The Permanent Tension
The Bahrain-Iran relationship is the Gulf’s most sensitive bilateral dynamic — a fault line defined by sectarian division, historical claims, security threats, and a mutual hostility that has intensified over recent decades. For Bahrain, Iran represents both an existential security concern and a geopolitical constraint that shapes domestic politics, security spending, and the investment climate in ways that few other bilateral relationships in the region approach.
Understanding this relationship is essential for any serious assessment of Bahrain’s risk profile. The sectarian dimension, the security dimension, and the economic dimension are inseparable.
The Sectarian Dimension
Bahrain’s population includes a significant Shia majority governed by a Sunni ruling family — the Al Khalifa dynasty. This demographic-political structure creates a domestic vulnerability that Iran has historically exploited or been accused of exploiting. Bahrain’s government has consistently alleged Iranian interference in domestic affairs, including support for opposition movements, funding of religious institutions, and intelligence operations aimed at destabilising the kingdom.
Iran’s perspective — that it has a natural affinity with Bahrain’s Shia population and a legitimate interest in their treatment — is viewed in Bahrain and among its Gulf allies as a cover for geopolitical interference. The Iranian parliament has periodically included members who describe Bahrain as an Iranian province, and historical Iranian claims to sovereignty over Bahrain (relinquished in 1970 following a UN-supervised survey) remain a source of deep anxiety in Manama.
The 2011 unrest in Bahrain — which included protests by predominantly Shia populations demanding political reform — was interpreted by the Bahraini government and its Gulf allies as evidence of Iranian destabilisation efforts. This interpretation, regardless of its accuracy in all particulars, hardened the government’s security posture and deepened the adversarial relationship with Tehran.
Security Implications
The security implications of the Bahrain-Iran dynamic are pervasive. Bahrain maintains a substantial security apparatus relative to its size, with spending on internal security and defence that reflects the perceived threat from both external Iranian pressure and internal opposition.
Bahrain has severed diplomatic relations with Iran during periods of acute tension and has accused Iranian-backed groups of plotting attacks on Bahraini territory. The kingdom’s participation in the Saudi-led coalition in Yemen was partly motivated by the Bahrain-Iran dynamic — Yemen’s Houthi movement being viewed as an Iranian proxy that could threaten Gulf states including Bahrain.
The US Fifth Fleet’s presence in Bahrain provides a direct security counterweight to Iranian naval and military capabilities in the Persian Gulf. The American presence deters conventional military threats but cannot eliminate the asymmetric security risks — intelligence operations, cyber threats, and proxy influence — that characterise Iran’s approach to the Gulf.
Investment Risk Factor
The Bahrain-Iran dynamic creates a measurable risk premium for investors considering Bahrain. The possibility — however remote — of kinetic conflict, the ongoing security costs, and the political sensitivities associated with Bahrain’s sectarian structure all factor into risk assessments.
International credit rating agencies incorporate geopolitical risk into their Bahrain sovereign assessments. The kingdom’s credit ratings reflect not only fiscal metrics but also the political and security environment, where the Iran factor is a permanent consideration.
For foreign companies and financial institutions operating in Bahrain, the Iran relationship creates compliance considerations. US, EU, and other international sanctions on Iran require careful monitoring of any transaction that might involve Iranian counterparties or sanctioned entities. Bahrain’s financial services sector — the kingdom’s most important non-oil industry — must maintain rigorous sanctions compliance to preserve its international banking relationships.
Economic Consequences
The economic consequences of the Bahrain-Iran tension are primarily indirect but significant. Elevated security spending diverts fiscal resources from economic development. The risk premium increases the cost of government borrowing. The sectarian dynamic complicates domestic labour market policies, as Bahrainisation programmes must navigate the sensitivities of a workforce divided along sectarian lines.
Tourism is affected by periodic security concerns. While Bahrain has maintained stability and safety for visitors, the perception of geopolitical risk can deter some international tourists and business travellers, particularly during periods of elevated tension.
The tension also limits Bahrain’s economic options. Iran represents a market of 85 million people directly across the Persian Gulf — a market that, under different geopolitical circumstances, could provide trade, tourism, and investment opportunities for Bahrain. The adversarial relationship precludes these economic possibilities.
Outlook
The Bahrain-Iran relationship shows no signs of fundamental improvement. The sectarian, historical, and geopolitical factors that drive the tension are structural rather than conjunctural. Changes in Iranian or Bahraini leadership may modulate the intensity of the antagonism, but the underlying dynamics are deeply embedded.
For Bahrain’s Economic Vision 2030, the Iran factor is a permanent environmental condition rather than a problem to be solved. The vision must be executed within a security environment shaped by this tension, with the costs and constraints it imposes. The kingdom’s strategy — maintaining strong alliances with Saudi Arabia and the United States, investing in internal security, and building economic resilience through diversification — is essentially a management strategy for a geopolitical reality that cannot be fundamentally altered.