Bahrain is an archipelago state situated between the Qatar peninsula and the Saudi Arabian mainland. Only three of its islands are inhabited. Bahrain Island is connected to Saudi Arabia's Eastern Province by a causeway opened in 1986. Bahrain was the first Gulf emirate to export oil; its reserves are now almost depleted. Services such as offshore banking, insurance, and tourism are major employment sectors for skilled Bahrainis.

Bahrain is the smallest and most densely populated Arab state. The key division is between Sunni and Shi'a Muslims, about 30% and 70% of the population respectively. Sunnis hold the best jobs in business and government. Shi'a Muslims tend to do menial work and have a lower standard of living. The most impoverished Shi'a Muslims tend to be of Iranian descent.

Bahrain has a smaller expatriate population than many other Arab countries. The ruling al-Khalifa family has responded to declining oil reserves by diversifying the economy to provide service industry jobs for Bahrainis.

Bahrain is the most liberal of the Gulf states. Alcohol is freely available. Women have access to education and are not obliged to wear the veil. Since 2000 they have been entitled to participate in the Consultative Council.

Strengths

Oil and gas. Arab world's major offshore banking sector since 1980s. Inward investment. Tourism. Aluminum production.

Weaknesses

Depleted oil reserves and insufficient diversification. High unemployment. High levels of government borrowing.

The al-Khalifa family has dominated politics since 1783 by means of an effectively autocratic system, although the amir has been advised since 1993 by an appointed Consultative Council. A national charter of political reforms was approved by the council in 2000 and backed by the populace in a 2001 referendum. Under the charter, the council was elected from 2001 and the country was declared a constitutional monarchy in February 2002.

H.M. Shaikh Hamad bin Isa al-Khalifa, who succeeded as amir in 1999, supports the policy of economic liberalization initiated by his late father. The repeal of the State Security Law in 2001 promised an end to the detention of political dissidents. Many were Shi'a opponents of the regime, who are traditionally backed by Iran.

Bahrain remains dependent on its oil and gas industry. Production of crude oil has declined sharply since the 1970s, and there are fears that reserves may run out by 2010. As oil has declined, so gas has assumed greater importance. Most is used to supply local industries, particularly the aluminum plant, which was established in 1972.

The high-quality health service is free to Bahraini nationals. Some go abroad for advanced care. The Muharraq Health Center was upgraded in 2001.

Female literacy rates are above the Gulf average. Lack of funding has held up plans for a university.

Beneficiaries of the amir's extensive patronage form the wealthiest group in society. The country's largest community, the Shi'a Muslims, is also the poorest.

Bahrain has been ruled since 1783 by the al-Khalifa family.

• 1971 Independence from Britain.
• 1981 Founder member of GCC.
• 1990–1991 Bahrain supports US-led action expelling Iraq from Kuwait.
• 1994–1996 Shi'a unrest.
• 1999 Accession to throne of Shaikh Hamad bin Isa al-Khalifa.
• 2001 Referendum approves transition to democracy.