In previous articles, I talked about a number of microstates scattered across Europe (Andorra, Liechtenstein, San Marino, Monaco, etc.) that serve as financial windows or tax havens for traditional European powers.
In the Middle Est, Bahrain is playing the similar role for its powerful neighbors. This sovereign state in the Persian Gulf, in fact, has a subtle relationship with Saudi Arabia.
In recent years, the Saudi crown prince, Mohammed bin Salman, has encountered a lot of difficulties and opposition in pressing ahead with his reform program, particularly, his bid to establish a special zone like Hong Kong that practices “one country, two systems”.
Saudi Arabia has its own de facto special economic zone in place – its tiny neighbor Bahrain.
With a total area, including reclaimed land, of about 765 square kilometers, which is similar to that of Singapore, Bahrain is the smallest country in the Middle East.
Bahrain was once the holy land of the ancient Dilmun civilization that dates back to around 3,000 B.C.
Today, 60 percent of the people in Bahrain are Shia Muslims, yet its ruling royal family is of foreign origin and is Sunni.
Over the years, there has been an undercurrent of conflict between the majority Shia Bahrainis and the minority Sunni ruling class.
In order to secure its rule, the royal family of Bahrain has sought strong support from its Saudi Arabian counterpart and formed bilateral bonds through diplomatic marriages.
For decades, the Bahrain royal court has been relying heavily on the Saudis for diplomatic and political support.
During the Arab Spring about eight years ago, Saudi Arabia sent troops to Bahrain at the request of the latter to help suppress protesters.
And during the Qatar diplomatic crisis, Bahrain quickly fell into line and joined the Saudi-led coalition against Doha.
Bahrain was among the very handful of countries that publicly came to the defense of the Saudi crown prince in the outrage over the murder of dissident journalist Jamal Khashoggi.
Although Bahrain was the first oil-producing country in the region, its crude oil reserves have been nearly drained in recent years.
And even though Bahrain has succeeded in transforming itself into a financial hub in the Persian Gulf area, it would be impossible for the tiny state to sustain its high standard of living without the huge subsidies provided by Saudi Arabia every year.
The relationship of Riyadh and Manama is reciprocal in nature. While Bahrain depends on Saudi Arabia for political and diplomatic support, Saudi Arabia needs Bahrain for geopolitical reasons and as a window through which it can ease its domestic problems.
Every weekend, a large number of Saudis drive across the border into Bahrain, where they can shop till they drop, and enjoy relative freedom that is unavailable in their own country.
In Bahrain, for example, women don’t have to wear niqabs, and the consumption of alcohol is also allowed in licensed hotels and restaurants, not to mention the razzle-dazzle of night clubs, all of which are simply unimaginable back in Saudi Arabia.
These “tiny features” available in Bahrain can indeed serve as a social safety valve for the Saudis, particularly the rich ones, through which they can let off steam.
As a matter of fact, allowing Saudis to go to Bahrain to indulge themselves over the weekend can create a win-win for both Riyadh and Manama: while it gives Saudis an opportunity to divert their frustrations and grievances to other things, it also brings in huge tourism revenues for Bahrain.
This article appeared in the Hong Kong Economic Journal on Jan 22
Translation by Alan Lee with additional reporting
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