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Bahrain and Iran

The number-one security concern of King Hamad and Sheikh Khalid is Iran. The Sunni ruling family of tiny, Shi'a-majority Bahrain have long recognized that they needed outsiders -- first the British, then the United States -- to protect them from predatory neighbors, Iran foremost among them. Both Shahs and Ayatollahs have asserted claims to sovereignty over Bahrain from time to time. While keeping close to their American protectors, Bahrain's rulers seek to avoid provoking Iran unnecessarily, and keep channels of communication with Iranian leaders open.

The Sunni al-Khalifa family took Bahrain in 1783 from another Arab clan that acknowledged Persian overlordship. As the British were leaving Bahrain in 1971, the last Shah of Iran asserted, then withdrew, a claim of sovereignty over the country. After the Islamic revolution in Iran, the clerical regime has from time-to-time publicly re-asserted these claims during exercises in nationalist muscle-flexing. A recent was in 2007, when the semi-official Kayhan newspaper ran an editorial that asserted an Iranian claim to Bahrain. Bahrain -- and the USG -- loudly denounced the editorial, and the GOB eventually announced that it was satisfied with the editor's statement that he did not speak for the government.

Bahrain and other Arab governments pounced on media reports that an Iranian official described Bahrain as "Iran's fourteenth province." International Arabic daily Al Quds al Arabi 10 February 2009 attributed the statement to Ali Akbar Nateq-Nuri, described as "inspector general" in the office of Supreme Leader Khamenei. Nateq-Nuri was formerly Interior Minister and speaker of Iran's parliament. Bahrain's MFA told media that foreign minister Khalid bin Ahmad Al Khalifah summoned Iranian Ambassador Hossein Amir-Abdolahian to protest. Amir-Abdolahian separately told the press that Nateq-Nuri's statement did not reflect Iranian government policy.

Sixty to seventy percent of Bahrain's 500,000 citizens are Shi'a. (The other half-million residents are guest workers.) With the exception of a few merchant families, Shi'a Bahrainis are poorer than Sunni Bahrainis. Most Bahraini Shi'a are Arabs, but about 10-15 percent of Bahrainis are ethnically Persian, and speak Persian at home. Many of these descend from families who came here to work in the British administration or, starting in the 1930s, in the oil industry. Persian-speakers (mostly Shi'a, a few Sunni) now tend to belong to the professional classes.

By one rough estimate, perhaps 30 percent of the Shi'a here follow clerics who look to more senior clerics in Iran for guidance. The majority look to Ayatollah Sistani in Iraq, and a few to Muhammad Fadlallah and others in Lebanon. Bahrain's most popular Shi'a cleric is Sheikh Isa Qassim, who has occasionally endorsed the Iranian regime's doctrine of velayat-e faqih, and as a result is a lightning rod for loud Sunni criticism, and quieter criticism from some more orthodox Shi'a clerics.

A number of Bahrain's middle-aged clerics studied in Qom during the years when Saddam obstructed study in Iraq. Several Bahraini clerics currently teach in Qom. The pious among Bahrain's Shi'a are very happy that they again have access to study and pilgrimage in Iraq's holy cities. A delegation of Shi'a community leaders visited Najaf in July for the opening of the new airport there, and was widely feted upon their return to Bahrain. Our Shi'a contacts hail the opening of the Najaf airport as a sign of a resurgent Iraq that will regain its prominence as the center of Shi'a learning and religious authority. As a result, we expect religious ties with Qom to subside in coming years.

Bahrain's Sunni rulers view Iran with deep suspicion, and support USG efforts to pressure Iran to change its behavior. But the Al-Khalifas also seek to keep channels open, and make occasional gestures to placate their large, touchy neighbor. President Ahmadinejad visited Bahrain for five hours in November, 2007, followed by President Bush's two-day visit in January, 2008. The GOB vetoed the plans of a prominent local Shi'a, with Iranian government funding, to build a charity hospital, but the GOB continued protracted negotiations with Tehran over the potential purchase of Iranian natural gas. Bahrain's leaders sometimes speak to U.S. officials of their genuine worries that Iranian missiles are sighted on targets such as the NAVCENT headquarters in downtown Manama and the royal palaces. Nevertheless, the GOB is careful to keep its public positions on Iran anodyne.

