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Cablegate: Future of Bahrain: Ambassador's Parting Thoughts

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PP RUEHDE RUEHDIR
DE RUEHMK #0669/01 2000658
ZNY SSSSS ZZH
P 190658Z JUL 07
FM AMEMBASSY MANAMA
TO RUEHC/SECSTATE WASHDC PRIORITY 7032
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEHAM/AMEMBASSY AMMAN 1339
RUEHEG/AMEMBASSY CAIRO 0950
RUEHLO/AMEMBASSY LONDON 1002
RUEKJCS/SECDEF WASHDC
RHMFISS/HQ USCENTCOM MACDILL AFB FL
RHBVAKS/COMUSNAVCENT

S E C R E T SECTION 01 OF 07 MANAMA 000669

SIPDIS

SIPDIS

E.O. 12958: DECL: 07/20/2032
TAGS: PREL PGOV PHUM PINR ETRD ECON BA POL OFFICIALS
SUBJECT: FUTURE OF BAHRAIN: AMBASSADOR'S PARTING THOUGHTS

Classified By: Ambassador William T. Monroe. Reason: 1.4 (B)(D)

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SUMMARY
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1. (S) Bahrain faces numerous challenges as it attempts to
deal with transitional issues of economic development and
political reform. Because the country's Sunni-Shia sectarian
divide so dominates the local landscape, the path forward is
potentially more treacherous for Bahrain's leadership than
for the rulers of other GCC countries. The sectarian issue
affects much of what the USG is trying to do in Bahrain, most
notably our freedom agenda, as seen in the NDI saga, and our
counterterrorism cooperation. It is also a factor in the
country's shift to a more socially and religiously
conservative society; although King Hamad and the Al-Khalifas
are generally moderate and secular in outlook, the King has
made a political calculation to ally with Sunni Islamists in
Parliament in the face of Shia opposition. A key factor for
Bahrain as it deals with the many challenges it confronts in
a complex regional environment will be the quality of its
leadership. Like Bahrain itself, the royal family is going
through a period of transition, from the traditional tribal
leadership of the Prime Minister to the modern, technocratic
approach of the Crown Prince, who while waiting in the wings
is managing economic reform. The King himself is the
transition from the old to the new. With sectarian tensions
in the region rising and disaffected Shia youth willing and
ready to challenge the regime, there is a harder edge to the
sectarian divide that may cause increasing problems for the
ruling family. The betting here, however, is that Bahrain's
"shock absorbers" are sufficiently strong to give the
government the space it needs to implement economic reforms
and improve the well-being of its people. In this context,
the U.S.-Bahrain relationship remains strong: trade ties have
been bolstered significantly with the FTA; the U.S. Navy
presence remains welcomed and has been strengthened by
Bahrain's decision to join the coalition; Bahrain's new
Parliament offers promising prospects for more engagement;
and CT cooperation has improved since the government's
mishandling of six Sunni terror suspects in 2004 precipitated
the departure of Navy dependents.

--------------------------------------------
BILATERAL RELATIONS -- STRONG AND BROADENING
--------------------------------------------

2. (C) As I get set to depart after three years as
Ambassador to the Kingdom of Bahrain, the U.S. relationship
with this small island country is strong, healthy, and
broadening. Despite continuing negative local press coverage
and editorializing about U.S. policies in the region, support
for the U.S. Navy presence and base in Bahrain remains
generally strong and has weathered the departure of all Navy
dependents in 2004. In fact, the Navy's relationship with
Bahrain has been strengthened by Bahrain's decision to join
the coalition and participate actively in CTF-150 and
CTF-152. The trade relationship has been bolstered
significantly by the implementation of the free trade
agreement. Trade is expanding rapidly, the newly-formed
American Chamber (Amcham) in Bahrain is growing and making
itself known as an active presence in Bahrain, and the
U.S.-Bahrain Business Council made a big local splash with
its initial trade mission to Bahrain in May.

