Iranian police dispersed hundreds of youths Tuesday at an Asian Champions League match between Iranian and Saudi sides protesting Saudi military aid to Bahrain in crushing a pro-democracy movement.

At the match between Iran’s Persepolis and the Saudi team Al-Ittihad, some 300-400 youths dressed in black and carrying Bahraini flags began protesting. They were first rounded up and isolated in a section of the stands before being expelled from the stadium shortly after the second half began.

The protesters, some of whom were arrested, shouted “Death to the Al-Sauds” and “Death to the Al-Khalifas” in reference to the ruling dynasties in Saudi Arabia and its tiny neighbour Bahrain.

Saudi Arabia had already unsuccessfully sought to have the match, won 3-2 by Persepolis, to be played in another country for security reasons.

Iran is a predominantly Shiite Muslim country that repeatedly expressed its solidarity with protesters in Bahrain, a Shiite majority country, as they demanded reforms from the Sunni Muslim dynasty ruling them.

In mid-March, a Saudi-led Gulf military force entered Bahrain at its government’s request. That freed up Bahraini security forces to crush the protest movement.

Manama, for its part, accused Tehran of supporting the demonstrations.

On March 14, 2011, Saudi Arabia launched its own “Brezhnev Doctrine,” exercising the right to militarily intervene to prop up an unpopular governing order. In the process, the Saudis have demonstrated how little they understand their own region and their own country. Saudi rulers have made a major mistake in casting the crisis in Bahrain as a sectarian conflict in which Iran’s Shia proxies are battling a benign Sunni ruling class for sake of Persian aggrandizement. The rebelling in Bahrain, as indeed throughout the region, is about a disenfranchised and impoverished majority seeking political representation and economic justice. The proper path for Bahrain’s al-Khalifa dynasty is to renegotiate its national compact and appreciate that as the Middle East finally joins the twenty-first century it has limited options beyond a constitutional monarchy.

The aging Saudi rulers nurturing their own misconceptions and conspiracies are hopelessly behind the curve as the Arab Spring gradually suffuses the entire Middle East. The yearning for democratic reforms and economic equality cannot be repressed through police tactics in Riyadh or forceful intervention in Manama. It would be wise for Washington to have a frank and unpleasant conversation with its ally of long-standing. Too often the lure of Saudi oil wealth has caused successive American administrations to placate their truculence. The old Arab bargain whereby the state exchanges material rewards for political quiescence is no longer relevant. If the Saudi monarchy and its Sunni subsidiaries want to survive the turbulent politics of the new Middle East, they will have to opt for political modernization as opposed to offers of bribes mixed with threats of violence.

The Iranian angle is as interesting as it is intriguing. The Islamic Republic is itself beset by a democratic uprising that it has tried to contain at the risk of its own illegitimacy. The Saudi move this week could not have come at a better time for the guardians of Iran’s theocracy. Tehran will likely continue its unequivocal condemnations and portray itself as champion of democracy without actually practicing it at home. By highlighting the deficiencies of the Arab political order and Washington’s seeming passivity, the clerical state can try to capture the region’s political imagination irrespective of its own tarnished reputation. But don’t expect any regional show of force by the Iranian regime. Tehran understands that it benefits the most by limiting itself to rhetorical attacks as opposed to a direct military intervention that could allow the Saudis to portray their power play as part of the effort to contain Iran.

U.S. policymakers must grasp that the crisis in Bahrain and elsewhere in the Middle East is not about Iran and should not be seen through the prism of U.S.-Iran confrontation. The sooner Washington emancipates itself from such flawed perceptions, the sooner it will be in position to craft a new, stable regional order.

Ray Takeyh, Senior Fellow for Middle Eastern Studies

For three months, the Arab world has been awash in protests and demonstrations. It’s being called an Arab Spring, harking back to the Prague Spring of 1968.

But comparison to the short-lived flowering of protests 40 years ago in Czechoslovakia is turning out to be apt in another way. For all the attention the Mideast protests have received, their most notable impact on the region thus far hasn’t been an upswell of democracy. It has been a dramatic spike in tensions between two geopolitical titans, Iran and Saudi Arabia.