Bahrain has a growing but limited trade relationship with Iran. Despite Iran's size and proximity, it is not one of Bahrain's top-20 trading partners. According to published Ministry of Finance figures, bilateral trade totaled only $33.7 million in 2004, grew to $99 million in 2005, and remained constant at $108 million in both 2006 and 2007 -- accounting for less than 1% of Bahrain's total trade. In contrast, bilateral trade with the U.S. reached $1.2 billion in 2007, behind only the EU and Saudi Arabia. The Bahrain-Iran trade relationship primarily consists of Bahrain exports of petroleum and mining products, and professional and financial services. Imports from Iran are minimal.

In looking at developments in the Gulf, Lebanon, Gaza and Iraq, the Government of Bahrain sees a concerted campaign by the regime in Tehran to spread its extremist ideology throughout the region. It seeks to counter this threat through more assertive and robust regional cooperation with the United States. Bahrain's leadership pushed to host the GCC plus 2 because it believes this forum represents the best hope for accomplishing that objective.

Bahrain's Central Bank carefully monitors Iranian money flows. Financial services account for almost thirty percent of Bahrain's GDP. The Bahrain leadership is well aware of the damage that illicit Iranian activity would have on Bahrain's reputation, which in banking and finance is everything. Moreover, they share our desire to prevent Iran from exploiting the international system to fund terror and weapons proliferation. They are outspoken in their calls for GCC neighbors to exercise the same degree of careful oversight.

As a banking and financial center, the GOB has been responsive on counter-terrorism finance issues, and has affirmed its support of UNSCRs 1737, 1747, and 1803. In 2004, Iranian Bank Melli and Bank Saderat, together with Bahraini Ahli United Bank formed a joint venture to create Bahrain-based Future Bank BSC. Following U.S. sanctions against Banks Melli and Saderat, and in consultation with Embassy Manama and U.S. Treasury, in 2007 the Central Bank of Bahrain enjoined Future Bank from engaging in new business with Iran, effectively took control of the Board of Directors, and saw Ahli United Bank place all shares of Future Bank in a blind trust. The GOB stated that a blind trust was necessary because Ahli United was unable to divest itself of its interest in Future Bank since it was perceived by the market as "tainted" by the Iranian association. Ahli United, Bahrain's largest lender, had already suspended all new transactions with Iran by August 2007. Future Bank's deposits currently total about $275 million -- a fraction of 1% of a consolidated balance sheet for the Bahraini Banking system that exceeds $155 billion.

Bahraini government officials sometimes privately tell U.S. official visitors that some Shi'a oppositionists are backed by Iran. To date, there is no convincing evidence of Iranian weapons or government money here since at least the mid-1990s, when followers of Ayatollah Shirazi were rounded up and convicted of sedition. The so-called Shirazis were subsequently pardoned and some now engage in legal politics as the very small Amal party, which has no seats in Parliament. Nevertheless, if Iran became embroiled in armed conflict, Bahrain's Shi'a would be sympathetic, and the likely street demonstrations would be an internal security concern for the Government. Bahrain will likely continue its careful engagement with Tehran, including senior visits, diplomatic representation, trade ties, and the limited presence in Bahrain of Iranian banks. At the same time it will continue to support, behind the scenes, U.S. pressure on Iran to change its behavior, and will continue to welcome a robust U.S. military presence in Bahrain and in the Gulf.

On the political side, the Bahraini leadership is following very closely media speculation about potential scenarios for military confrontation with Iran. Regional tensions may be adding to long-standing domestic tensions as well, contributing to the stridency of sectarian voices in Bahrain. The majority of Bahraini citizens are part of the Shi'a underclass, and their grievances, expressed both in legal political activity and in street skirmishes between youths and police, are at the center of all domestic politics.