A lynch pin

Bahrain: Bahrain’s continuing restlessness could threaten the oil-rich Gulf. While the tiny island has dwindling oil and financial reserves, the stability of the six-nation Gulf Cooperation Council’s smallest economy is vital to Saudi Arabia, Qatar, Kuwait and the United Arab Emirates.

True, Bahrain is different from its neighbours. The economy is nineteen times smaller than Saudi Arabia and less than a quarter of its GDP comes from oil. It is ruled by a Sunni Muslim monarchy, but the majority of the population is Shi’ite, which allows Iran to regularly assert territorial claim on the island. Other Gulf economies are usually more dependent on oil, with Shi’ites usually in minority numbers.

Yet Bahrain is physically and financially entrenched in the oil-rich Gulf. Linked to Saudi via a causeway, the island is near the Kingdom’s key oil infrastructure and provides a playground for Saudi businessmen. They provide a financial lifeline to Manama, which only holds less than $4 billion in foreign reserves. There are also plans for another causeway linking Bahrain to Qatar. Finally, but not least important, the island is home to the US Fifth Fleet.

Business-friendly Bahrain was the first GCC country to discover oil, the first to build a financial centre and the first to attract international sporting events. Only now that others have caught up can regional asset managers relocate to Dubai and events like the Formula One Grand Prix be hosted in Abu Dhabi.

Protesters in Bahrain are, so far, only calling for a change of government, not an overthrow of the king. But it so happens that the long-serving unpopular prime minister is also an uncle of the king. If the current rulers fail to appease protesters, and if the problems in Libya are any lesson, unrest could spread quickly to Saudi’s own Shi’ite minority as well as to the UAE, which is made up of seven distinct emirates of varied wealth. Even the Kuwaiti population’s regular frustrations with its fragile quasi-democracy could explode into open rebellion.

The House of Saud may be tempted to take whatever financial or military action it will deem necessary to spare Bahrain’s ruling al-Khalifa family humiliation. But stepping up to the frontline would also mean that Saudi Arabia is taking the risk of escalating the current events to a whole new and unpredictable dimension.