Unrest hurts trade in 'business friendly' Bahrain

The Associated Press
Thursday, March 17, 2011; 11:52 AM

DUBAI, United Arab Emirates -- Bahrain's stock exchange and a few bank branches reopened Thursday, but business remained far from normal a day after soldiers and riot police overran an anti-government protest camp in the Gulf island kingdom.

Shops and malls stayed shut in much of the capital, Manama. Soldiers, some backed by armored personnel carriers and tanks, were stationed throughout the city's downtown, including outside the Bahrain Financial Harbor, an office complex that symbolizes the tiny nation's role as a regional banking hub.

Two international banks, HSBC and Standard Chartered, were able to resume only a fraction of their normal operations. All of their Bahrain branches were shut Wednesday as security forces cracked down on protesters and imposed overnight curfews under newly granted martial law-style powers.

"Bahrain was perceived to be a stable hub for finance in the region. I think a lot of investors will reevaluate the situation" following the latest unrest, said Ayham Kamel, a Middle East analyst at the Eurasia Group in Washington.

Gulf Air, Bahrain's national carrier, closed ticket offices except those at the airport and canceled all flights to Iran and Iraq. It didn't say why flights to only those two countries were affected. A spokeswoman cited "operational reasons" as the cause of the cancelations.

Both Iran and Iraq, like Bahrain, have majority Shiite populations. Other Mideast countries that Gulf Air serves are mostly Sunni. Flights to Iraq are scheduled to resume Friday, and those to Iran on Monday. Gulf Air said all other flights are operating as normal.

The Mideast's biggest airline, Emirates, announced it was canceling some flights between Bahrain and Dubai, but later reversed the decision.

The struggle inside Bahrain appears increasingly framed along sectarian lines, as the country's Sunni monarchy and its backers attempt to retain power and maintain order, and a Shiite-led opposition calls for sweeping political reforms. Troops from Bahrain's Gulf allies, led by Saudi Arabia, began arriving earlier this week to bolster the country's efforts to restore security.

The unrest is doing serious damage to Bahrain's image as a commercial center, where even the passport stamps issued to incoming visitors declare the kingdom as "Business-friendly Bahrain."

King Hamad bin Isa Al Khalifa toured the capital's financial center Thursday, aiming to ensure the "continuity of work at financial institutions" and government offices there, according to the state-run Bahrain News Agency.

Roughly half the country's residents are expatriates, including many who work in the financial sector and other professional industries. Many come from South Asia, though there are also thousands of Westerners, including Britons and Americans.

Britain on Thursday urged its citizens "without a pressing reason" to be in Bahrain to leave the country. The UK government is chartering planes to evacuate Britons who want to leave to nearby Dubai.

The U.S. earlier in the week urged its citizens to defer travel to Bahrain and said those already there should consider leaving.

Bahrain is a tourist destination in the Gulf, particularly for visitors from more conservative Saudi Arabia, a short drive away across the King Fahd causeway.

That industry has already taken a hit from the cancellation of this month's Formula 1 race, and is likely to continue to suffer following the intervention by Saudi troops that opposition groups have labeled as "occupiers."

"A lot of Saudi tourists could find it increasingly risky to travel to Bahrain after these events," Kamel said.

Bahrain's stock exchange reopened Thursday after shutting its doors the previous day. Shares edged a tenth of a percentage point higher.

HSBC reopened one of its four branches Thursday, in the upscale Adliya district, but only for a shortened 2-1/2 hour shift. Standard Chartered said it reopened two of its seven branches, in Muharraq and Riffa, and its head office in the country. All the banks' branches were closed Wednesday.

Both banks said their workers are safe. HSBC said its ATMs are stocked and functioning normally.

Credit rating firm Moody's Investors Service warned that Bahrain's creditworthiness could be hurt by the ongoing unrest, and that the arrival of Gulf troops this week increased tensions throughout the region.

"We believe that there is a substantial risk that the medium-term credit fundamentals of Bahrain will be impaired by the present crisis, which seems unlikely to be resolved in the near future," Moody's analyst Tristan Cooper said.

Another credit agency, Fitch Ratings, earlier this week cut its ratings on Bahrain and its sovereign wealth fund by two notches because of concerns about the deteriorating political situation.


Barbara Surk in Manama contributed reporting.

© 2011 The Associated Press