Imagine a country with the population of MANHATTAN but with huge reserves of oil and gas.
A country surrounded by the wealthiest oil rich monarchies.
Where am I talking about?
Exactly!
Bahrain!
A country so tiny that we almost can’t see it on the map.
Yes, yes, I know what you’re thinking… life must be wonderful here, right?
Money for everybody, a prosperous economy and amazing growth, right?
Well… the opposite is true.
Bahrain Downgraded To Junk, As Political Crackdown Continues Unabated
Yes, you heard that right.
Bahrain debt is considered to be a junk bond on the international market.
This means, investors are so hesitant about their economy that they don’t believe Bahrein
will be able to give those loans back.
The truth is… things in Bahrain are getting really sour.
If you’ve follow VisualPolitik for a long time, you already know that, within the Islamic
world, there are two big groups: SUNNI muslims and SHIA muslims.
And they hate each other.
As you know, Saudi Arabia is something like the SunnI Muslim Hollywood.
And the Islamic Republic of Iran is the same but for the Shia Muslims.
This is why they have been in a cold war for decades.
In the context of this cold war, Bahrain has the funniest situation of all.
Basically, in this country, the majority of the population is SHIA muslim.
But the Royal house that rules the country is SUNNI muslim.
This is why their monarchs have turned political oppression into an art.
OK!
So far, nothing that will surprise you.
But hey!
The title of this video is…
Why Bahrein could become the world’s wealthiest country… or something like that.
So why do we say that?
Because of this.
Bahrain discovers largest oil field in country since 1932
Yes, my dear viewers.
They already already had dinosaur juice.
But now they have even more.
Basically, Bahrein could have more oil than Russia itself.
And with just a fraction of their population.
So… in summary, there are only a few people to share the money with.
But the question is… is this ENOUGH to become the wealthiest country on the planet?
Why, even with so much oil, are Bahrain’s debt bonds still considered junk?
What is going on this country?
Today we are going to answer to all of these questions but before we do, let’s take a
look back at history.
A GOLDEN CAGE
Look, if any of you want to become a dictador one day, here are some tips.
Basically, there are two ways to make people follow you.
The first one is the obvious one: good old oppression.
The problem?
If you go too crazy with the oppression… you’re risking a popular uprising.
We told you thousands of times here on VisualPolitik, being a dictator is a risky job.
Not many of them die of old age.
But… there is an alternative, healthier and more sustainable way: what we can call
the ‘money for nothing’ strategy.
Basically, you shower all your citizens in gold.
If they’re wealthy and they don’t need to get a job, they won’t worry about politics
at all.
So the AL KHALIFA family, the ruling family in Bahrain, has combined both of these methods
in a very effective fashion.
In fact, the Prime Minister, who happens to be the King’s uncle, holds the World record
for the longest-lasting ruler.
He has been in power since 1971.
Nonetheless… how can a SUNNY muslim family stay in power for such a long time in a country
with a SHIA majority population?
Well, as we said before, on one hand we have that good old iron fist.
Do you protest against the government?
Good!
You’ll automatically be considered a terrorist: they’ll send you to jail, give you the death
penalty, or just exile you.
And we aren’t talking about an isolated example here.
This is something that happens every week.
Bahrain strips 115 of nationality over 'terrorism' allegations
Over 700 people in Bahrain have had their citizenship revoked since 2012
And yes, I know what you’re going to say: ‘Oh, come on Simon, don’t be such a snowflake!
In other democratic countries they’d retire your citizenship too!’
And, of course, you’re right.
But the difference is the proportions.
For example, in United Kingdom, there are some examples, sure.
But there are one, two… ten… here we’re talking about hundreds.
And OK, you might say now… ‘well, but things are changing, right?
The World is evolving, the Middle East is getting more and more modern…’ well…
sorry to say it but, in this case, the opposite is true.
In 2011, during the arab spring, the SHIA citizens went to the streets asking for more
democracy.
Saudi Arabia, alongside with United Arab Emirates, send troops to help the Bahraini government
repress those demonstrations.
So today, 1 out of every 500 people in Bahrain are political prisoners.
Among them there are many shia leaders.
But not only that!
Since 2011, Bahrein has passed new laws to make it easier to retire one’s citizenship.
And believe me, losing Bahreini citizenship is a BIG shame.
Losing citizenship means that you lose all your Rights.
You must give up your passport, your driving license, you cannot own a house, a car, a
phone or a bank account.
You cannot marry in the country or have a bank account.
If you decide to leave, you cannot come back.
And if you happen to stay, you cannot leave.
In summary, opposing the government turns you into a second class citizen.
And… well… this is a big shame because, my dear viewers, being a first class citizen
is just GREAT.
And this is where the ‘money for nothing’ policy comes into play.
This is what we can call Bahrain’s social contract.
Basically, if you forget about politics, you don’t have to worry about anything.
Are you looking for a job?
You can get it in the government!
And don’t worry, nobody is going to check if you even go to the office.
Do you need to go to the supermarket?