This new Middle East cold war comes complete with its own spy-versus-spy intrigues, disinformation campaigns, shadowy proxy forces, supercharged state rhetoric—and very high stakes.

“The cold war is a reality,” says one senior Saudi official. “Iran is looking to expand its influence. This instability over the last few months means that we don’t have the luxury of sitting back and watching events unfold.”

On March 14, the Saudis rolled tanks and troops across a causeway into the island kingdom of Bahrain. The ruling family there, long a close Saudi ally, appealed for assistance in dealing with increasingly large protests.

Iran soon rattled its own sabers. Iranian parliamentarian Ruhollah Hosseinian urged the Islamic Republic to put its military forces on high alert, reported the website for Press TV, the state-run English-language news agency. “I believe that the Iranian government should not be reluctant to prepare the country’s military forces at a time that Saudi Arabia has dispatched its troops to Bahrain,” he was quoted as saying.

The intensified wrangling across the Persian—or, as the Saudis insist, the Arabian—Gulf has strained relations between the U.S. and important Arab allies, helped to push oil prices into triple digits and tempered U.S. support for some of the popular democracy movements in the Arab world. Indeed, the first casualty of the Gulf showdown has been two of the liveliest democracy movements in countries right on the fault line, Bahrain and the turbulent frontier state of Yemen.

But many worry that the toll could wind up much worse if tensions continue to ratchet upward. They see a heightened possibility of actual military conflict in the Gulf, where one-fifth of the world’s oil supplies traverse the shipping lanes between Saudi Arabia and Iran. Growing hostility between the two countries could make it more difficult for the U.S. to exit smoothly from Iraq this year, as planned. And, perhaps most dire, it could exacerbate what many fear is a looming nuclear arms race in the region.

Iran has long pursued a nuclear program that it insists is solely for the peaceful purpose of generating power, but which the U.S. and Saudi Arabia believe is really aimed at producing a nuclear weapon. At a recent security conference, Prince Turki al Faisal, a former head of the Saudi intelligence service and ambassador to the U.K. and the U.S., pointedly suggested that if Iran were to develop a weapon, Saudi Arabia might well feel pressure to develop one of its own.

The Saudis currently rely on the U.S. nuclear umbrella and on antimissile defense systems deployed throughout the Persian Gulf region. The defense systems are intended to intercept Iranian ballistic missiles that could be used to deliver nuclear warheads. Yet even Saudis who virulently hate Iran have a hard time believing that the Islamic Republic would launch a nuclear attack against the birthplace of their prophet and their religion. The Iranian leadership says it has renounced the use of nuclear weapons.

How a string of hopeful popular protests has brought about a showdown of regional superpowers is a tale as convoluted as the alliances and history of the region. It shows how easily the old Middle East, marked by sectarian divides and ingrained rivalries, can re-emerge and stop change in its tracks.

There has long been bad blood between the Saudis and Iran. Saudi Arabia is a Sunni Muslim kingdom of ethnic Arabs, Iran a Shiite Islamic republic populated by ethnic Persians. Shiites first broke with Sunnis over the line of succession after the death of the Prophet Mohammed in the year 632; Sunnis have regarded them as a heretical sect ever since. Arabs and Persians, along with many others, have vied for the land and resources of the Middle East for almost as long.

These days, geopolitics also plays a role. The two sides have assembled loosely allied camps. Iran holds in its sway Syria and the militant Arab groups Hezbollah in Lebanon and Hamas in the Palestinian territories; in the Saudi sphere are the Sunni Muslim-led Gulf monarchies, Egypt, Morocco and the other main Palestinian faction, Fatah. The Saudi camp is pro-Western and leans toward tolerating the state of Israel. The Iranian grouping thrives on its reputation in the region as a scrappy “resistance” camp, defiantly opposed to the West and Israel.

For decades, the two sides have carried out a complicated game of moves and countermoves. With few exceptions, both prefer to work through proxy politicians and covertly funded militias, as they famously did during the long Lebanese civil war in the late 1970s and 1980s, when Iran helped to hatch Hezbollah among the Shiites while the Saudis backed Sunni militias.

