There is a question that was often secretly whispered but never posed in GCC (Gulf Cooperation Council) forums and press meets for decades. It pointed to an inevitability that unsettled the rulers and subjects of the region. The question is simple: “What would you do when you run out of oil?”
When the old guards of each of these nations handed the helm to newer generations, each Gulf economy had a bold new vision on how to thrive in a post-oil economy. There are ambitious growth milestones like Vision 2030, 2040, or 2071 adopted by major GCC players to diversify, including Saudi Arabia, the UAE, and Oman.
Bahrain’s oil production dropped to just 35,000 barrels per day, barely enough to fill two Olympic swimming pools. Crown Prince Salman bin Hamad Al Khalifa took the seat of Prime Minister under such critical conditions, and there is no one more pivotal than him in Bahrain’s economic renaissance.
As the heir to the throne and the serving Prime Minister since 2020, Crown Prince Salman bin Hamad Al Khalifa has used his decades of experience in leadership roles across different sectors within the nation to push a radical reformation agenda for the Island Kingdom.
The world sees him as a young and dynamic leader who is spearheading an ambitious economic agenda that will broaden the economic base of Bahrain. He is the architect of “Economic Vision 2030” and is often credited for progressing the arduous task of diversifying Bahrain’s traditional oil-intensive economy.
Under his reign, the island’s financial sector has strengthened, and education, with innovation, is booming as well. Despite being in the middle of two of the region’s most powerful rivals, Saudi Arabia and Iran, Bahrain is doing surprisingly well and remains a haven with no conflict.
Pearl crash: History repeats itself
Bahrain had always been a rentier economy (a system where national income is primarily derived from renting out indigenous resources to external clients). Before oil, it was pearls and trade duties. For four thousand years, pearling was integral to the island, with even Assyrians and Roman writers like Pliny the Elder praising the quality of Bahraini pearls. The 19th and 20th centuries were the golden age of pearling for Bahrain, with at least 30% of its population involved in diving, selling, sailing, or polishing, and around 97% of Gulf pearls were traded through Bahrain.
For a small desert island, water-scarce and hostile to vegetation, pearling was a lifeline, a lifeline that was severed when a Japanese entrepreneur, Kokichi Mikimoto, produced the first commercially viable cultured pearl in 1893. It made dangerous sea diving and the seasonality of pearling obsolete.
The Japanese pearl farms had turned it from regal jewellery into something that became increasingly affordable. The disruption and the effects on Bahrain cannot be discounted, as prices of pearls fell by 85%, leaving many divers and merchants in ruin. The “Great Depression” of the 1920s destroyed any remaining demand for luxury goods.
But something miraculous happened when British geologist Major Frank Holmes convinced Bahrain’s ruler, Sheikh Hamad bin Isa Al Khalifa, to drill oil wells on the island, leading to the discovery of the first oil well at Jebel Dukhan.
This led to the establishment of the Bahrain Petroleum Company (BAPCO), which was created by Standard Oil of California (which would later be named Chevron), and a new rentier economy with oil instead of pearls. From fishing villages, people shifted fast into roles tied to oil work, helped by jobs built from royalty income. Life in Muharraq, long centred on pearling, slowly gave way to Manama’s rise under new pressure. Money from crude flows fuelled roads, offices, and schools, turning quiet towns into bustling centres within years.
Fast forward a couple of years, and the oil pulled from wells powered a broad shift into today’s world. There were new roads, schools, hospitals, and housing mushrooming in Manama. By mid-century, Bahrain had developed a refinery and new towns like Awali for oil workers, laying the foundation for industrialisation. This is proof that Bahrain can withstand historical macro-economic shifts and even come out stronger.
However, Bahrain’s oil reserves were modest in comparison to those of its neighbours, and they were quickly drying up. It had only one ageing oil field and no vast sovereign wealth to fall back on. Ever since then, successive rulers have been determined to diversify as much as possible. But the older generation, led by Prime Minister Sheikh Khalifa bin Salman Al Khalifa (the longest-serving Prime Minister in the world), was conservative and emphasised stability and caution, reflecting the challenges of their era.
A pragmatic reformer takes charge
Bahrain was yearning for reform, and Crown Prince Salman bin Hamad Al Khalifa was the man for the job. Even when he was younger, he was well respected by his father’s generation and the youth for his Western education at the Royal Military Academy Sandhurst and Cambridge University, and his progressive economic views.
