The latest country to enter into a normalization agreement with Israel, Bahrain, is a small kingdom with a population of just 1.7 million, lying on an island in the Persian Gulf between Saudi Arabia (to which it is connected by a bridge) and Qatar. Its economy is based on reserves of oil (including a huge discovery made in recent years), and it is an important regional financial and banking center.
Bahrain maintains good relations with most Arab states, and also has close ties with the US. For this reason, its capital, Manama, was chosen to host the regional peace workshop sponsored by the US fifteen months ago to promote President Donald Trump's "Deal of the Century", the plan authored by Jason Greenblatt and Trump's son-in-law Jared Kushner, who is the Trump administration's go-between in arranging the current peace agreements in the Middle East.
As far as democratic government is concerned, Bahrain is considered advanced in comparison with its neighbors, with elections to Parliament, although the king, Hamad bin Isa bin Salman al-Khalifa, has supreme authority, and his son is prime minister. The Sunni king faces Shi'ite opposition encouraged by Iran, and in that confrontation he is aided by Saudi security services and has employed controversial and violent means of suppression.
On the other hand, he has tried to institute social reforms. Women are able to stand for election to the Parliament, and when none were elected he himself appointed ten women to the Parliament's upper chamber. One of them is Houda Ezra Ebrahim Nonoo, a Jewish woman who was made Bahrain's ambassador to the US in 2008 and served in that capacity until 2013. The Jewish community in the kingdom numbers a few dozen.
What about the economy?
Let's start from the fact that Bahrain is not the UAE, and will be far less attractive than the seven emirates with their chief cities of Abu Dhabi and Dubai. Bahrain's annual GDP does amount to a little over $40 billion, or $25,000 per capita, and its oil reserves are among the largest in the world, but this energy wealth is precisely its problem. Bahrain's economy is almost entirely dependent on oil, which provides it with 70% of its revenues.
The fall in the price of oil and the relatively high cost of extracting Bahraini oil, mainly from undersea oil fields, led to a substantial decline in revenues this year, and for a Gulf state it has for five years been in real economic distress. Two years ago, some of its bonds were given junk ratings, and the national debt has risen above 100% of GDP.
The Saudis will fix things
Bahrain will not collapse though, at least as far as this is up to Saudi Arabia, its diplomatic-security and also economic patron. For the Saudi government, it is important to shore up the Sunni regime of the Khalifa dynasty in Bahrain and prevent a takeover by Iran's proxies on its doorstep. It is therefore clear that if Bahrain gets into real financial difficulties, Saudi Arabia will come to its aid.
In 2009, Bahrain underwent a similar economic crisis brought about by the global crisis, and since then it has made substantial efforts to introduce changes in its economy. Among other things, it has developed its banking industry, which has come a long way and now contributes about one-sixth of GDP. Tourism too has developed, and in this respect it is different from the other Gulf states, with fewer religious restrictions, so that vacationers from the West can feel comfortable there.
In the past two years, retailing has undergone accelerated growth, encompassing shopping for tourists and also online trade, with many online stores mainly offering Eastern goods to Western buyers, as well as an expanding market in watches and jewelry.
Perhaps the very fact that Bahrain is less economically advanced than the UAE means that Israeli companies will have greater opportunities there, in fintech, e-commerce technology, and similar fields. Civilian infrastructures such as desalination and other water technologies, and renewable energy, will also be of considerable interest.
An economic bridge to Saudi Arabia
The most significant economic aspect of normalization with Bahrain is perhaps that it is a bridge to Saudi Arabia. There is the physical bridge that connects the island to Saudi Arabia, but more important is the economic bridge. Bahrain is connected to the Saudi economy even more than the UAE is, and through it it will be possible to do business with Saudi companies. Here, the sky really is the limit, for both sides.
A leading Arab commentator claims that this is one of the main aims of Mohammed bin Salman bin Abdulaziz Al Saud, crown prince of Saudi Arabia, in the support and backing he has given to the UAE and Bahrain in their agreements with Israel. These agreements open up an almost direct economic and business channel between Israel and Saudi Arabia, even without a bilateral agreement, which at this stage would seem to be something a little too tricky even for bin Salman, who is considered the strongman of the Sunni Arab world.
Published by Globes, Israel business news - en.globes.co.il - on September 13, 2020
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