But the maneuvering extends far beyond the well-worn battleground of Lebanon. Two years ago, the Saudis discovered Iranian efforts to spread Shiite doctrine in Morocco and to use some mosques in the country as a base for similar efforts in sub-Saharan Africa. After Saudi emissaries delivered this information to King Mohammed VI, Morocco angrily severed diplomatic relations with Iran, according to Saudi officials and cables obtained by the organization WikiLeaks.

As far away as Indonesia, the world’s most populous Muslim country, the Saudis have watched warily as Iranian clerics have expanded their activities—and they have responded with large-scale religious programs of their own there.

The 1979 Iranian revolution was a major eruption that still looms large in the psyches of both nations. It explicitly married Shiite religious zeal with historic Persian ambitions and also played on sharply anti-Western sentiments in the region.

Iran’s clerical regime worked to spread the revolution across the Middle East; Saudi Arabia and its allies worried that it would succeed. For a time it looked like it might. There were large demonstrations and purported antigovernment plots in Saudi Arabia’s Eastern Province, which has a large population of Shiite Muslim Arabs, and in Bahrain, where Shiites are a distinct majority and Iran had claimed sovereignty as recently as 1970.

The protests that began this past January in Tunisia had nothing to do with any of this. They started when a struggling street vendor in that country’s desolate heartland publicly set himself on fire after a local officer cited his cart for a municipal violation. His frustration, multiplied hundreds of thousands times, boiled over in a month of demonstrations against Tunisian President Zine al-Abidine Ben Ali. To the amazement of the Arab world, Mr. Ben Ali fled the country when the military declined to back him by brutally putting down the demonstrations.

Spurred on by televised images and YouTube videos from Tunisia, protests broke out across much of the rest of the Arab world. Within weeks, millions were on the streets in Egypt and Hosni Mubarak was gone, shown the door in part by his longtime backer, the U.S. government. The Obama administration was captivated by this spontaneous outbreak of democratic demands and at first welcomed it with few reservations.

In Riyadh, Saudi officials watched with alarm. They became furious when the Obama administration betrayed, to Saudi thinking, a longtime ally in Mr. Mubarak and urged him to step down in the face of the street demonstrations.

The Egyptian leader represented a key bulwark in what Riyadh perceives as a great Sunni wall standing against an expansionist Iran. One part of that barrier had already crumbled in 2003 when the U.S. invasion of Iraq toppled Saddam Hussein. Losing Mr. Mubarak means that the Saudis now see themselves as the last Sunni giant left in the region.

The Saudis were further agitated when the protests crept closer to their own borders. In Yemen, on their southern flank, young protesters were suddenly rallying thousands, and then tens of thousands, of their fellow citizens to demand the ouster of the regime, led by President Ali Abdullah Saleh and his family for 43 years.

Meanwhile, across a narrow expanse of water on Saudi Arabia’s northeast border, protesters in Bahrain rallied in the hundreds of thousands around a central roundabout in Manama. Most Bahraini demonstrators were Shiites with a long list of grievances over widespread economic and political discrimination. But some Sunnis also participated, demanding more say in a government dominated by the Al-Khalifa family since the 18th century.

Protesters deny that their goals had anything to do with gaining sectarian advantage. Independent observers, including the U.S. government, saw no sign that the protests were anything but homegrown movements arising from local problems. During a visit to Bahrain, Secretary of Defense Robert Gates urged the government to adopt genuine political and social reform.

But to the Saudis, the rising disorder on their borders fit a pattern of Iranian meddling. A year earlier, they were convinced that Iran was stoking a rebellion in Yemen’s north among a Shiite-dominated rebel group known as the Houthis. Few outside observers saw extensive ties between Iran and the Houthis. But the Saudis nonetheless viewed the nationwide Yemeni protests in that context.

In Bahrain, where many Shiites openly nurture cultural and religious ties to Iran, the Saudis saw the case as even more open-and-shut. To their ears, these suspicions were confirmed when many Bahraini protesters moved beyond demands for greater political and economic participation and began demanding a constitutional monarchy or even the outright ouster of the Al-Khalifa family. Many protesters saw these as reasonable responses to years of empty promises to give the majority Shiites a real share of power—and to the vicious government crackdown that had killed seven demonstrators to that point.