His appointment as Crown Prince happened in the same year as the coronation of his father in 1999. In 2013, he was appointed Deputy Prime Minister, and over the decades, he built an image as the architect of Bahrain’s economic reform.
He created a sort of shadow government via the Economic Development Board (EDB) to push change around an otherwise entrenched political establishment. In the 2000s and 2010s, Salman bin Hamad Al Khalifa quietly championed initiatives to modernise governance, attract investment, and invest in people.
Under his leadership, the EDB helped design and launch Bahrain’s “Economic Vision 2030.” It was formulated in 2008 as a strategic plan to diversify the economy beyond oil. Vision 2030 sets out goals to build a knowledge-based economy and double household incomes by the target year.
Boosting business activity and encouraging small business growth take centre stage in the strategy. Efficiency and openness within public institutions receive equal attention. Improving learning outcomes and worker abilities also stands among long-term goals. New sectors such as finance and transportation logistics slowly gain momentum, with support for modern tech systems, and renewable power joins this effort. Relying less on oil for funding has become a priority moving forward.
Around 2015, hints began appearing that Bahrain’s economic shift was gaining momentum. According to the World Bank’s Doing Business rankings released in 2019, Bahrain stood at 43rd place worldwide, noted among the fastest-improving economies, thanks to bold regulatory changes. Instead of long waits, starting businesses now faces far fewer hurdles due to streamlined procedures.
Digital systems replaced paper-based approvals for building projects, cutting delays. Even court proceedings moved faster, with reforms aimed at speeding up legal resolutions. Nowhere was growth louder than in fintech, where overseas funds began flowing fast. Logistics drew interest, too, along with factories needing capital. Tourism also drew attention, becoming one of the busier destinations for outside money.
Notably, Bahrain built on its early financial heritage. Unlike newly developed Gulf hubs, it has a long-standing banking sector and was the first in the region with a modern stock exchange and central bank. Under Salman’s stewardship, Bahrain doubled down on finance and tech.
Cost analyses have repeatedly shown Bahrain as the lowest-cost GCC hub for fintech (about 48% cheaper than peers). Global firms took note: Citigroup opened a major tech hub in Manama, planning 1,000 Bahraini jobs, and JPMorgan Chase launched a Gulf tech centre.
Even through the uncertainty, the figures stayed put right up until 2022, showing a close to 4% jump, all while oil prices slipped. Right after the COVID-19 pandemic, Bahrain jumped into recovery mode. Thanks to solid public health moves plus steady change efforts, its budget gap almost vanished overnight.
By 2022, that gap had dropped close to 1.2% of economic output, down from about 6.4% just a few years before. Public borrowing also levelled off when measured against the national size. Higher crude prices helped, yet steady spending changes played a key role too.
In 2019, it brought in a 10% value-added tax to boost income, while 2022 saw a similar 10% tax on profits for bigger companies roll out. Many believed those strict changes would finally help cover public spending costs.
A niche strategy
Bahrain’s path is starkly different from its neighbours. It neither has Saudi Arabia’s oil reserves nor Dubai’s vast development budgets, but the Kingdom focuses on small-state advantages like agility, cost-competitiveness, and specialised sectors.
Consider financial technology. The Kingdom has positioned itself as a regional fintech hub with striking success. Another strength that Bahrain has is its agile decision-making. It was the first in the region to adopt fintech-friendly licences and blockchain initiatives, moving quickly where others hesitated.
Back in 2018, Bahrain was one of the first in the world to pass a “data embassy” law, allowing foreign tech firms to host data on Bahraini soil under their home country’s legal jurisdiction. It was an audacious move, and global tech titans who needed data sovereignty guarantees flocked to the archipelago.
An easier comparison to make is with Dubai’s growth strategy. The UAE’s crown jewel emphasises large-scale tourism, sprawling real estate developments, and high-profile spectacles like “Expo 2020” to draw millions of visitors and expatriates. Saudi Arabia, meanwhile, is embarking on massive, oil-funded megaprojects like NEOM to diversify its economy through sheer financial force.
