The world’s No. 1 oil exporter faces the twin challenges of creating jobs for a young population at a time of unrest in the Arab world, and pursuing economic reforms with a royal succession looming.

The stability of Saudi Arabia is of global importance since the kingdom sits on more than a fifth of oil reserves, is home to the biggest Arab stock market, is a major owner of dollar assets and acts as a regional linchpin of U.S. security policy.

King Abdullah, who is around 87, unveiled $93 billion in social handouts in March, on top of another $37 billion announced less than a month earlier.

But this apparent effort to insulate the kingdom from Arab popular protests sweeping the region has not stopped activists, including liberals, Shi’ites and Islamists, calling in petitions for more political freedom. Saudi Arabia is an absolute monarchy with no elected parliament.

Riyadh has not seen the kind of mass uprisings that have shaken the Arab world this year, but Shi’ites in the kingdom’s oil-producing east have staged a number of protests.

Almost no Saudis in Riyadh answered a Facebook call for protests on March 11 in the face of a massive security presence.

Saudi Arabia has been ruled by the Al Saud family for 79 years, with influence from clerics following the austere Wahhabi school of Islam, and many oppose the very reforms the king has started.

However, slowing down reforms to modernise education might affect government plans to create jobs — unemployment last year reached 10 percent.

And with around 70 percent of Saudi Arabia’s almost 19 million people under the age of 30, the pressure to find them gainful employment is huge.

SUCCESSION

King Abdullah returned home in February after spending three months abroad for medical treatment, during which he underwent two surgeries after a blood clot complicated a slipped disc.

With the slightly younger Crown Prince Sultan also in poor health, the throne could eventually go to Interior Minister Prince Nayef, a conservative who could put the brakes on some reforms started by Abdullah, analysts say. Nayef, around 77 years old, was promoted to second deputy prime minister in 2009.

He has supported the religious police who roam the streets to make sure unrelated men and women do not mix in public and that shops close during prayer times.

To regulate succession, Abdullah has set up an “allegiance council” of sons and grandsons of the kingdom’s founder but it is not clear when, or how, it will work in practice.

So far only sons of the kingdom’s founder Abdul-Aziz Ibn Saud have ascended the throne, and the remaining 20 or so are mostly in their 70s and 80s. Leaders have been reluctant to hand senior jobs over to the next generation.

If a younger generation were unexpectedly to come into play, prominent potential candidates include Nayef’s son Mohammed, who as the anti-terror chief was the target of an al Qaeda suicide attack in 2009. Another leading face among the grandsons of Ibn Saud is Sultan’s son Khaled, the assistant defence minister.

WHAT TO WATCH:

- The health of senior royal family members and their involvement in day-to-day affairs of running the kingdom

- Any sign of abrupt cancellation of scheduled programmes such as foreign visits by senior leaders

- Any signs that the elder generation is passing on more responsibility to the grandsons of Ibn Saud, and to which ones

REFORMS

Officials who back Abdullah say they fear that young Saudis frustrated over their failure to find work could provide potential recruits to violent Islamists who want to overthrow the House of Saud.

Abdullah started some narrow reforms to overhaul education and the judiciary after taking office in 2005 but diplomats say his reform drive has run out of steam.

He has not altered the political system of an absolute monarchy that analysts say has fuelled dissent, with democracy activists, liberals and Islamists calling on the king in petitions to allow elections and more freedom.

Abdullah’s handouts focused on social largesse and a boost to security and religious police, but included no political change.

The kingdom in March also announced it would hold long-delayed municipal elections but said women will not be allowed to vote. With no elected assembly, Saudi Arabia has no political parties.

Saudi analysts say the king could reshuffle the cabinet, where some ministers have been on board for decades, or call fresh municipal elections, a plan that was shelved in 2009 due to the opposition of conservative princes.