But to the Saudis, not to mention Bahrain’s ruling family, even the occasional appearance of posters of Lebanese Hezbollah leader Hassan Nasrallah amid crowds of Shiite protesters pumping their fists and chanting demands for regime change was too much. They saw how Iran’s influence has grown in Shiite-majority Iraq, along their northern border, and they were not prepared to let that happen again.

As for the U.S., the Saudis saw calls for reform as another in a string of disappointments and outright betrayals. Back in 2002, the U.S. had declined to get behind an offer from King Abdullah (then Crown Prince) to rally widespread Arab recognition for Israel in exchange for Israel’s acceptance of borders that existed before the 1967 Six Day War—a potentially historic deal, as far as the Saudis were concerned. And earlier this year, President Obama declined a personal appeal from the king to withhold the U.S. veto at the United Nations from a resolution condemning continued Israeli settlement building in Jerusalem and the West Bank.

The Saudis believe that solving the issue of Palestinian statehood will deny Iran a key pillar in its regional expansionist strategy—and thus bring a win for the forces of Sunni moderation that Riyadh wants to lead.

Iran, too, was starting to see a compelling case for action as one Western-backed regime after another appeared to be on the ropes. It ramped up its rhetoric and began using state media and the regional Arab-language satellite channels it supports to depict the pro-democracy uprisings as latter-day manifestations of its own revolution in 1979. “Today the events in the North of Africa, Egypt, Tunisia and certain other countries have another sense for the Iranian nation.… This is the same as ‘Islamic Awakening,’ which is the result of the victory of the big revolution of the Iranian nation,” said Ayatollah Ali Khamenei.

Iran also broadcast speeches by Hezbollah’s leader into Bahrain, cheering the protesters on. Bahraini officials say that Iran went further, providing money and even some weapons to some of the more extreme opposition members. Protest leaders vehemently deny any operational or political links to Iran, and foreign diplomats in Bahrain say that they have seen little evidence of it.

March 14 was the critical turning point. At the invitation of Bahrain, Saudi armed vehicles and tanks poured across the causeway that separates the two countries. They came representing a special contingent under the aegis of the Gulf Cooperation Council, a league of Sunni-led Gulf states, but the Saudis were the major driver. The Saudis publicly announced that 1,000 troops had entered Bahrain, but privately they concede that the actual number is considerably higher.

If both Iran and Saudi Arabia see themselves responding to external threats and opportunities, some analysts, diplomats and democracy advocates see a more complicated picture. They say that the ramping up of regional tensions has another source: fear of democracy itself.

Long before protests ousted rulers in the Arab world, Iran battled massive street protests of its own for more than two years. It managed to control them, and their calls for more representative government or outright regime change, with massive, often deadly, force. Yet even as the government spun the Arab protests as Iranian inspired, Iran’s Green Revolution opposition movement managed to use them to boost their own fortunes, staging several of their best-attended rallies in more than a year.

Saudi Arabia has kept a wary eye on its own population of Shiites, who live in the oil-rich Eastern Province directly across the water from Bahrain. Despite a small but energetic activist community, Saudi Arabia has largely avoided protests during the Arab Spring, something that the leadership credits to the popularity and conciliatory efforts of King Abdullah. But there were a smattering of small protests and a few clashes with security services in the Eastern Province.

The regional troubles have come at a tricky moment domestically for Saudi Arabia. King Abdullah, thought to be 86 years old, was hospitalized in New York, receiving treatment for a back injury, when the Arab protests began. The Crown Prince, Sultan bin Abdul Aziz, is only slightly younger and is already thought to be too infirm to become king. Third in line, Prince Nayaf bin Abdul Aziz, is around 76 years old.

Viewing any move toward more democracy at home—at least on anyone’s terms but their own—as a threat to their regimes, the regional superpowers have changed the discussion, observers say. The same goes, they say, for the Bahraini government. “The problem is a political one, but sectarianism is a winning card for them,” says Jasim Husain, a senior member of the Wefaq Shiite opposition party in Bahrain.

