The still pronounced dependency on oil showed in macroeconomic data when oil prices slumped during the second half of 2014. GCC countries accounted for 61.7% of its total non-oil exports in 2016 and Saudi Arabia alone for 33.7%. Yet its trade remains heavily dominated by regional partners.
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With initiatives like the free trade agreement with the US in 2006 Bahrain has sought to integrate better with global markets and beyond the oil sector. ALBA’s exports accounted for 11.5% of Bahrain’s total exports and 30.1% of its total non-oil exports in 2015 and it consumed over a quarter of the country’s unassociated natural gas production. It also needs to be kept in mind that manufacturing industries of Bahrain, such as Aluminum Bahrain (ALBA) and the Sitra refinery rely on oil and gas as important feedstock inputs. However, oil and gas revenues still accounted for 75,7% of government revenues in 2016 and exports of refined petroleum products (29%) and crude oil (17%) accounted for almost half of total exports. This ratio has fallen from 43.6% in 2000 despite the absolute growth in hydrocarbons production, signaling considerable diversification into sectors such as finance, manufacturing, and services. Together with Kuwait and UAE it has allocated 7.5 billion US$ to Bahrain.īahrain’s oil and gas sector still plays a very important role in its economy with about 19% of its GDP (see Figure 1). Support by Saudi Arabia is crucial in the form of oil deliveries of the joint Abu Saafa field and financial transfers, most notably via the GCC development fund that was launched in 2011. International rating agencies lowered their ratings in 20. Dependence on oil has been declining since the 2000s, yet oil revenues still constitute a three quarters of government revenuesĪs a result Bahrain has developed current account deficits in recent years, its fiscal deficit has been rising, and its foreign reserves have been shrinking. Bahrain has undertaken considerable economic diversification measures in manufacturing, refining, tourism, trade, and finance. Low oil prices since the second half of 2014 and domestic and regional political risks have impacted the credit risk and liquidity situation of Bahrain. It is closely connected to oil prices, Saudi transfers, diversification efforts and economic reform.
Bahrain’s economic stability is important for its political stability. Bahrain is a crucial ally and client state of Saudi Arabia, which fears growing influence of Iran among the Shiite majority population of the country.
This marked the beginning of a more assertive foreign policy in the MENA region that later culminated in an ill-fated military intervention in Yemen and a boycott of Qatar. In 2011 Saudi Arabia and the UAE sent troops to Bahrain after unrest in the country.