WHAT TO WATCH:

- Any signs of protests or petitions by activists demanding political reforms

- Any signs of a cabinet reshuffle or plan to hold fresh municipal elections

- Any approval of a much-delayed mortgage law, which aims to ease pressure on the housing market

SHI’ITE MUSLIMS

Saudi Arabia, a Sunni-led regional diplomatic heavyweight, has sought to contain Iran’s influence since the 2003 U.S.-led invasion of Iraq produced a Shi’ite-led government in Baghdad.

With majority Shi’ites in neighbouring Bahrain having protested against the Sunni government there, analysts say there is a risk that unrest could spread to Saudi Arabia’s own Shi’ite minority, which lives in the oil-producing Eastern Province just across from Bahrain.

Shi’ites in the east have held a number of protests calling for prisoner releases and a withdrawal of Saudi forces sent to Bahrain to help put down the unrest.

Saudi Shi’ites have long complained about marginalisation and have started small protests to demand the release of prisoners they say have been detained without trial. Riyadh denies any charges of discrimination.

Riyadh also shares U.S. concerns that Iran wants to develop nuclear weapons in secret. The United States and Israel have not ruled out military action against Iran, which says it is developing nuclear energy only to generate electricity.

Saudi Arabia has publicly tried to stay out of the dispute over Tehran’s nuclear programme but a series of U.S. diplomatic cables released by whistle-blowing website WikiLeaks portrayed Riyadh as pressing for a U.S. attack.

King Abdullah was said to have “frequently exhorted the U.S. to attack Iran to put an end to its nuclear programme,” a cable printed in Britain’s Guardian newspaper said.

WHAT TO WATCH:

- Any signs of further protests and a deterioration in the eastern province

- Any possible military action against Iran and its impact on the Gulf region

- Any Saudi diplomatic moves to tighten sanctions on Iran and any signs of Saudi facilities offered for military action

AL QAEDA THREAT

Saudi Arabia, with the help of foreign experts, managed to quash an al Qaeda campaign from 2003 to 2006 that targeted expatriate housing compounds, embassies and oil facilities.

Riyadh destroyed the main cells within its borders. But many militants slipped into neighbouring Yemen where al Qaeda regrouped to form a Yemen-based regional wing that seeks, among other things, the fall of the U.S.-allied Saudi royal family.

The Yemen-based al Qaeda arm shot to the global spotlight after it claimed responsibility for a failed attempt to bomb a U.S.-bound passenger plane in December 2009.

Despite the U.S. killing of al Qaeda founder Osama bin Laden on May 1, the Yemeni wing of the militant Islamist group is expected to remain active, and exploit political instability in Yemen as well.

WHAT TO WATCH:

- Whether al Qaeda’s resurgent Yemen-based branch mounts more operations in Saudi territory, as it has within Yemen

- Riyadh wants to build a fence to seal the mountainous 1,500-km (930-mile) Yemen border, which could help stop militants from crossing.

As jubilant protesters in Cairo celebrated the ouster of Egyptian President Hosni Mubarak, Yemenis were calling for a revolution of their own.

In the southern port city of Yemen, protesters marched through the district of Mansoura, waving the old flag of South Arabia and chanting, “Revolution, revolution for the south.”

Just hours before, security forces had fired live ammunition during a protest on the same street, according to eyewitnesses. Hundreds more staged ad hoc demonstrations throughout Aden, as well as in other cities across Yemen’s south.

“After Hosni Mubarak, Yemen is going to be next. I know it,” said Zahra Saleh, a prominent secession activist watching the scenes in Cairo on TV in a small Aden office.

“Now our revolution has to be stronger,” declared Ali Jarallah, a leader in the southern separatist movement sitting with Ms. Saleh on the low cushions of a diwan.

Divergent aims of Yemeni protesters

The Yemeni southern secessionist movement is not calling for political reforms, an end to corruption or even for President Ali Abdullah Saleh to step down, as the political opposition is doing in the capital of Sanaa. They are pushing for the end of what they view is northern Yemeni occupation and the restoration of an independent southern Yemeni state.