Bahrain has instead exploited quieter strengths. Its workforce is well-educated, with 54% of Bahrainis holding college degrees. The Middle East is notorious for gender disparity, yet Bahrain’s private sector ranks among the highest in the Arab world, with roughly 50% of the labour force being women, compared to about 33% in the UAE. These reflect decades of investment in human capital and social policy.
Another major point of differentiation is financial transparency. It has garnered an image over the years of a liberal banking centre with a strong regulatory framework and lower taxes. It’s always been wary of corporate taxation and has been content with oil revenue and government fees.
In fact, it was one of the last nations in the GCC to impose a corporate tax. They did in 2022 but have announced a 10% corporate tax in 2025, which is comparable to their neighbours, and their domestic fuel prices are now tied to global benchmarks.
These were painful, unpopular, but necessary reforms. Saudi Arabia and the UAE, with their sovereign wealth funds and vast oil resources, could procrastinate on such measures, but Bahrain was forced to make necessary changes due to a scarcity of resources. It was a test of political will that is paying off.
The architecture of transformation
The Prime Minister’s economic reform was not incremental but a reconstruction. The EDB pulled $1.5 billion from new project proposals in 2024 under his leadership. Even Citigroup and JPMorgan Chase built tech hubs in Manama.
Crown Prince Salman bin Hamad Al Khalifa didn’t just tinker with subsidies; he dismantled them. Fuel and utility price reforms, introduced tentatively in 2016-18, became permanent fixtures by late 2025. Electricity and water tariffs climbed upward, though protections shielded the poor from the harshest impacts. Government salary growth flatlined.
These weren’t popular decisions, as they sparked grumbling across coffee shops and majlises, but they worked. By 2023-24, credit rating agencies like S&P began acknowledging reality. Bahrain’s outlook was improving because the structural bones had been reset.
Infrastructure demands collided with budget constraints, producing an unexpected solution, which is public-private partnerships at scale. Roads materialised, housing developments sprouted, schools opened their doors, all financed through private capital, while the government conserved its dwindling resources.
A multi-billion-dollar housing expansion signed in 2024 exemplified this model, transferring fiscal strain from public coffers to private balance sheets. Perhaps most symbolically, Bahrain sold a minority stake in BAPCO itself to international investors.
The move accomplished two goals simultaneously. It injected capital and imported technical expertise. For a nation built on state-owned petroleum, privatising even a fraction of the national oil company marked a psychological threshold.
Also, international assessments began placing Bahraini students above regional averages in mathematics and science. The Crown Prince himself became a fixture at student delegations, preaching the gospel of STEM education to teenagers who would inherit this transformed economy. Today, Bahrain boasts one of the Arab world’s highest proportions of female board members in publicly listed companies.
Crown Prince Salman bin Hamad Al Khalifa’s bold plans for artificial intelligence (AI) and digital upgrades across the nation began as early as 2018. The same year, filing for business bankruptcy lost its criminal label, easing fear and shame tied to financial risk. In IMD’s 2025 list across countries, Bahrain ranked fourth, ahead of much larger places, for worker skills, a result some found hard to believe given that under 1.5 million people live there.
Where are we now?
As of 2025, Bahrain stands at a crossroads. The economy is notably more diversified than it was a decade ago. Oil now contributes under 20% of GDP, whereas financial services, manufacturing, and tourism each account for significant shares.
The banking sector is robust, and Bahrain has become a small-scale centre for hospitality, with international hotels and some cruise traffic, and logistic re-exports. Petroleum refining and some petrochemicals still add value, but at this stage, it’s service-led growth.
International ratings reflect cautious optimism. The IMF’s 2023 Article IV report highlights that Bahrain’s fiscal deficit shrank to about 1% of GDP and that authorities are “strongly committed” to further reforms. The Central Bank maintains ample foreign reserves. In surveys, investors now rank Bahrain’s legal framework and transparency above many neighbours.
Under Crown Prince Salman bin Hamad Al Khalifa’s leadership, Bahrain has turned a corner from a complacent oil rentier to a more diversified, future-oriented economy. His blend of consensus-building, technocratic management, and openness to innovation has been a departure from both Bahrain’s own recent past and from some of its more conservative neighbours. As regional economies grapple with post-oil realities, Bahrain’s experience, and the Crown Prince’s role in it, will be watched closely as a test case of small-state adaptation.