3. (S) Our freedom agenda took a hit with the closure of
NDI's office in June 2006, but NDI is starting to resume
programming and, following the broader participation of Shia
oppositionists in the November parliamentary elections,
prospects look promising for more robust engagement with
politicians and civil society. The government's current
focus on education is a natural for us, offering
opportunities for enhanced programming. The government's
handling of the six Sunni terrorist suspects, whose abrupt
release precipitated the 2004 departure of the Navy
dependents, remains a reminder of the difficulty of actually
prosecuting Sunni extremists in Bahrain, but CT cooperation
has since improved and, by Gulf standards, is good and
collaborative. To date, the government has largely succeeded
in neutralizing the small number of Sunni extremists of
concern to us. On the regional diplomatic front, new Foreign
Minister Shaikh Khalid has proven to be a supportive voice,
especially on the Israeli-Palestinian question, and the
government is essentially like-minded on Iraq, Iran, and
Lebanon. But Bahrain, small as it is and with a constant eye

MANAMA 00000669 002 OF 007


on neighboring Saudi Arabia, will never be a leading player
in the region on key foreign policy issues.

------------------------
PROSPECTS FOR THE FUTURE
------------------------

4. (C) Bahrain, like many countries in the region, is at a
bit of a crossroads as it struggles to deal with critical
issues of economic development and democratic reform.
Because it does not have the oil wealth of its Gulf neighbors
and because its Sunni-Shia sectarian divide so dominates the
economic and political reform debate, the path forward is
potentially more treacherous for Bahrain's leadership than
for the rulers of other GCC countries. There is no
indication that the Al-Khalifas will not be able to chart the
course ahead in a positive, stable way or that U.S. interests
will be threatened. But the challenges ahead will require
good leadership. And regional developments, especially in
Iran and Iraq, will have an impact. If developments in Iraq
and Iran move in a way that further exacerbates sectarian
tensions, the path forward in Bahrain will be all that more
daunting.

5. (C) Bahrain is facing the same challenges that many
countries in the region are facing, including pressures for
democratic reform, the need to develop and reform the
economy, rising Islamic extremism, sectarian tensions, and
security threats. How the royal family and government deal
with these challenges will say much about Bahrain and its
future.

-----------------
DEMOCRATIC REFORM
-----------------

6. (C) King Hamad has taken important first steps in
launching Bahrain on the road of democratic reform. His
approach of gradual steps with safeguards to protect the
minority Sunnis (and ruling Sunni royal family) has critics,
both from Sunni conservatives who think he has moved too fast
and Shia activists who have little trust in the ruling family
or its intentions. On the positive side, the King succeeded
in drawing the largest Shia opposition group -- Al-Wifaq
--into the parliament, and political discourse and press
reporting is as lively and open as it has ever been.
Parliament, while still finding its way, is playing an
increasingly important oversight role. The press, especially
Shia-oriented Al-Wasat, has successfully raised sensitive
issues of concern ranging from environmental damage to royal
family behavior.

7. (C) At the same time, however, the current system is
flawed, most notably through a gerrymandered electoral map
designed, at least for now, to keep the Shia majority
population from gaining control of the elected parliament.
The King says that his ultimate goal is to create a
constitutional monarchy where the royal family plays a
paternal role as protector of all Bahrainis, Shia and Sunni
alike. Whether he succeeds hinges on two questions. First,
in the short run, will the King and the Sunni-controlled
government allow Al-Wifaq enough parliamentary successes so
that it can justify its decision to join the Parliament and
win the battle for the hearts and minds of the broader Shia
population? Al-Wifaq already faces stiff opposition from the
rejectionist Haq group. Second, in the longer run, is the
Sunni royal family truly willing to see democratic reform
proceed to its logical conclusion where Shia MPs control the
parliament? Al-Wifaq leader Ali Salman talks of the day --
admittedly far in the future -- when Bahrain would have a
Shia Prime Minister, a concept even liberal royal family
members (much less Bahrain's Saudi neighbor) have trouble
imagining.

8. (C) For U.S. interests, Bahrain's sectarian divide will
continue to hamper our efforts to support democratic reform.
For many Sunni, support for democracy translates into support
for the Shia majority. The recent flare-up in controversy
over a possible NDI return illustrates the sensitivity of our
democratic programming. Still, the new parliament, which is
extremely short on expertise and experience, offers promising
opportunities for cooperation, which NDI is adroitly trying
to exploit.

