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A small group of islands linked by causeway to Saudi Arabia, Bahrain recently became a constitutional monarchy. Since 1999, the country has been ruled by Sheikh Hamad bin Isa Al-Khalifa, who has committed to a process of gradual democratization. In February 2001, Sheikh Hamad held a referendum on his National Action Charter, which called for constitutional reforms. The Charter received the approval of 98 percent of the electorate, and in February 2002, Sheikh Hamad declared himself king and Bahrain a constitutional monarchy. He also called for parliamentary elections in October. The new bicameral legislature (to be made-up of a lower chamber of elected representatives and an upper house of appointed legislators) was Bahrain's first since the National Assembly was dissolved in 1975. Though the elections occurred without irregularity, turnout was only 53 percent due to the decision by Shi'ite groups to boycott the election. The king responded to Sunni Islamist candidates' capture of most of the seats in the lower house by appointing secular MPs to the upper house.
Since 1948, the United States Navy has made Bahrain its headquarters for activity in the Persian Gulf, and more than 5,000 U.S. military personnel are currently stationed in Bahrain. At present, its base occupies more than 60 acres of land in Manama, the country's capital, and is the headquarters of the U.S. Navy’s Fifth Fleet. The U.S. and Bahrain also have a Free Trade Agreement (FTA), which was signed in September 2004. Already a regional financial services center specializing in offshore banking, Bahrain is intent on further diversifying its generally liberalized economy. For the time being, the country remains heavily dependent on the oil sector. Petroleum revenues make up about two-thirds of government revenue and export earnings. Hydrocarbons also provide the foundation for Bahrain's two major industries: refining and an aluminum smelter. Accordingly, oil prices dramatically affect Bahrain's economy. The relatively high oil prices of recent years have helped Bahrain's real gross domestic product (GDP) to grow at 5.4 percent in 2004 and an estimated 5.3 percent for 2005. Growth for 2006 is forecast at 5.5 percent. These relatively strong growth rates have not kept unemployment from becoming a growing economic and political problem.