Why Bahrain wants to be the UK’s gateway to the Gulf

From Harrods and Sainsbury’s to Newcastle United and Manchester City. Thames Water, Heathrow, the British Airways owner IAG, P&O Ferries, the Shard and Canary Wharf, Claridge’s and The Ritz. Prizes all of Arab investors.
Qatar, Dubai, Abu Dhabi and increasingly Saudi Arabia have become part of the commercial — and sporting — fabric of Britain. But their neighbour Bahrain? Outside of a trophy asset in the McLaren supercar and Formula 1 motor racing concern, not so much.
Bahrain, which has the oldest of UK diplomatic relationships in the Gulf region, has much to gain from a unique and game-changing post-Brexit free trade agreement between Britain and the Gulf states.
Small in petrodollar wealth and landmass compared with its neighbours, it has been increasingly setting out its stall to global investors, not least with last week’s Bahrain International Airshow and the monarch-to-monarch visit at Windsor Castle of King Hamad bin Isa Al Khalifa who is celebrating his silver jubilee.
Bahrain has committed a £1 billion investment in Britain with more to come, aimed at building partnerships in green technologies, advanced manufacturing and financial services, the sort of sectors which it hopes to also attract investment coming the other way. Yet it is a drop in the warm water of the Gulf compared with the ten of billions incoming from elsewhere in the region.
That free trade agreement (FTA) with Britain has been a long time coming not least because of the nature of bilateral negotiations with the six other states that make up the Gulf Co-operation Council (GCC) — Saudi, Qatar, the United Arab Emirates, Kuwait and Oman — made complicated by the multilateral bargaining and bartering between members.
If the strength of Bahrain’s professed special relationship with Britain was in any doubt, just a fortnight after British Airways sparked a diplomatic incident by announcing plans to scrap flights to the island kingdom next year, the decision has been reversed after representations at “the highest levels”.
To those businesses from the UK considering investing in the Gulf, Bahrain’s message during briefings at last week’s airshow, is to not get caught in the hype from its noisy neighbours flaunting their wealth.
“Turn the clock back to the last century and Bahrain was the Dubai of the region, the country in this neighbourhood with the greatest international outlook,” said Iain Lindsay, a former British ambassador to Bahrain who has returned as an economic development adviser to King Hamad.
“Bahrain is the friendliest place in the Gulf. They are islanders but they are also very open as they have to be because they are trading nation. Though by no means a poor country it is not as wealthy as others. So Bahrain has to project itself.
“Bahrain are not the bling merchants of the Gulf, humble and not in your face compared to some. Even if they had the resources, their pedigree is such that they would not want to be like some of their neighbours.
“A lot of the country’s leadership has been educated in Britain and so you could call it the ‘old money’ of the Gulf. They are raging anglophiles. It has historically been Britain’s hub in the Gulf and has picked up British characteristics: it is stable, well-run, a good place to do business.”
The narrative is that Britain’s businesses should consider Bahrain as the gateway to the Gulf. Noor bint Ali Alkhulaif is minister for sustainable development, chief executive of Bahrain’s Economic Development Board, and sits on the board of Mumtalakat, the sovereign wealth fund owner of McLaren. UK educated, she formerly worked for Deloitte.
“We are the most cost-competitive in the region, the cost of doing business is lower, the cost of living is lower. We give good access to the wider GCC,” she said.
Her goal, she added, was to “hand-hold” those looking to do business in the Gulf, especially smaller enterprises and tech companies. She says Bahrain is the “plug and play” option for inward investors.
Abdulla bin Adel Fakhro, minister of industry and commerce, said Bahrain knows it needs to continue to diversify its economy if it is to remain competitive within the Gulf.
Oil and gas used to represent nearly half of a $10 billion economy. It is now less than one fifth of Bahrain’s $44 billion GDP. It has been superseded by financial services, always a strong Bahraini card and enlarged after the 2006 Lebanon war when the Middle East’s traditional banking centre in Beirut quit and relocated to the Bahrain capital of Manama.
The country knows, he says, it needs to leverage the opportunities of having Alba, the largest aluminium smelter in the world outside of China, especially as neighbouring Saudi Arabia wants to attract at least three big carmakers to build 400,000 cars a year by 2030.
Sheikh Abdulla bin Ahmed Al Khalifa, the transport minister, says his role in diversifying the economy is in attracting tourists, setting up the country as a logistics hub for the region from its new but as yet underused airport, and building infrastructure. He is tasked with pushing through the ambitious construction of a multibillion dollar 25-mile causeway bridge to Qatar and a new road–and-rail link to Saudi adding to the existing but congested 15-mile King Fahd Causeway to its mainland neighbour completed in 1986
“The causeway to Qatar is important and strategic,” he said. “This is about being the gateway to the Gulf and having the best connections by air, land and sea.”