--------------------
ECONOMIC DEVELOPMENT

MANAMA 00000669 003 OF 007


--------------------

9. (C) With Bahrain's limited petroleum resources, economic
development and transformation of the economy to compete
successfully in the globalized economy will be key
challenges. The government has taken some important steps in
the right direction. It has moved solid technocrats with
clean reputations into key positions (e.g., Shaikh Ahmed at
Finance, Hassan Fakhro at Industry and Commerce, and Abdul
Hussein Ali Mirza at Oil and the Tender Board). It has
started to corporatize state corporations, putting many of
them under a Singapore-style holding company, Mumtalakat. It
has established and beefed up another Singapore-style
organization, the Economic Development Board, to lead the
economic development effort. The King has charged his
American-educated son, Crown Prince Shaikh Khalifa, with
responsibility to oversee the economic reform effort. The
Crown Prince has spearheaded an effort to reform the labor
market, aimed at lessening dependence on cheap imported labor
and providing incentives to increase productivity. And
Bahrain has signed an FTA with the U.S., symbolically
signaling its intention to actively participate in the global
economy and more practically giving an important boost to the
country's trade and investment climate.

10. (S) That said, the country faces significant economic
challenges. Despite concerted efforts by Shia Minister of
Labor Majid Al-Alawi to deal with the unemployment problem,
unemployment remains a sensitive and potentially explosive
issue among the country's Shia. Poverty does exist in
Bahrain, and many poorer Bahrainis have trouble making ends
meet. People are genuinely concerned about rising prices and
lack of affordable housing. The government, in addition to
training and finding jobs for less skilled workers who
compete with foreign labor and are heavily Shia, must help
create employment opportunities for the increasing number of
university graduates. Finally, despite important efforts to
improve transparency and institutionalize commercial law, the
royal family still casts a large shadow over the economy,
with its inevitable stake in major development projects, its
extensive control over real estate, and its ability to make
or break business deals. The economy is growing at a healthy
6 percent rate, the real estate sector is booming, economic
reforms are being introduced, the telecommunications sector
is opening up, and a new port will soon be inaugurated, so
there is much positive to report. But many poorer Bahrainis
do not yet feel the benefits. That will be a key challenge
for the government.

-----------------
ISLAMIC EXTREMISM
-----------------

11. (C) Like much of the Islamic world, Bahraini society has
turned more socially and religiously conservative in recent
years, a striking development in a country long known as a
center of openness and moderation in the Gulf. This trend is
likely to continue as Islamists, who now dominate parliament,
try to flex their muscles. The trend can be seen at Bahrain
University, where almost all female students are now covered
(a sharp contrast from a generation earlier). It was seen in
the sharp parliamentary attacks against a mildly provocative
dance show presented during this year's Spring of Culture
festival, and in recent tourism office circulars aimed at
restricting locations where alcohol can be served. Bahrain's
wooing of Islamic Banks is also having an impact. Islamic
banks are financing several new projects which include
upscale hotels, like the just opened Banyan Tree and
Arcapita's planned Four Seasons. Bahrainis and expats alike
are just now discovering that these hotels will not serve
alcohol. Islamist parliamentarians periodically bring up
their desire to ban alcohol more broadly, criticize
permissive entertainment, and talk of the need to segregate
Bahrain University by sex.

12. (S) Ironically, although King Hamad and the Al-Khalifas
more generally are for the most part moderate and secular in
outlook, the King has made a political calculation to ally
with the Sunni Islamists in Parliament, an approach that
serves to increase the Islamists' clout. He feels he needs
the support of the Sunni Islamists as a counterweight to the
large Shia bloc in the parliament, which is considered the
opposition. Although the more liberal, moderate Sunni or
non-sectarian political societies might seem to be the King's
natural ally, on many issues including democratic reform and
government/royal family oversight they often in fact align

MANAMA 00000669 004 OF 007


themselves with the Shia oppositionists. With the King
supporting the Sunni Islamist parties, the result is an
elected Parliament dominated by three religious-based
parties, two Sunni and one Shia, who hold 32 of the 40 seats.


