Bahrain's economic crisis heightens stability risks

Significance

With oil prices at an eleven-year low and a budget breakeven price of over 120 dollars, fiscal pressures are spiralling in Bahrain. The kingdom faces the most severe fiscal adjustment of all Gulf Cooperation Council (GCC) states and is likely to become a litmus test for whether politically sensitive economic reforms can be pushed through and implemented across the Gulf.

Impacts

• Other GCC states will increase aid to Bahrain, but will only be able to alleviate its crisis partially due to their own fiscal constraints.
• Growing ISG activity in Bahrain will reinforce its deep sectarian fissures which represent a new security threat to the regime.
• Crown Prince Salman will use the economic crisis to try to regain the centre ground in Bahraini politics lost to hardliners in 2011.
• This would improve Bahrain's longer-term political stability outlook.