Mohamed Yousif Albinfalah, chief executive of the country’s airport, says that, opened in 2021, the new terminal is at only 70 per cent of its 14 million capacity.
He pitches it as an alternative to the “intimidating” megahubs of Dubai and Abu Dhabi for legacy carriers and their passengers, and as a home for budget airlines in the region.
“We have followed the trend of the low cost carriers,” he says. “We are responding to where there is growth in the market. Otherwise it will go elsewhere. We do not see it as a stigma.
“Our differentiator is our flexibility on slots as we still have the capacity. And as a location we have an intriguing story to tell. Bahrain is for the visitor who is interested in more than just shopping. We can go beyond the stereotypical perception of countries in the Gulf.”
Set against all the business opportunities Bahrain wants to promote there is, however, another perception: that the country has a human rights issue. Raised again in the British media after King Hamad’s visit to King Charles, it lingers from the violent clashes and repression following the so-called Arab Spring of 2011.
Bahrain’s counterclaim is that while much of the Arab Spring across the Middle East and North Africa was about demanding a more liberal society, in Bahrain it was about Islamic fundamentalism and minority demands to set up a theocracy.
Of the human rights point, Lindsay, who was ambassador to Bahrain from 2011 to 2015, says: “It is a niche perception plied by Bahrain’s opponents in the UK who are supporters of or supported by Hamas, Hezbollah and the Iranian Revolutionary Guard. This is a very different place to where we were then [2011-14].”
The UK-GCC FTA has been “imminent” all year and negotiations will soon enter their 30th month. The change of UK government has not helped. Neither has instability brought by hostilities in the region.
A significant trade accord for Britain in a post-European Union world is politically very important. For the Gulf region it is, as every minister and official repeats, about “increasing the size of the pie so that we get a larger slice”.
But the GCC is operating in a regional milieu since the spectacular diplomatic fallout between the two regional powerhouses Saudi and Qatar. Officials, asked why the FTA is taking so long, have variations on the same theme.
“There are a lot of people to keep happy,” said one. Another said: “We are brothers. And at home brothers have rows. But at home is where we leave our rows.”
Another, more lyrically, said the situation was as if the traditional small, handleless ornamental Arab coffee cups were put in a bowl of water together. “They bob around knocking into each other. There is a lot of clinking together. They may be delicate but they never break.”
As it tends to do, the discovery of oil and gas nearly a century ago changed everything for Bahrain.
In classical times it was on the trading routes of the Indus Valley and Mesopotamia, populated by a Dilmun civilisation going back 4,000 years, and a maritime hub of Alexander the Great. By the 16th century, the Portuguese were in control. By the 19th century, the British were in charge, a move prompted by piracy in the Gulf and a determination to keep open routes, unmolested, to the Raj in India.
Long renowned as a producer of pearls, said to be especially abundant because of the rising fresh water from beneath into the salt water of the Gulf, that historic industry was fracturing by the time of the rise of Japanese cultured pearls — just as Standard Oil struck hydrocarbons on the island.
Bahrain claimed independence from Britain in 1971 and half a century later, Bapco Energies, the Bahraini state oil and gas company, is reaching what its chief executive, Mark Thomas, calls a “tipping point”.
Thomas, an American, once of BP, says Bahrain’s electricity network is 100 per cent dependent on the country’s production of gas. Sometime, however, in the next year or so, increasing demand for gas from the Bahraini economy will overtake the country’s diminishing resources and supply.
Bahrain is looking at new technologies: what it might do with shale gas reserves and embarking on potential offshore hydrocarbons as yet hindered by poor 3D seismic surveys from historic wildcat drilling.
And renewables. At 75km by 25km and 1.3 million people, Bahrain doesn’t have much space. It is signing agreements to take electricity via an undersea interconnector from giant solar arrays in Saudi Arabia. Wind, as it is, is hopelessly intermittent and not strong enough in the region, though that may be changed by new technologies to generate power from lower windspeeds.
The future for Bahrain, says Thomas, could be SMRs, small modular nuclear reactors, like those being developed by Rolls-Royce.
In addition to domestic electricity demand, Bahrain has an energy-hungry aluminium smelter and oil refinery.
“We are in the midst of a time of change,” said Thomas. “We have to work out how to maximise for the kingdom our natural resources. We are not overburdened with the hydrocarbons that our neighbours have.
“SMRs could be the best ‘green’ technology for us. Geographically, as we are a small island, we simply do not have the space to build a 3GW nuclear power station. But we would not want to be ‘Project 001’ for an SMR. The technology is evolving, getting better, and we are following with interest what the UK and US governments and Rolls-Royce are doing.”