Bahrain's economy: a diversified output and an oil-funded state

How oil built the modern economy

The Bahrain Petroleum Company struck oil below Jabal al-Dukhan in 1932, and the first well is still in operation. The field, known as Awali or Al-Bahrayn, has always been small by Gulf standards, and Britannica describes it as rapidly depleting. What made Bahrain an oil economy was less the crude it pumped than what it did with other people's. The Bapco refinery, built in 1935, was the first in the Gulf outside Iran, and since the large fields were found on the Saudi mainland it has refined crude piped from Saudi Arabia. Bahrain also receives a large share of the output and revenue of Saudi Arabia's offshore Abu Saafa field.

Wikipedia puts petroleum production at about 189,000 barrels a day in 2023, reserves at 168 million barrels and gas output at 16.7 billion cubic metres a year, with 68 billion cubic metres in reserve. In April 2018 the government reported the discovery of its largest oil field in more than 80 years, in the BBC's timeline. The state took sole ownership of Bapco in April 1997.

Gas feeds the rest of the industrial base. The Gulf Petrochemical Industries Company, a joint venture of Bahrain with Kuwaiti and Saudi petrochemical companies completed in 1985, makes ammonia, methanol and urea for export, and the aluminium smelter runs on gas. DFAT notes that the government has been raising the price of gas to industry to ease pressure on the budget.

What Bahrain makes besides oil

Aluminium is the second export after oil. Aluminium Bahrain, known as Alba, is state-owned and has operated for fifty years. Its Line 6 expansion, completed in 2020, added 540,000 tonnes a year to capacity of about one million, in DFAT's figures, and the company reported record net production of 1,622,261 tonnes in 2024 and 1,623,139 tonnes in 2025. In 2024 it reported a profit of BD184.5 million, up 56.4% on 2023, on higher metal prices on the London Metal Exchange. Rolling mills and extrusion plants turn part of the metal into finished products on the island.

Manufacturing as a whole contributed 15.1% of real GDP in 2025, in the preliminary estimate of the Information and eGovernment Authority, second to financial and insurance activities at 17.6%. The older industries survive at a smaller scale: dhow building, fishing and reed mats, in Britannica's list, alongside ship repair at Mina Salman and at the large yard on Al-'Azl Island, and an iron ore pelletising plant with a capacity of 4 million tonnes a year.

The finance ministry's economic report for 2024 gives the growth of each sector that year. Oil activities shrank while almost every other activity grew.

How Bahrain became a banking centre

The financial sector grew out of someone else's war. Beirut had been the Arab world's financial centre until the Lebanese civil war began in 1975, and Bahrain, in Wikipedia's account of its history, offered banks a base inside the Gulf just as oil prices had filled the region with capital. Offshore banking grew fastest. Britannica names the Bahrain Monetary Agency as the central bank that issued the dinar and supervised the banks; the IMF's documents now refer to the Central Bank of Bahrain. The stock exchange opened in 1989. By Wikipedia's count more than 100 offshore banking units and representative offices operate in the country. The same account credits the arrival of the banks with building a middle class and giving Bahrain a different class structure from its neighbours, and with starting the mass migration of workers from South Asia and elsewhere in the late 1970s. An IMF assessment of the financial system published on 6 March 2006 found prudential regulation modern and comprehensive and supervision generally effective, especially of the banks.

Islamic finance became a specialism. Britannica describes the government promoting Bahrain as a centre of Islamic banking from the late 2000s, and the finance ministry cites a 2024 industry report on Islamic finance in its own summary of the economy.

Finance is now the largest single sector. The IMF names financial services as the largest contributor to non-hydrocarbon growth of 3.7% in 2024, and its Executive Board judged in January 2026 that the banks remain profitable and well capitalised, while private credit growth was weak. The dinar is pegged to the United States dollar, and the Board described the peg as continuing to serve Bahrain well as a monetary anchor. Inward foreign direct investment stock rose 5.7% in 2024 to BD17.3 billion, according to the finance ministry.

Why the budget runs a deficit every year

The diversification shows in output far more than in the budget. There is no personal income tax. Oil companies pay 46% on income from hydrocarbons. How much of the government's revenue comes from oil depends on the source and the year: 85% in DFAT's brief and in the CIA figure Wikipedia quotes, 70% in Wikipedia's main country article. The IMF's own figures for 2024 put hydrocarbon revenue at 10.4% of GDP within total revenue of 17.9%.

Source: IMF Article IV consultation, concluded 23 January 2026. The projections for 2026 predate fiscal measures announced in late December 2025.