Since March 14, the regional cold war has escalated. Kuwait expelled several Iranian diplomats after it discovered and dismantled, it says, an Iranian spy cell that was casing critical infrastructure and U.S. military installations. Iran and Saudi Arabia are, uncharacteristically and to some observers alarmingly, tossing direct threats at each other across the Gulf. The Saudis, who recently negotiated a $60 billion arms deal with the U.S. (the largest in American history), say that later this year they will increase the size of their armed forces and National Guard.

And recently the U.S. has joined in warning Iran after a trip to the region by Defense Secretary Gates to patch up strained relations with Arab monarchies, especially Saudi Arabia. Minutes after meeting with King Abdullah, Mr. Gates told reporters that he had seen “evidence” of Iranian interference in Bahrain. That was followed by reports from U.S. officials that Iranian leaders were exploring ways to support Bahraini and Yemeni opposition parties, based on communications intercepted by U.S. spy agencies.

Saudi officials say that despite the current friction in the U.S.-Saudi relationship, they won’t break out of the traditional security arrangement with Washington, which is based on the understanding that the kingdom works to stabilize global oil prices while the White House protects the ruling family’s dynasty. Washington has pulled back from blanket support for democracy efforts in the region. That has bruised America’s credibility on democracy and reform, but it has helped to shore up the relationship with Riyadh.

The deployment into Bahrain was also the beginning of what Saudi officials describe as their efforts to directly parry Iran. While Saudi troops guard critical oil and security facilities in their neighbor’s land, the Bahraini government has launched a sweeping and often brutal crackdown on demonstrators.

It forced out the editor of the country’s only independent newspaper. More than 400 demonstrators have been arrested without charges, many in violent night raids on Shiite villages. Four have died in custody, according to human-rights groups. Three members of the national soccer team, all Shiites, have also been arrested. As many as 1,000 demonstrators who missed work during the protests have been fired from state companies.

In Shiite villages such as Saar, where a 14-year-old boy was killed by police and a 56-year-old man disappeared overnight and showed up dead the next morning, protests have continued sporadically. But in the financial district and areas where Sunni Muslims predominate, the demonstrations have ended.

In Yemen, the Saudis, also working under a Gulf Cooperation Council umbrella, have taken control of the political negotiations to transfer power out of the hands of President Ali Abdullah Saleh, according to two Saudi officials.

“We stayed out of the process for a while, but now we have to intervene,” said one official. “It’s that, or watch our southern flank disintegrate into chaos.”

By BILL SPINDLE and MARGARET COKER

US President Barack Obama is sending a foreign policy aide to key Gulf allies Saudi Arabia and the United Arab Emirates this week amid concern over the turmoil sweeping the Middle East.

National Security Advisor Tom Donilon will leave on Monday on a three-day trip during which he will meet Saudi King Abdullah in Riyadh and Crown Prince Sheikh Mohammed bin Zayed al-Nahayan in Abu Dhabi, the White House said.

“The National Security Advisor’s visit underscores the importance of our relationship with these two key partners,” a written statement said.

Saudi Arabia’s intervention last month in Bahrain amid Shiite-led opposition violence has exposed festering political differences between Riyadh and the United States over the revolts rocking the Arab world.

US Secretary of Defense Robert Gates held talks in Riyadh on Wednesday with King Abdullah, with both sides concerned as well by Iranian intentions in the region and spiraling unrest in Yemen.

Boosted by the arrival of a Saudi-led Gulf forces contingent, Bahraini security forces smashed a month-old protest mid-March in central Manama by Shiites, leaving three protesters and two police dead.

The surprise Saudi decision to lead a regional mission into the strife-torn and strategic kingdom ruled by a Sunni minority also reflected the deep shadow cast by Iran in the instability testing US-allied leaders across the Gulf.

Washington appeared to have had little if any advance notice of what was a potentially embarrassing move for the United States, which has led a prolonged effort to prod Bahrain towards political reforms.

