ANALYSIS: Saudi Arabia buffeted by Bahrain riots, Yemen unrest

Dubai (Platts)--18Feb2011/501 am EST/1001 GMT

Saudi Arabia, the oil Goliath which holds in its hands the only significant spare production capacity that can meet any potential global supply disruption, has been besieged by bloody riots in neighboring Bahrain and a growing anti-government protest south of its border in Yemen.

All this while King Abdullah is out of the country recuperating in Morocco from two rounds of back surgery that some say have weakened the octogenarian monarch who many consider as a stabilizing forces in a tumultuous Middle East now that ally Hosni Mubarak is out of power in Egypt.

Sources close to the Saudi al-Saud royal family say the king is preparing to return to Riyadh within days though it is not yet clear if King Abdullah is fully recovered or whether the events of recent days hastened his decision.

Since the start of the January 25 popular uprising in Egypt, international crude oil benchmark Brent crude oil prices have been oscillating at levels just above $100/barrel, rising at one point to highs above $104/b as more Middle Eastern and North African countries such as Libya and Algeria, both OPEC oil producers serving the European and US oil markets, joined their Egyptian and Tunisian brethren in demanding regime change.

The small kingdom of Bahrain is one of the few Arab states in the Persian Gulf region that has no oil wealth to speak of, relying on its Saudi neighbor for crude oil from a shared oil field.

The anger that has spurred bloody confrontations in Manama, which lies across the Persian Gulf from leading Shi'ite power Iran and is a regional banking center, is led by the majority Shi'ite Muslim population railing against the Sunni Muslim royals in charge of government.

The tiny island state is also host to the US Fifth Fleet, which leads the international naval force policing the Persian Gulf waterway and the Strait of Hormuz, through which some 40% of total tradable oil is shipped to world markets from Saudi Arabia, Kuwait, Qatar, the UAE, Iran and Iraq.

Bahrain, which is bracing for angry protests on Friday, borders Saudi Arabia's Eastern Province, the kingdom's main oil producing hub and home to its disenfranchised minority Shi'ites, many of whom have family ties to Bahrainis across the causeway that spans a narrow strip of the Persian Gulf.

King Abdullah's departure in late December for surgery in the US for a herniated back and a haematoma had already revived concerns about a potential power struggle in the world's energy powerhouse.

The king's half-brother Sultan and next in line Prince Nayef are both in their 80s, and a succession beyond the immediate future uncertain in a country that holds one fifth of global oil reserves.

Fear of contagion to other Arab states once Egypt's Mubarak bowed to popular pressure and relinquished power after 30 years at the helm of the Arab world's most influential nation has propped up oil prices in recent weeks.

ELEPHANT IN THE ROOM

But analysts say it would be simplistic to assume that a common template applies to Persian Gulf states, where oil wealth and generous state subsidies tends to act as a buffer against popular discontent.

Thomas Lippman of the Washington-based Council on Foreign Relations said in an interview February 17 posted on the Saudi-US Relations Information Service that there are differences between Egypt and Saudi Arabia, the US's strongest regional allies.

"In fact, the situation in Saudi Arabia is more different from the situation in Egypt than it is alike. First, King Abdullah is personally popular, unlike Egypt's ousted President Hosni Mubarak. Second, the Al-Saud family is widely understood to be -- and accepted as -- legitimate rulers of the kingdom," said Lippman.

"Furthermore, the Saudi regime, unlike the one in Egypt, has more than enough money to spread around," he said, adding that the entire business and religious establishment in Saudi Arabia is "intertwined" with and dependent upon the ruling royal family.

King Abdullah, the world's Arab monarch, is a pragmatist and a modest reformist, who has had to balance the demands of the conservative Wahabi Muslim establishment in the desert kingdom, with the aspirations of ordinary Saudi men and woman hoping for a bigger slice of the oil-based economy.

"Abdullah has been much more forthcoming than his predecessors in making some social, political, and professional space for women. He has publicly curtailed the arbitrary power and the capricious behavior of the so-called religious police, the mutaween, who are actually behavior police," wrote Lippman, adding that the reforms, which do not amount to any kind of popular democracy, are "top down" rather than arising from popular unrest.

But one Saudi businessman says he can see problems ahead as more of the kingdom's oil wealth is distributed among the many members of the vast royal family. "There is going to be a smaller piece of the pie for ordinary Saudis, and four or five years down the line I see trouble."

In Egypt, where a million members of the youth-led movement plan to celebrate Mubarak's ouster a week ago today, one blogger noted that the revolution that has inspired the wave of Arab revolts is far from over.

"But it is only the end of the beginning. What begins now is the struggle for Egypt's future and we hope that it will be rebuilt slowly but surely and without external interference," wrote Rosemary Sabet, a long term British resident of Cairo who has kept a daily blog of events there.

As Lippman noted, a "politically 'comatose' Middle East" has been awakened by the protests that have rocked Arab capitals from Tripoli to Sanaa. "...suddenly there is a giant elephant in the room in every Arab capital, which is the idea that change is possible..."

--Kate Dourian, kate_dourian@platts.com

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