and Persian governors, Bahrain continued to be known by its Greek name Tylos until the 7th century, when many of its inhabitants converted to Islam. A regional pearling and trade center, Bahrain came under the control of the Ummayad Caliphs of Syria, the Abbasid Caliphs of Baghdad, Persian, Omani and Portuguese forces at various times from the 7th century until the Al Khalifa family, a branch of the Bani Utbah tribe that have ruled Bahrain since the 18th century, succeeded in capturing Bahrain from a Persian garrison controlling the islands in 1783.

In the 1830s the Al Khalifa signed the first of many treaties establishing Bahrain as a British Protectorate. Similar to the binding treaties of protection entered into by other Persian Gulf principalities, the agreements entered into by the Al Khalifa prohibited them from disposing of territory and entering into relationships with any foreign government without British consent in exchange for British protection against the threat of military attack from Ottoman Turkey. The main British naval base in the region was moved to Bahrain in 1935 shortly after the start of large-scale oil production.

In 1968, when the British Government announced its decision (reaffirmed in March 1971) to end the treaty relationships with the Persian Gulf sheikdoms, Bahrain initially joined the other eight states (Qatar and the seven Trucial Sheikhdoms now the United Arab Emirates) under British protection in an effort to form a union of Arab emirates. The nine sheikhdoms still had not agreed on terms of union by 1971, however, prompting Bahrain to declare itself fully independent on August 15, 1971.

Bahrain promulgated a constitution and elected its first parliament in 1973, but just two years later, in August 1975, the Amir disbanded the National Assembly after it attempted to legislate the end of Al-Khalifa rule and the expulsion of the U.S. Navy from Bahrain. In the 1990s, Bahrain suffered from repeated incidents of political violence stemming from the disaffection of the Shi'a majority. In response, the Amir instituted the first Bahraini cabinet change in 20 years in 1995 and also and increased the membership of the Consultative Council, which he had created in 1993 to provide advice and opinion on legislation proposed by the cabinet and, in certain cases, suggest new laws on its own, from 30 to 40 the following year. These steps led to an initial decline in violent incidents, but in early 1996 a number of hotels and restaurants were bombed, resulting in several fatalities. Over 1,000 people were arrested and held in detention without trial in connection with these disturbances. The government has since released these individuals (see Government and Political Conditions Section below for details).

People of Bahrain

Bahrain is one of the most densely populated countries in the world; about 89% of the population lives in the two principal cities of Manama and Al Muharraq. Approximately 66% of the indigenous population is originally from the Arabian Peninsula and Iran. Bahrain has a sizeable foreign labor force. The government's policies on naturalization remain controversial. In June 2002, the King issued a decree allowing citizens of the Gulf Cooperation Council (GCC) to take up dual Bahraini nationality. Opposition political groups charge that the government is granting citizenship to foreign nationals who have served in the Bahraini armed forces and security services to alter the demographic balance of the country, which is primarily Shi'a. According to passport officials, about 40,000 individuals have been naturalized over the past 50 years (about 10% of the total population).

The indigenous population is 98% Muslim. Although some two-thirds of the indigenous population is Shi'a Muslim, the ruling family and the majority of government, military, and corporate leaders are Sunni Muslims. The small indigenous Christian and Jewish communities make up the remaining 2% of the population. Roughly half of foreign resident community are non-Muslim, and include Christians, Hindus, Baha'is, Buddhists and Sikhs.

Bahrain has invested its oil revenues in developing an advanced educational system. The first public schools for girls and boys were opened in the 1920s. The government continues to pay for all schooling costs. Although school attendance is not compulsory, primary and secondary attendance rates are high, and literacy rates are currently among the highest in the region. Higher education is available for secondary school graduates at the Bahrain University, Arabian Gulf University and specialized institutes including the College of Health Sciences--operating under the direction of the Ministry of Health--which trains physicians, nurses, pharmacists, and paramedics. The government has identified providing educational services to the Gulf Cooperation Council as a potential economic growth area, and is actively working to establish Bahrain as a regional center for higher education.


Nationality: Noun and adjective--Bahraini(s).
Population (2010): 1,214,705, including about 235,108 non-nationals.
Annual population growth rate (2009): 2%.
Ethnic groups: Bahraini 63%, Asian 19%, other Arab 10%, Iranian 8%.
Religions: 98% Muslim (approximately Shi'a 70%, Sunni 30%), with small Christian, Jewish, Baha’i, and Hindu communities.
Languages: Arabic (official), English, Farsi, and Urdu are also widely spoken.
Education: Education is not compulsory, but is provided free to Bahrainis and non-nationals at all levels, including higher education. Estimated net primary school attendance (2008)--97.8%. Adult literacy, age 15 and over (2008)--90.8% for the overall population (male 91.9%, female 89.4%).
Health: Infant mortality rate (2009)--9.5 deaths/1,000 live births. Life expectancy--76 yrs. males, 80 yrs. females.
Work force (2006 est.): 352,000 of which 44% were foreigners.