Saudi Arabia and other Gulf Arab states have traded accusations with Iran of meddling and interference, especially over Bahrain, which lies off the eastern Saudi coast and is home to the US Fifth Fleet.

“We already have evidence that the Iranians are trying to exploit the situation in Bahrain and we also have evidence that they’re talking about what they can do to create problems elsewhere,” Gates said after Wednesday’s meeting in Riyadh.

King Abdullah’s return home in February after months of treatment abroad for a back ailment came amid mounting international anger over bloodshed in the kingdom’s southern neighbor Yemen.

Yemeni President Ali Abdullah Saleh, a close US and Saudi ally, has faced months of protests calling for his departure, in which around 125 people have been killed.

Dozens of anti-regime demonstrators were shot Sunday in the latest clashes with security forces, sparking charges of “massacre,” as Yemen’s worried Gulf neighbors gathered in Riyadh to work out a transition plan.

The United States announced last year that it plans to offer Saudi Arabia $60 billion worth of hi-tech fighter jets and helicopters, in the largest US arms deal ever.

 

Protesters staged fresh demonstrations in Saudi Arabia on Friday, calling on the government to release Shiite prisoners and grant more rights, human rights activists said.

The protests, which were peaceful, also called for the withdrawal of regional forces from neighboring Bahrain, according to the activists, who requested their names not be used because they had concerns for their safety.

All the protesters were Shiite. The protests took place in the city of Qatif and the village of Awamiyya, both in the country’s Eastern Province, and each the scene of similar protests in March.

In Qatif, about 200 people marched through the streets, chanting for the release of the prisoners, the activists said. Some carried Bahraini flags in a 90-minute march that some said was in solidarity with Bahrainis.

In Awamiyya, more than 150 Shiite men and women marched for the release of prisoners and for the withdrawal of Gulf Cooperation Council forces from Bahrain. As in Qatif, some protesters carried Bahraini flags.

Several members of the council have sent troops to Bahrain to help Manama quell anti-government protests.

The protesters in Awamiyya also called for human rights in a march that lasted just over an hour.

In both places, security forces were present but didn’t interfere, the activists said.

CNN was unable to reach the Saudi Interior Ministry for comment.

The issue of Shiite prisoners and a demand for more rights have been the focus of similar protests in Saudi Arabia in the past two months, although fewer demonstrations have taken place in recent weeks.

Others have demonstrated for the creation of a constitutional monarchy and other reforms.

 

I just attended an eye-opening roundtable discussion with several members of Saudi Arabia’s Majlis al-Shura, the advisory council to King Abdullah, at the New America Foundation here in Washington.

It was a great chance to assess the Saudi government’s take on the change sweeping the Arab world, and where it is positioning itself. It was hard to conclude that its location is currently on the wrong side of history.

The level of denial about Bahrain, which is the kingdom’s key concern in the region, was startling. One delegate said there was “no major crackdown” in Bahrain, despite the fact that the security forces opened fire in Manama’s Pearl Roundabout, You-Tube footage can be seen of protestors being shot at point blank range, the main opposition newspaper has just been shut down amid the emergency rule imposed a month ago. Not forgetting that Gulf Co-operation Council forces agreed to a cry for help from Bahrain’s royal family, resulting in the Saudi-led intervention of 1,000 troops.

Another shura member said that Bahrain’s Shia community, which is 60 percent of the population ruled by the Sunni monarchy, was essentially content and enjoyed a decent standard of living. “Bahrain is a very serene island,” he said. “What was happening in Bahrain was instigated by foreign forces”.

This is, of course, the sort of blind, blame-all-others approach that was allocated by Tunisian and Egyptian leaders as their regimes were crumbling.

The conversation revealed a level of concern, or some might say paranoia, about the Shias and Iranian influence that is rarely appreciated outside the region. From the Saudi point of view, a serious challenge to a quasi-absolute Sunni monarchy with a Shia majority is anathema – a “thick red line” as one speaker called it.

That is understandable, but the Saudis’ failure to accept that Bahrainis had any legitimate claims for political reform and greater equality was alarming. There was an admission from one panelist “something must be done” about Bahrain’s unpopular prime minister, who initially at least was the chief target of protesters’ anger. But that was as far as it went, and that panelist stressed that his was not the majority view in Saudi Arabia.