13. (C) This is not to say that the moderates have given up.
In fact, there are some hopeful signs. The Islamist attack
on the Spring of Culture generated the first significant
popular counter-reaction we have seen, although it is unclear
if that will be sustained. After years of essentially ceding
Bahrain University to Islamist influences, the government has
appointed a moderate new President (a good contact of the
Embassy), over the opposition of Islamist elements at the
university. Ministry of Justice and Islamic Affairs
Undersecretary Fareed Al-Muftah has launched a determined
effort to promote moderation in the mosques, and has welcomed
USG help in this endeavor. There is a recognition that
Bahrain's campaign to strengthen its tourist industry will
suffer if alcohol laws are too restrictive; the CEO of the
Islamic Bank behind the Banyan Tree told us he is looking for
a solution to the alcohol problem, perhaps by creating a new,
non-Islamic company to buy out the hotel. Clearly, a major
challenge for the government in the coming years will be to
balance its goal of creating an open, investor-friendly,
globalized economy with its perceived need to maintain the
support of the country's strong Sunni Islamic movement.

------------
SECTARIANISM
------------

14. (C) Bahrain's demographic make-up, with a Sunni-minority
royal family ruling over a Shia majority population ensures
that sectarianism permeates all issues in the country.
Several factors have made the issue more sensitive in recent
years: the sectarian tensions aroused by the war in Iraq, the
sense that Iran and/or Shia power is rising, and the push for
democratic reforms which, for Sunnis in Bahrain, raises the
specter of Shia electoral dominance. Human rights in Bahrain
is framed in sectarian terms -- it is the Shia who have been
disadvantaged politically and economically, and don't have
access to certain jobs (especially in the military).
Although there are poor Sunni in Bahrain, poverty and
unemployment are likewise framed in sectarian terms.
Bahrain's press is admirably more open and free-wheeling, but
it is increasingly sectarian as well. Al-Wasat, run by
former Shia exile Mansour Al-Jamri, focuses heavily on
Shia-related issues, often giving front-page coverage to
controversial issues that are not even reported in two
Sunni-associated dailies (Akhbar Al-Khaleej, whose editor is
close to the Prime Minister, and Al-Watan, which has ties to
the King's palace). Akhbar Al-Khaleej and Al-Watan, in turn,
have a decidedly Sunni slant, both in news reporting and
editorial commentary. Al-Wifaq leader Shaikh Ali Salman
recently told us that the sectarian divide is not only
sharper than it was in the past, but is sinking deeper into
the roots Bahraini society.

15. (C) Currently, there are splits within both the Shia
community and the Bahrain Sunni leadership on how best to
deal with Bahrain's sectarian divide. Leading Shia political
society Al-Wifaq, after boycotting the 2002 parliamentary
elections, made a calculated decision to try to work within
the system. Al-Wifaq participated in the 2006 parliamentary
elections, and Al-Wifaq leader Shaikh Ali Salman has held
high-profile meetings with the King and PM, helping secure
the release of Shia arrested in connection with local
demonstrations and gaining a commitment on wages. Still,
Shia rejectionists - led by Haq movement - seem to be gaining
some ground in the poorer villages as Shia youth react to
heavy-handed police tactics, economic frustrations, the
perceived inability of Al-Wifaq to pass meaningful
legislation, and long-term dissatisfaction with the
Al-Khalifas. A part of the Haq strategy is to provoke the
police to overreact to demonstrations, increasing Shia
distrust of and alienation from the government.

16. (S) There are elements in the royal family that are only
too happy to oblige the Shia activists and crack down hard on
the demonstrators. The royal family is, in fact, divided on
how to deal with the Shia. More moderate Al-Khalifas,
exemplified by the Crown Prince, are focused technocratically
on creating the economic, education, and labor reforms that
will provide the necessary job creation for all Bahrainis and
essentially coax disgruntled Shia into the system. They are

MANAMA 00000669 005 OF 007


less focused on democratic reform, but seem to accept it as
an inevitable component of overall reform. In contrast,
royal family hard-liners, exemplified by the Prime Minister,
are wary of reform for many reasons: the demographic threat
posed by the majority Shia, whose loyalty to Bahrain (i.e.,
connections with Iran) has long been questioned; concern that
democracy, and by extension noisy street demonstrations, will
scare investors away; and -- most importantly -- the
potential threat to the Al-Khalifa regime that reform may
ultimately pose. Although one of the key hard-liners is
Royal Court Minister and close King confidant Shaikh Khalid
bin Ahmed, the views of the King are less clear. It was the
King, after all, who launched the reform movement, talks of a
day when the King will serve as a constitutional monarch
paternalistically protecting the interests of all Bahrainis,
and infuriates hard-liners by regularly ordering the release
or pardon of Shia extremists and demonstrators. And yet, he
does little to reign in Shaikh Khalid bin Ahmed and his
hard-line allies.

