For centuries, Bahrain depended almost exclusively on trade (or piracy), pearl diving, and agriculture. The discovery of oil on 1 June 1932 came at a time when the pearl trade was being drastically undercut by the development of cultured pearls. Although its economy has been based on oil for the last six decades, Bahrain's development has been tempered by relatively limited reserves. Proven reserves are 125 million barrels, all from one diminishing oil field, the Awali field. At current production levels, the field has a life of less than 10 years. The oil industry accounted for 60% of export earnings, 60% of government revenues, and approximately 30% of GDP in 2001.
Significant progress has been made in enhancing Bahrain as an entrepôt (trade center) and as a service and commercial center for the Gulf region. Bahrain provides ample warehousing for goods in transit and drydock facilities for marine engine and ship repairs. Bahrain also acts as a major banking, telecommunications, and air transportation center. Bahrain made the move to diversify its economy—moving to rely on services to a higher degree—after the Lebanese civil war in the late 1970s and early 1980s essentially ended that country's status as a safe, regulation-free banking environment. The strategy has worked to a large extent. Since establishing itself as an offshore banking center in 1975, the banking sector of the economy now has assets of $99.5 billion, with $85.7 billion (86%) in offshore banks. Services accounted for 64% of all economic activity in the country.
The Bahrain economy slowed down considerably after 1993, grinding to a halt in 1994. Average annual growth averaged 4% between 1988 and 1998, buoyed by investment during the early 1990s. In 1998, it experienced a contraction of 2% due to low world oil prices. Positive real growth returned in 1999, of 2.6%, and has improved to 3% in 2000 and 4% in 2001.