Bahrain

Bahrain has reinvented its economy twice. For 4,000 years, pearl diving sustained the island—30,000 divers worked the warm, shallow Persian Gulf waters by 1930, making Bahraini pearls more precious than diamonds. Then Japan perfected cultured pearls, and the industry collapsed. Oil, discovered in 1932, replaced pearling as the foundation. Now Bahrain is attempting a third transition: reducing oil dependency through finance, tourism, and technology.

The transformation is measurable. Non-oil activities reached 84.8% of real GDP in Q1 2025—the highest diversification ratio in the Gulf Cooperation Council. The oil and gas share has fallen from 43.6% in 2000 to around 20%. Yet government revenues remain 75% hydrocarbon-dependent, revealing the gap between GDP composition and fiscal reality. Debt stands at 129% of GDP, the highest in the Middle East after Lebanon.

Bahrain's small size—a 691 km² archipelago, main island just 30 miles by 10 miles—forced early specialization. The King Fahd Causeway connects it to Saudi Arabia, enabling the kingdom to function as a financial gateway for the Gulf. Over 100 fintech firms now operate from Bahrain, which has positioned itself as the regional center for Islamic finance. The strategy resembles network effects: be the hub that larger economies route through.

Vision 2050 aims to complete the post-oil transition. Tourism targets 4 million visitors (11% of GDP), and financial services continue expanding at 7.5% growth. The F1 Grand Prix adds global visibility. Whether Bahrain can repeat the successful pivot from pearls to oil—now attempting oil to services—will test whether path-dependent advantages can be deliberately constructed or only emerge from geographic accident.