----------------
COUNTERTERRORISM
----------------

17. (S) The sectarian issue continues to color Bahrain's
approach to counterterrorism. For the government and ruling
family, the existential threat is Iran and its historical
claims to Bahrain. Iran's increased aggressiveness under
President Ahmadinejad, coupled with perceived Iranian inroads
in Iraq, have only heightened Bahraini concerns. The
government is only too happy to have us focus on potential
threats from Iran and their alleged Shia allies in Bahrain.
In contrast, Sunnis, even Sunni extremists, form the base of
support against a potential Shia/Iranian threat. The
government fully understands that any kind of terror attack
by Sunni extremists in Bahrain -- against U.S. or Bahraini
interests -- would be a disaster for the country and its
economy, and it is ready to cooperate with us fully to make
sure that doesn't happen. But our future cooperation will
continue to be affected by two factors: Bahraini confidence
that, in this small island country, the authorities can stay
one step ahead of and deal with any extremists planning a
local operation; and Bahraini reluctance to move against or
alienate the Sunni Islamist community at a time of heightened
concern about Iran and rising Shia influence in the region.

----------------
THE ROYAL FAMILY
----------------

18. (S) The key factor for Bahrain as it deals with the many
economic, political, and security challenges in this complex
regional environment will be the quality of its leadership,
most notably the senior members of the royal family. Like
Bahrain itself, the royal family is going through a period of
transition, from the traditional tribal leadership of former
Amir Shaikh Issa and his brother Prime Minister Shaikh
Khalifa, who has been in power since independence in 1970, to
the more modern approach of Crown Prince Shaikh Salman, who
while waiting in the wings has been charged with managing
economic reform. In between is King Hamad who, in the words
of Deputy Prime Minister Jawad Al-Arrayid, is straddling the
transition from tribal to modern leadership.

19. (S) The Prime Minister is definitely old school. He is a
traditional Arab leader who enjoys greeting people at his
majlis, attending weddings and condolence calls, and making
gestures to people in need. He has no interest in economic
or political reform. He is disliked by many Shia as the
symbol of Sunni domination and repression, and for the wealth
he has amassed through his tight control over the economy.
For the King, he serves a useful purpose, both as a
lightening rod drawing away criticism from the younger
generation and for the attention he pays to the Sunni base.
Although it would be a mistake to underestimate the power of
the PM, in fact his powers are eroding. Through several
Cabinet changes, the King has moved out key Prime Minister
supporters from economic-related ministries. Al-Wasat editor
(and former Shia exile) Al-Jamri says that Minister of the
Royal Court Shaikh Khalid bin Ahmed is now the de facto PM,
and that Shaikh Khalifa is currently more focused on
protecting his business interests and his family's future.
The PM initially reacted sharply against the Crown Prince's
economic reforms, but lately seems to have acquiesced. Many
of his old cronies who held key Cabinet positions now serve
as advisors to the PM; the PM, it is said, is determined to

MANAMA 00000669 006 OF 007


demonstrate that the Al-Khalifas remain loyal to those who
faithfully serve the Al-Khalifas. He reportedly recognizes
the limited capabilities of his two sons, DPM Shaikh Ali and
especially Shaikh Salman.

20. (S) King Hamad is truly caught in the middle. He is the
transition from the traditional tribal leadership style of
his father and uncle to the modern technocratic style of his
son. He is caught between the liberal Al-Khalifas who
support his reform efforts and those who fear change and
democracy. He is caught between those Sunnis who completely
distrust the Shia and want to crack down hard on
demonstrators and those who want to reach out and bring Shia
into the system. He is caught between his desire to be a
regional leader on reform and those neighbors -- especially
Saudi Arabia -- who worry about the influence his reforms
might have elsewhere in the region.

