Even as mainly Shiite Muslim protesters camp out in Pearl Square demanding major reforms, the deciding factor in the outcome for Bahrain could be neighboring Saudi Arabia.

Behind the scenes and away from the streets, Saudi Arabia, a key U.S. ally and top oil supplier, is seeking to return to the status quo in Bahrain - or at least to slow down calls for change. That Bahrain’s Shiite majority could gain more rights and powers from the ruling Sunni Muslims, Saudis think, could lead to unrest among their own Shiites, who live in Saudi Arabia’s oil-rich Eastern Province. In that case, reforms and economic incentives might not be enough to stop a movement from spreading there.

Bahrain is the first Persian Gulf country to be hit by the unrest that’s sweeping the Middle East, and Saudi Arabia is one of the last U.S. allies in the region since the regimes in Egypt and Tunisia fell. Although Bahrain is a tiny island of less than a million, what happens here could unleash calls for change in the much larger and powerful Saudi Arabia. It’s a case of Goliath fearing David’s wrath.

At stake are oil prices, which are now at their highest since October 2008, and even relations with the United States, which is walking a fine line between promoting the will of the people and supporting a longstanding ally.

In Saudi Arabia, officials already have quashed several small attempts to launch protests against some government decisions. Three days after the revolt began in Egypt, for example, roughly 50 residents protested the government response to deadly floods in Jeddah. They were promptly arrested.

Protesters in Manama are calling for Bahrain to become a constitutional monarchy, rather than an absolute one. Such a shift probably would give the Shiite majority more power. As the Saudis see it, that represents instability for them; Saudi Arabia’s Shiite minority could then rise up and ask for more freedoms its own.

Protesters in Manama threatened Wednesday to lash out at the Saudi regime if it thwarted their efforts, though they refused to give their names.

“If they stop us, we will go there,” one protester yelled.

For Saudi Arabia, the best outcome in Bahrain is enough change to pacify protesters but not so much that it risks government structure, said James Denselow, a Middle East writer and former researcher for Chatham House, a policy research center in London.

“Instability could not get more on Saudi’s doorstep than Bahrain,” Denselow said. “The outcome that Saudi Arabia wants is … for everybody to leave the streets and that small changes be managed by the elite. They want a slow process.”

As with much of what happens in Bahrain, Saudi influence occurs under a veil of secrecy. But there have been some telling signs of the scale of Saudi impact. Bahraini King Hamad bin Isa al Khalifa left the country Wednesday for the first time since the unrest began to meet his Saudi counterpart, King Abdullah, who had just returned home hours earlier after three months of medical treatment in the U.S. and recovery in Morocco. Observers said they think that the Bahraini king consulted with the Saudis over what to do next.

Earlier in the week, the Saudi Council of Ministers said in a statement: “The kingdom will stand by the sisterly state of Bahrain with all its capabilities,” which some Shiites in Bahrain interpreted as a threat to send military aid.

Many think that Saudi influence - coupled with a sizable minority here that has benefited from a Bahrain guided by Saudi Arabia - will thwart efforts for major reform, even as crowds remain camped out at Pearl Square, the main demonstration site. Bahrain’s crown prince has called for national dialogue, but neither the government nor the Shiite opposition groups have codified their positions, and discussions have yet to get under way.

Instead, the Bahraini monarchy said it had released 308 political prisoners since Tuesday; opponents said 12-year-olds were among them, and many of them joined protesters at Pearl Square.

On Wednesday, before King Abdullah landed back in Saudi Arabia, the Saudis announced that they will spend billions of dollars on economic aid to help their more impoverished citizens buy homes and start businesses in an attempt to keep protests from rising in the kingdom. Two weeks ago, the Saudis gave nearly $3,000 to every family in the country.

The Bahraini economy, which generates roughly $25 billion of gross domestic product annually, depends equally on tourism, the government, industry and financial services. Three of those four sectors account for around three-fourths of the GDP, and they’re directly or indirectly tied to Saudi Arabia. Saudis invest in Bahraini banks to conduct finances outside the watchful eye of the regime; Saudi Arabian oil revenues fund the Bahraini government; and three-day jaunts of escapism are key to Bahraini tourism.

“Saudi Arabia is not just a big neighbor to the west; it is safe to say that they have had a major influence on the economic development of Bahrain. The operating budget of the government is mostly oil related, 75 percent of which is of Saudi origin,” said a Western official here, speaking only on the condition of anonymity in order to be more candid. “That buys them a certain amount of influence.”

There are important social impacts as well. Many call Bahrain Saudi Arabia’s Las Vegas.

As soon as some Saudi women, who are banned from driving in their home country, enter Bahrain on the King Fahd Causeway, they jump into the driver’s seat. They take themselves to places such as the Arabic disco on the top floor of the Riviera hotel and pay hundreds of dollars to sit freely in Islamic garb and enjoy cold beers. Scantily clad women greet Saudi men at another bar downstairs.

Three days later, the Saudis whisk themselves over the bridge again and back into one of the most conservative societies in the world.

But Bahrain, the Saudis’ much-needed release valve, now has closed off. Traffic along the causeway between the countries has dropped dramatically, Bahraini officials who work on the border said, and businesses that cater to Saudis said their dealings had come virtually to a standstill. Indeed, supporters of the regime said the economic impact was a big reason to stop the protests.