The gap is older than the recent oil price falls. Between 1981 and 1993 government spending rose by 64% while revenue, still tied to oil, rose by 4%, and Saudi Arabia, Kuwait and the United Arab Emirates provided budget support and project grants at times over the following decades. The debt has needed outside help before. In 2018 Saudi Arabia, the United Arab Emirates and Kuwait offered a five-year aid package of $10 billion in return for fiscal reform, in Britannica's account, and Bahrain set up a tax bureau and introduced value added tax on 1 January 2019 at 5%, raised to 10% on 1 January 2022. The pandemic doubled the deficit in the first half of 2020. The IMF also recorded that the government's overdraft at the central bank rose above a quarter of GDP in 2024, and that official reserves stood at $4.6 billion at the end of 2024, 1.9 months of prospective non-hydrocarbon imports.

The authorities announced a corporate income tax and energy and utility price reforms in late December 2025. The IMF Board welcomed them and called for more: bringing extrabudgetary spending into the budget, raising taxes further and replacing broad subsidies with support aimed at the poorest households. The authorities did not consent to publication of the IMF staff report, which is why only the Board's press release is public.

How growth has held up since the pandemic

Growth has followed oil prices for most of the period since 1985. Wikipedia records GDP per head shrinking by 2.4% over the 1980s and growing 36% over the 1990s as the new industries came on stream, and growth falling to 1.3% in 2011, the year of the recession abroad and the uprising at home.

Real GDP grew 4.4% in 2021, 6.2% in 2022, 3.9% in 2023 and 2.6% in 2024 in the IMF's series, with hydrocarbon output shrinking in each of the last three of those years. Consumer prices fell 0.6% in 2021, rose 3.6% in 2022 and then barely moved: 0.1% in 2023 and 0.9% in 2024. The current account stayed in surplus, at 4.8% of GDP in 2024, and the IMF put income per head at US$29,653 in 2024.

The official estimates for 2025 came in above the Fund's projection. The IMF had expected growth of 2.9%; the Information and eGovernment Authority's preliminary national accounts gave 3.5%, with real GDP at BD15,709.8 million at constant prices against BD15,181.4 million in 2024. Accommodation and food services grew 6.4%, finance 5.6% and construction 5.0%, and in the fourth quarter of 2025 the non-oil sector grew 7.4%. The sources differ slightly even on 2024: the IMF gives non-hydrocarbon growth of 3.7% that year, the finance ministry 3.8%.

Who does the work in Bahrain

Most workers are not Bahraini. Britannica puts about three-fifths of the labour force as foreign-born, and total employment stood at 770,129 in the second quarter of 2023, back to its level before the pandemic. The 2020 census counted 789,273 non-Bahrainis against 712,362 Bahrainis, and most of the migrants come from South Asia and work in construction, domestic service and other low-wage jobs, in Minority Rights Group's description.

Jobs for citizens have been the policy question since the 2000s. Britannica describes unemployment as a special concern among young Bahrainis, and records a reduction of the sponsorship of foreign workers in 2009 meant to open jobs to them. Unemployment stood at 4% in 2008, and women made up 85% of the jobless. In 2007 Bahrain began unemployment insurance, funded by a 2% levy on all wages split between employer and employee plus a government contribution of 1%, the first such scheme in the GCC. Employers' pension contributions for Bahraini staff rise by one point a year, from 14% in May 2022 to 20% in 2028. In 2022 the government set a target, reported by Reuters, of 20,000 jobs a year for Bahrainis.

What the national economic plan set out to change

The plan was launched in October 2008 with the stated aim, in the finance ministry's words, of improving living standards for all Bahraini citizens, through a productive private sector, better skills among Bahraini workers and fair competition. The IMF projects that the non-hydrocarbon sector will account for nearly 90% of the economy by 2030, and expects medium-term growth of about 3% a year driven by it, with finance, tourism, logistics and the digital economy named as the sources.

Tourism is part of that plan. Wikipedia counts more than eleven million visitors in 2019, most of them from neighbouring Arab states and many crossing the causeway from Saudi Arabia to shop, and the government has built up events such as the Bahrain Grand Prix. The state holding company Mumtalakat announced in 2009 a development of more than a million square metres beside the Grand Prix circuit, valued at more than $2 billion.

Trade policy followed the same line. The free trade agreement with the United States, in force from August 2006, was the first between the United States and a Gulf state. Food remains the gap diversification has not closed: less than 3% of the land is arable, agriculture contributes about 0.5% of GDP, and Wikipedia records that Bahrain imports large amounts of meat and 75% of its fruit. Pollution in the Gulf after the 1991 war killed off much of the shrimp fishery, in Britannica's account, and the fisheries have stayed underused.