Failure in Bahrain to address Shia grievances will only aggravate Shia populations elsewhere in the region and aid Iran’s ambition of becoming a true regional power.  That would be against not only Saudi Arabia’s interests, but the West’s.

By Alex Spillius

On Wednesday morning, King Hamad bin Isa al-Khalifa boarded a plane to pay his respects to King Abdullah of neighboring Saudi Arabia, who had returned home after months abroad for medical treatments.

It was a trip that underscored the extent of Saudi Arabia’s sway over the teardrop-shaped island off its eastern shore, as well the prospect that the turbulence still whirling in tiny Bahrain could have outsize repercussions in its giant neighbor.

A day after tens of thousands of protesters turned out in Bahrain’s capital, the king is still under pressure from demonstrators who are demanding that he make democratic concessions or step aside. The Shiite-led protesters in Bahrain are demanding that the Sunni royal family grant them equal rights and an equal voice, and majority-Sunni Saudi Arabia is worried that their campaign might give ideas to its own large Shiite minority.

In a sign of its own concerns, the Saudi government announced Wednesday that it will pump $10.7 billion into a fund that gives interest-free loans to citizens and that government workers will receive a 15 percent wage increase, among other measures. Bahrain also gave cash to households just before protests erupted last week.

“Saudi Arabia fears a constitutional monarchy in Bahrain,” said Kristin Smith Diwan, an assistant professor at American University who studies Islamic movements in the Persian Gulf. “It’s about empowerment of the Shia and what that might mean for Shia in the eastern province” of Saudi Arabia, she said, in addition to fears about Iran’s influence, which she deemed largely unjustified.

“In this current crisis, none of the solutions look good for Saudi Arabia,” Diwan said. “A crackdown in Bahrain would be destabilizing. A reform itself would be destabilizing, unless Saudi Arabia was willing to make some reforms.”

The two countries are taking a cautious stance. Saudi Arabia controls large sectors of Bahrain’s economy, both through outright gifts of oil and through investment in Bahraini banks, businesses and real estate. And its military is just a 16-mile drive away over the King Fahd Causeway, which was built at least in part for precisely that strategic reason, observers say. In a sign of Bahraini fears, rumors constantly swirl on Manama’s streets about Saudi troop movements and an imminent invasion.

“Although we are friends, the [Bahraini] leadership is afraid of the Saudis,” said one Bahraini observer with close ties to government security officials. “The Bahrainis don’t want to do like what happened between Syria and Lebanon. When Syria went into Lebanon, they did not leave.”

Hamad is likely to tell Abdullah that “we still don’t need” Saudi military assistance, said the Bahraini observer, who requested anonymity because he was not authorized to speak on behalf of the government. “He will tell them we are coping.”

But Bahrain’s business-friendly, Western orientation - which, unlike in much of the gulf, allows women to walk with bare arms and alcohol to be readily available in restaurants - also serves as an escape valve for Saudis seeking a break from their country’s stricter rules, analysts said. The Bahraini government has also tried in recent years to clamp down on prostitution, another booming trade on the island.

In recent years, an expanded American military presence has provided a counterweight to Saudi influence. The U.S. Navy’s 5th Fleet is docked just south of Manama, somewhat easing Bahraini fears of a Saudi invasion, Bahraini observers said.

“Bahrain’s survival really depends on two countries, the United States of America and Saudi Arabia,” said Mansoor al-Jamri, a leading Shiite opposition figure who is editor in chief of the independent Bahraini newspaper al-Wasat.

And in the current situation, Jamri said, the possibility of military intervention is unlikely, given the events of last week, when the army and police fired on protesters, killing seven people.

Anti-government demonstrators continued to camp in Manama’s Pearl Square on Wednesday, their ranks swelled by thousands of people welcoming prisoners whom Hamad had released in a bid to facilitate negotiations.

Among those released were 23 prisoners who had been held since August, accused of plotting to overthrow the king and engaging in terrorist activities. Many of the former detainees alleged that they had been tortured and beaten while in prison.

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