Riviera hotel manager Mohammed al Shihab said that usually 50 percent of his patrons were Saudis. But only a handful of his 65 rooms are occupied these days. There are no reservations at the Arabic disco, just four fully stocked refrigerators of beer and refreshments. At the Sweetheart bar downstairs, four women in strapless dresses smoked hookahs and waited for the men who never arrived.

These days, Shihab said, he’s closed the Arabic disco altogether: “I can’t keep a disco open for four people.”

He said he wished the protests would stop; Bahrain can’t afford it.

“Now there is no life here,” he said. “Everybody is losing.”

By NANCY A. YOUSSEF

Saudi King Abdullah has enough oil money to avoid the kind of social upheaval seen among the poor in Egypt and Tunisia, but the ageing monarch must reform if he is to keep a lid on dissent, analysts and diplomats say.

Although the top oil exporter has more than $400 billion in petrodollars stashed away to address social grievances, Saudi Arabia must address issues such jobs and housing, and the desire of an internet-savvy generation to have its voices heard.

While his countrymen were glued to their television screens watching the fall of Egypt’s Hosni Mubarak and Tunisia’s Zine al-Abidine Ben Ali, Abdullah has spent the last three months convalescing abroad, leaving reform plans stalled.

In a tightly controlled country with 19 million people and no tradition of political opposition, Saudis have slowly begun griping on Twitter about corruption. Last week Islamists launched an opposition political party, a taboo in the kingdom.

In the second-largest city Jeddah, anger built up after floods killed at least 10 people, triggering rare protests and dozens of newspaper editorials questioning why authorities were not better prepared and the state of infrastructure.

“I think people expect (the leadership) now to deal seriously with their problems,” said political analyst Khaled al-Dakhil, citing unemployment, housing, dependency on foreign labour and corruption as issues that need to be addressed.

ABSENT KING, ELECTIONS ON HOLD

Since taking power in 2005, Abdullah has done almost nothing to alter a political system of absolute monarchy, and little to change a social code that imposes some of the world’s most severe restrictions on personal behaviour.

Even narrowly-focused reforms, such as opening technical universities and launching training programmes for teachers and judges, have met with doubt from some parts of a powerful conservative clerical establishment.

The health-related absences of the king, who is around 87, and his brother and designated successor Crown Prince Sultan — out of the country for most of the past two years for unspecified treatment — have left reforms in limbo.

“Progress on policymaking of all kinds seems to be very slow at the moment,” said the Economist Intelligence Unit’s Jane Kinninmont. “In a system where decision-making is usually very top-down, the absence of these leaders really slows down policy activity.”

Saudi Arabia held municipal elections in 2005 before Abdullah took office, then seen as a step on the road to overhauling its political structure. But a fresh round of elections in which women hoped to participate was shelved in 2009 due to conservative opposition, according to diplomats.

Elections for a parliament have yet to be announced.

Riyadh has been trying to reassure allies the government is working normally while Abdullah is recuperating in Morocco after undergoing surgery over a slipped spinal disk in New York.

“Several government projects have been held up. Reforms which require the authority of the king seem to be put on hold,” said a Saudi-based analyst who declined to be named. “I think Abdullah should come back as soon as possible.”

Analysts had expected Abdullah to reshuffle his cabinet to inject fresh blood, but the cabinet’s term expired more than a week ago and no new cabinet was announced, suggesting ministers — some in office for 30 years or longer — will stay for now.

Many Saudis are waiting for King Abdullah to approve a much-delayed mortgage bill to provide affordable housing. The bill requires the king’s authority as the housing shortage touches the sensitive issue that most land is owned by royals.

“A mortgage law is one area that would give hope to one million households who need assistance to get their own homes,” said Daniel Broby, Chief Investment Officer at British fund manager Silk Invest which is invested in the Saudi bourse.

Education is one of the areas where some reform has begun, but the system still struggles to produce the scientists, engineers, economists and lawyers the country needs.

Overshadowing any long-term reform plans is the unanswered question of succession in a country that has been ruled for nearly 60 years by a single generation of kings, all sons of the founder of the state, King Abdul-Aziz.

When Abdullah went abroad, Sultan who is only slightly younger returned to run the country in his absence. If both are incapacitated, another brother, Interior Minister Prince Nayef, is expected to take the throne. Nayef is viewed as a conservative and suspicious of reforms.

Eventually the throne must pass to a younger generation. The king has set up a family council to regulate succession but has not made clear how and when it will begin work. Meanwhile, younger Saudis are growing impatient for change.

“Nobody will call for (regime) change but there will be people calling for political reforms,” said prominent Saudi journalist Jamal Khashoggi.

“People have demands, people have frustrations.”

Saudi Authorities have arrested tens of protesters on Friday after hundreds of people took part in a demonstration in one of Jeddah’s main commercial streets, Al Tahlia street.

The demonstators chanted anti government slogans and called for regime change after floods had destroyd the city for the second year running.

It is alleged that an angry women who had lost all her children in the floods had incited members of a mosque, which added extra imputus to the demonstration.