21. (S) The King is also a bit of an enigma. He favors
reform, but lost much Shia support and trust when he appeared
to pull back from his initial reform proposals. He wants to
reach out and support the people of Bahrain, but lacks his
father's or uncle's touch with the people, is uncomfortable
in majlis-like settings, and increasingly seems to isolate
himself in his palace where he invites trusted friends and
advisors to nightly dinners and discussions rather than
mixing more broadly with the people. He is a true friend of
the United States and its policies in the region (and the
U.S. military), yet courts harshly anti-American Sunnis and
allowed his Royal Court Minister to call the shots in closing
down NDI's Bahrain operations. He counsels patience and
understanding with the Shia, but permits hard-line royal
family members to crack down hard against Shia interests.

22. (S) Long-time King confidant Hassan Fakhro captured a key
element in the King's personality when he said that his
biggest strength is that he is not vindictive. He is a
forgiving man. This frustrates those in the Royal Family who
feel he is too soft on the demonstrating Shia activists (who
will never forgive the Al-Khalifas). But it may prove to be
just the right approach to move Bahrain through the
transition.

23. (S) The Crown Prince represents the future of Bahrain.
On many levels that is a very good thing, for Bahrain and for
the U.S. U.S.-educated (DOD's Bahrain School and American
University), Shaikh Salman talks and thinks like an American,
and is an impressive and articulate interlocutor in venues
ranging from bilaterals with U.S. leaders to discussions at
Davos. He evinces an air of technocratic confidence and is
intently focused on creating a modern, competitive,
globally-connected economy in Bahrain. In areas under his
purview, he can act decisively. He has stayed away from
political issues (democratic reform), leaving that for his
father. But there is no doubt that he sides with the
moderate wing of the family.

24. (S) Universally respected abroad, Shaikh Salman does have
his detractors at home. Some members of leading business
families, particularly those that have tied their commercial
fortunes to the Prime Minister, have resented the young Crown
Prince's efforts to shake up the economy (and perhaps
jeopardize their privileged positions). Like his father, the
Crown Prince is not comfortable cultivating people in
traditional Arab settings such as majlises, and leaves an
impression that he has somewhat isolated himself with a
selected group of like-minded, similarly-aged friends and
colleagues. Known for his fondness of cars, he is accused of
drawing from the country's treasury to create his own pet
project, the Formula 1 racetrack (in fact, there are signs
the Formula 1 project may turn out to be a shrewd,
investment-attracting endeavor for Bahrain). Perhaps most
critically, there are increasing grumblings that the Crown
Prince is showing a familiar Al-Khalifa trait of exploiting
Bahrain's land (and more recently, water to be exploited
through re-claimed land projects) for his own personal
wealth. The extensive Al-Khalifa land holdings, in fact,
could become a potentially destructive grievance if the whole
economic and political reform process is not handled
correctly and in a way that benefits all Bahrainis.

-----------------------------------
CONCLUSION: STRONG SHOCK ABSORBERS?
-----------------------------------

25. (S) With sectarian tensions in the region rising, and

MANAMA 00000669 007 OF 007


disaffected Shia youth willing and ready to challenge the
Al-Khalifa regime in the villages and on the streets, there
is a sense of a harder edge to the sectarian divide that may
cause increasing problems for the ruling family. And there
is definitely a greater sense of despair and frustration,
especially among poorer Shia, than there was when I arrived
here three years ago. I recently asked Deputy Prime Minister
Jawad Al-Arrayid, a long-serving Shia Minister who has
managed to maintain excellent ties with the King, PM, and CP,
whether he was worried about increasing Shia anger in the
streets and the threat it may pose to the Al-Khalifa
leadership. Al-Arrayid said that Bahrain is like a car with
extremely strong shock absorbers. These strong shock
absorbers allow Bahraini society to pass through very bumpy
roads. They will give the Bahraini government the space it
needs to implement its economic reforms and improve the
economic well-being of its people. After observing Bahrain
for the last three years, I believe he is right.

********************************************* ********
Visit Embassy Manama's Classified Website:
http://www.state.sgov.gov/p/nea/manama/
********************************************* ********
MONROE

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