Bahrain's small size and central location among Arabian Gulf countries require it to play a delicate balancing act in foreign affairs among its larger neighbours. Facing declining oil reserves, Bahrain has turned to petroleum processing and refining and has transformed itself into an international banking center.

Sheikh HAMAD bin Isa Al Khalifa, who came to power in 1999, has pushed economic and political reforms. In February 2001, Bahraini voters approved a referendum on the National Action Charter - the centerpiece of Sheikh HAMAD's political liberalization program.

In February 2002, Sheikh HAMAD pronounced Bahrain a constitutional monarchy and changed his status from amir to king. In October 2002, Bahrainis elected members of the lower house of Bahrain's reconstituted bicameral legislature, the National Assembly.