Saudis take up defense

Saudi Arabia is a target for both sides in Iraq’s deepening conflict, one reason it has ramped up security levels to confront a threat that’s more immediate than the Arab Spring revolts three years ago.

The world’s biggest oil (NYMEX:CLN14) exporter convened its national security council for a rare meeting under King Abdullah, and has bolstered defenses at the border with Iraq, where militants last month seized several cities and declared an Islamic state. The king vowed to protect the nation’s “resources and territory and prevent any act of terror.”

For the 90-year-old monarch, the threat is twofold. Sunni militant groups, like the Islamic State led by Abu Bakr Al-Baghdadi that now controls parts of Iraq as well as Syria, have historically posed a challenge to the Al Saud family’s rule. Another danger comes from Shiite militias, which struck across the Saudi border in the past and are now being called to arms to help fight the insurgents.

“An al-Qaeda offshoot armed with heavy weaponry and flush with cash wreaking havoc a mere 100 miles from their border is not a dream scenario,” said Fahad Nazer, a political analyst at JTG Inc., a consultancy based in Vienna, Virginia. “It also doesn’t help that at least two Shiite militias have vowed to bring the war to Saudi Arabia.”

Ties between OPEC’s two largest oil producers have been strained since the U.S. invasion of Iraq in 2003.

No Embassy

As the region’s main Sunni power, Saudi Arabia has links with Iraq’s Sunni minority, who dominated the government before the fall of Saddam Hussein and now complain of discrimination under Prime Minister Nouri al-Maliki’s Shiite leadership. There’s no Saudi embassy in Baghdad, and little commercial contact.

The gap has grown wider with the recent violence.

Maliki last month accused Saudi Arabia of “siding with terrorism” by providing financial and moral support, and blamed the kingdom’s leaders for the Sunni insurgency in northern and western Iraq. Saudi Arabia replied that it’s at the “forefront of combating terrorism” and blamed Maliki’s “sectarian policies” for destabilizing Iraq.

The conflict has raised the risk of a civil war in Saudi Arabia’s neighbor. The Sunni militants have overrun Mosul, Iraq’s biggest northern city, as well as Saddam’s hometown of Tikrit. They’re also fighting for the nation’s biggest refinery in Baiji. The army said it foiled the latest attempt to seize the facility on July 4, killing all militants who took part.

Islamist ‘Epidemic’

As the Islamists advanced in Iraq, the benchmark Saudi stock index posted its first monthly drop since August. Oil prices jumped in the first days, with Brent crude (NYMEX:SCN14) reaching a nine-month high of $115.71 a barrel on June 19, before paring gains as the conflict spared Iraq’s main oil-producing region in the south. Saudi Arabia said it’s ready to respond to any supply shortage.

Official Saudi support for Iraq’s Sunnis doesn’t extend to extremists like the Islamic State, according to Gregory Gause, a professor of political science at the University of Vermont in Burlington and a specialist in Gulf politics. The group declared a caliphate on June 29 and said it was changing its name from the Islamic State in Iraq and the Levant, or ISIL.

Such organizations, including al-Qaeda, have attacked Saudi targets in the past, and accused the Al Sauds of collaborating with enemies of Islam through their alliance with the U.S. Saudi Foreign Minister Prince Saud al-Faisal has described the Islamic State as an “epidemic.”

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