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Bahrain unrest may impact region, finance hub

Bahrain unrest may impact region, finance hub

Financial hub faces risks, but no outflows seen yet; Compared with neighbours, Bahrain has less cash to deploy; Protests unlikely to draw support across sectarian lines.

February 16, 2011 3:43 by


The introduction of a new constitution and parliamentary elections a decade ago helped quell Shi’ite unrest then. But tensions have risen again in recent years as Shi’ites have been disappointed with the assembly’s limited clout.

Shi’ites want their rulers to stop granting Sunnis from outside Bahrain citizenship and jobs in the armed forces and security services. They see that as a tactic to change the demographic balance of the nation.

The government had been planning to cut subsidies to improve its finances, after posting a 10 percent budget deficit in 2009, and one factor making spending possible is oil’s climb well above Bahrain’s budget break-even price of about $80 per barrel.

There is great income disparity in Bahrain, but not to the degree seen in Egypt. Per capita gross domestic product in Bahrain is over $40,000, ranked 20th in the world. But while no Bahraini lives on less than $1 a day, an internationally used guide to extreme poverty, many live on just a few dollars.

As unrest spread from Tunisia to Egypt, Gulf states were in the spotlight but mostly seen immune to similar unrest, thanks to an unwritten pact under which their rulers have traded a share of their oil wealth for their subjects’ loyalty.

“Bahrain is on the end of that scale,” said Lars Christensen, emerging markets senior analyst at Danske Bank, referring to Bahrain’s lower level of social stability compared with its Gulf neighbours. “I can’t really see this in Qatar or Kuwait. That’s hard for me to imagine.”

Neighbouring Saudi Arabia, Bahrain’s biggest trading partner, is already watching events closely.

Both countries are also close U.S. allies — Bahrain is home to the U.S. Navy’s Fifth Fleet, which Washington depends on to curtail the regional influence of Shi’ite Iran.

Saudi Arabia will likely step in to provide aid if Bahrain becomes unstable. Bahrain is part of the Gulf Cooperation Council (GCC), a loose economic and political bloc that also includes, the United Arab Emirates, Qatar, Oman and Kuwait.

Christian Shomber, Chief Investment Officer at asset management firm KMEFIC in Kuwait, said: “I am confident the GCC has an interest in getting this resolved quickly.”

($1=.3769 Bahraini Dinar) (By Reed Stevenson. Additional reporting by Dinesh Nair in Dubai, Stanley Carvalho in Abu Dhabi and Frederik Richter in Manama; editing by Samia Nakhoul and Alastair Macdonald)

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