Though both derive momentum from the recent revolts in Tunisia and Egypt, the divergent aims of the Yemeni protesters represent another example of how anti-regime factions across the Arab world our shaping revolutionary energy to serve their own agendas.

“What happened in Egypt sent a blink of hope to the [southern] movement,” says Tammam Bashraheel, managing editor of Aden’s officially banned Al Ayyam newspaper.

Exiled southern movement leader and former Vice President Ali Salim Al Beidh said that events in the Arab world, and especially what is happening in Tunisia and Egypt, reflect a new stage in history that can be likened to the end of the cold war. Speaking to local press on Thursday, he compared the southern Yemeni demonstrations to Egypt, where youths have also played a central role.

“The revolution of the south is a revolution of the youth and younger generation,” said Mr. Beidh.

‘America supports oppressors’

In Sanaa, anti-government protests have focused on pressuring the ruling party to accept political reforms and are carried out in relative peace. However in Yemen’s south, the increased number of demonstrations since Tunisia’s uprising have been more violent.

“Demonstrations are allowed to happen in Sanaa without weapons, why do they use weapons on us in the south?” asks secession activist Wagdy Al Shaaby, who had just returned to Aden Friday afternoon from a protest of about 1,000 held in Zinjibar in neighboring Abyan province.

He also criticized the US for supporting its Arab allies, even when they resort to authoritarian measures in the name of stability.

“America is a democracy, but when to comes to the Arab world America supports oppressors,” he says. “America protects these countries until they blow up.”

Aden governor urges security, stability

In one Aden neighborhood, known for being a hotbed of secessionist sentiment, the old South Arabia flag is spray painted on building walls alongside posters of young man killed by security forces. Next to one Khaled Darwish poster was written a warning to the Yemeni government: “We are going to take revenge for you, Darwish.”

“If there continues to be no recognition of political rights here, [separatist activity] won’t stop,” says Mr. Bashraheel.

The fractured yet popular southern separatists argue that since unification of north and south Yemen in 1990, and especially after a bloody civil war between the two sides of the country in 1994, there has been a systematic attempt to erase the identity of south Yemen.

They claim that southerners don’t have proper representation in the central government, and that the government takes resources found in southern governorates, namely oil, without investing back in the south’s infrastructure.

Yemen’s government accuses separatists of harming national unity and stirring up trouble. On Thursday, Gov. Adnan Al Jafari of Aden told local press “security and stability are the responsibility of everyone.” He added, “We must learn from other countries that have lost their security and stability and use that in positive ways for our country.”

The government has also tried to link secessionists to Al Qaeda in the Arabian Peninsula (AQAP), the regional terrorist franchise based in Yemen. AQAP, for its part, has sought to play on southerners’ grievances in order to unite the two groups against their common enemy, the Yemeni state. Separatists deny that they have any ties with AQAP, and instead blame the existence of Al Qaeda in Yemen on the Saleh regime.

A fast-closing window

Because clashes happen far from the eyes of international observers, it difficult to assess whether the perpetual violence in Yemen’s south between security forces and armed factions comes from Al Qaeda or harak, the Arabic name for southern separatists. However, what is certain is that this violence what has worried Western governments that destabilization in this area allows AQAP to move freely.

“The deterioration of the south would lead to instability of the entire countries and will definitely provide space for Al Qaeda to function. The southern separatist movement is not allied to Al Qaeda but the absence of state control gives Al Qaeda space to exist in areas that are controlled by harak,” said independent Yemeni political analyst Abdul-Ghani Al Iryani.

“The lack of unified leadership [in the separatist movement] makes it difficult for the government to reach a deal and therefore Harak will continue until the legitimate aspiration of the people of the south are achieved and that is still within the ability of the central government to provide in the context of unity, but I see that this window is fast closing,” he said.