Everything is subsidized!
Fuel your car?
Crazy cheap prices!
OK, OK!
And what happens if you wanna work for a private Business?
No problem!
The government guarantees quotes for local workers.
So no immigrant will take away your job!
This is, actually, the funniest part: the immigrant quotas.
Basically, they are meant to reserve the coolest Jobs for the locals.
For example, 50% of Bank workers have to be from Bahrain.
In the cool, fancy shops, 30%.
But construction workers?
Just 5%!
Why?
Well… because who wants to lay bricks under the Bahraini Sun?
Oh!
Let’s just leave that for the immigrants!
This is why 55% of the Bahraini population are immigrants.
And they are the ones who actually get work done.
And… well… to be fair, I have to make an aside here.
Look, having more immigrants than locals is very common in the Middle East.
For example, foreign citizens make up 75% of Qatar’s population.
But Bahrain is a pioneer in one way.
They are one of the few countries that ban the so-called KAFALA.
And what is KAFALA all about?
Well… this is a sort of modern-day slavery.
The KAFALA system links foreign workers with a national who is their patron.
This patron can decide whether the immigrant can change his or her job or even leave the
country.
So well…
Bahrain has abolished this inhuman practice so… there you go.
Nonetheless, despite all of this, what you now might wonder is…
Can a country where nobody Works prosper?
And the answer is… of course not.
120 DOLLARS Living without working is expensive.
They only manage it in Bahrain because of one thing: OIL.
Dinosaur juice makes up more than 60% of their exports and 75% of the government’s income.
But, in order to cover all the costs, the Government needs the oil barrel price at 120
dollars.
Less than that and they don’t make enough profit to make ends meet.
And you might wonder…
Is 120 dollars too much or too little?
Well, look, at a historic peak, in July 2008, oil was at 147 dollars.
But, as you know, in 2014, oil prices fell.
In January 2016, they went as little as 26 dollars.
And this explains news like this.
S&P cuts Bahrain rating to ‘B+’ So what did they do with low prices and lack
of income?
Of course, they took on more and more debt.
The result speaks for itself.
In just two years, public debt has gone from 7% to 70%.
And despite crude prices going up again… it seems pretty unlikely that it will reach
120 dollars a barrel anytime soon.
So far, Bahrain has already revoked subsidies on meat products… and this is just the beginning.
Bahrain will introduce VAT by end of 2018, says finance minister
Yes, you heard that right.
In Bahrain there is no tax on income and… so far they didn’t even have indirect taxation.
But the situation is desperate and they need to create new taxes that didn’t even exist
before.
But… what can this mean for Bahrain?
Well… do you remember how this particular authoritarian rule worked?
The Shia population accepts SUNNI oppression in exchange for money for nothing.
So when the economics fail… politics fail too.
Only a miracle could save the AL KHALIFA family… and the miracle… is this one.
THE OIL MIRACLE So far, Bahrain produces 200 000 oil barrels
a day.
This is nothing compared with the 10’s of millions in Saudi Arabia.
But this is insane if we take the country’s size into account.
As I said before, Bahrain has just discovered a big ass oil bed.
And they could start pumping dinosaur juice in less than five years.
According to the most optimistic analysts, this Could double production and end the deficit
problem.
The problem?
If you follow VisualPolitik, you might have already guessed it.
Not every kind of oil costs the same.
And this new oil bed has all the ingredients needed to be very, very expensive.
First of all, it’s underwater, which means that Bahrain must build platforms on the seafloor.
Second, it’s shale oil, which means it’s under a rock.
You need fracking technology to break that rock.
And that fracking technology is anything but cheap.
In this chart you can see the production cost of an oil barrel in different countries.
We can’t imagine how much fracking in Bahrain would cost.
But we can see how much it costs in United States.
If you pay attention to the chart, you’ll see that shale oil is significantly more expensive
than normal oil.
If Bahrain wants to make a profit, the barrel should cost over 60 dollars.
But, since they need a huge profit to cover all their expenses, they need an even higher
market price.
So what can save Bahrain from ruin?
Well… the answer is the same as it is in other Middle Eastern countries: diversification.
Producing other things apart from oil.
Which explains news like this.
Mondelez opens $90m ‘Factory of the Future’ in Bahrain
But, of course, if you really want to attract Business from other industries, you need something
other than oil beds.
You need rule of law, with clear taxes and a government that doesn’t send people to
jail without a trial.
We’ve told you this several times: Dubai and, generally speaking, the United Arab Emirates,
started this path years ago.
Not Saudi Arabia might follow suit…
although… we aren’t sure about that.
And it’s a matter of time that Bahrain did the same.
But of course, if those economic reforms mean that Bahraini people have to pay taxes or
even… work hard… then the ruling family will be in dire straits.
So the big question here is…
Do you think the Bahraini citizens will accept such an authoritarian government if they no
longer enjoy the money for nothing policy?
Do you think they’ll find a way to reform their system?
Please, leave your answer in the comment section below.
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