Yet a Saudi Arabian reform agenda must necessarily be gradualist and cautious, because the reigning monarch has to balance the factional interests of the royal Al Saud clan, maintain consensus with the Ulema establishment (the Wahhabis to the world media) from whom the House of Saud derives its legitimacy, protect the kingdom's poor and unemployed citizens (Saudi unemployment is a shocking 11 per cent and a potential source of political risk during times of high inflation) from economic distress and maintain Riyadh's traditional strategic alliance with the United States.

Yet King Abdullah's reputation for personal integrity, his traditional power base with the Nejdi and Shammari tribes who constitute the officer cops and enlisted troops of the National Guard, his skill in reaching out to the new technocratic elite of the Kingdom as well as formerly disenfranchised segments like women and the Shia has transformed the domestic politics of Saudi Arabia.

The Saudi security services have wiped out the Al Qaeda cells that had carried out a series of spectacular terrorist attacks on Western targets, compounds and oil installations in 2003- 05. Yet Saudi Arabia's international relations and domestic politics are still dominated by the House of Saud's understandable obsession with security in a hostile, increasingly Hobbesian neighbourhood.

Hezbollah overran Saudi Arabia's client Saad Hariri's Sunni enclave in West Beirut and the Doha agreement forced the Siniora government, the Kingdom's ally, to back down in its plans to dismantle the Shia guerilla movement's communications network, let alone disarm Hezbollah. After all, no Saudi national security strategist can forget Saudi Hezbollah carried out the bombing of a US Marine barracks in Al Khobar in 1996 and maintained subversive cells among Shia dissidents in the Eastern Province and Bahrain.

This is the reason Prince Saud Al Faisal, the kingdom's foreign minister, termed Hezbollah's political violence in West Beirut and Mount Lebanon as a "coup" against the Siniora government. Iran and Syria, not Saudi Arabia and the United States, are now the ultimate powerbrokers of Lebanon. This is a strategic setback for the Kingdom, whose mediation at Riyadh in 1976 and Taif in 1991 was critical to settling issues of war and peace in Lebanon.

Saudi Arabia is also suspicious about the intentions of Iraq's Prime Minister Nuri Al Maliki and the rise of the Muqtada Sadr militia as the champion of the Shia masses in the slums of Baghdad. A precipitate American withdrawal from Iraq, not at all an unrealistic scenario if Barack Obama is elected the forty fourth President of the United States, would be catastrophic for the national security interests of the Kingdom and its post-Saddam role as the patron of the Sunni tribes of the Upper Euphrates in Diyala and Anbar province.

Iran's influence in Iraq, Lebanon and Gaza, where Saudi mediation in Makkah between Hamas and Fatah was negated by a fratricidal civil war among the Palestinians, has undermined the Kingdom's role as the traditional powerbrokers of the Arab World, the source of Riyalpolitik largesse to the Islamic world. Moreover, a nuclear Iran was identified by the princes of the Al Saud as a strategic threat three decades ago, when Reza Shah Pahlavi inaugurated the quest for the Persian nuclear bomb.

At the same time, as a status quo power, the Saudis are loathe to see an Israeli or US attack on Iran, which could expose their Kingdom to ballistic missile retaliation and a closure of the tanker shipping chokepoint on the Straits of Hormuz would wreck havoc in the oil market. As in the 1970's, Saudi Arabia will conclude that its only option to protect its interests from a revolutionary, resurgent Iran could well lie in multi billion dollar arms deals with the White House, Downing Street and the Elsyee Palace despite the toxic political fallout of such transactions in the past (Adnan Khashoggi, BAE, Al Yamama etc).

The endemic anti-Americanism in the Arab world, a legacy of the anarchism and slaughter in Iraq as well as the collapse of the Israeli- Palestinian peace process is also a strategic disaster for Saudi diplomacy. After all, ever since King Abdulaziz met President Franklin Roosevelt on a US Navy warship on the Red Sea in 1945, the House of Saud has championed the Palestinian cause and the Arab claim to East Jerusalem, a critical component of its legitimacy as the guardian of Islam's holiest shrines in the Hijaz.

The speculative spiral in oil prices is, paradoxically, unwelcome to Saudi Arabia. Ever since the era of Sheikh Zaki Yemeni in the 1970's, the Kingdom's oil policy has been to moderate oil prices, to protect its market share and the global economy from recession risk, to act as the swing producer in Opec, the proverbial central bank of black gold.

The Kingdom's conservative approach to oil production, pricing and the judicious use of its spare capacity was totally negated by a combination of supply squeezes (fall in Russian and Mexican output, Venezuelan strikes, sabotage in the Niger Delta, terrorism in Basra and Kirkuk) and the sheer $250 billion speculative oil index money committed to paper oil daisy chains in the West Texas Intermediate and North Sea Brent light sweet crude futures markets in London and New York.

The Kingdom's policy makers are well aware that $140 crude oil means recession in the US, Europe and Japan, a threat to the survival of moderate Muslim world governments in Egypt, Pakistan and Jordan, political hostility to Saudi Arabia in the US Congress, an accelerated agenda of investing in biofuels and alternatives energy resources and, above all, a global recession that could well cause crude oil prices to collapse as in 1983-85 and 1998-99. Moreover, Saudi Arabia has a chronic inflation rate of 10 per cent and it cannot protect its 26 million population from a spiral in the cost of living with increases in wages and subsidies alone like the smaller Gulf petrocurrency microstates.

As long as SAMA, the Saudi central bank, will refuse to revalue the riyal, abandon its peg to the dollar or slash bank credit growth, the Kingdom's inflation rate will only accelerate as government revenues from crude oil sales soar.

The Saudi national interest requires stability and a fall in crude oil prices from their current historic highs.

This is the reason Saudi Arabia increased its output by 300,000 when President Bush visited the Kingdom on his last Mideast tour and announced another 500,000 hike on the eve of the Jeddah energy summit it has sponsored. While Saudi Arabia's oil production increase to 10 million barrels a day will not materially lower gasoline prices, it will defuse US Congressional anger that could block arms sales to the Kingdom at a time of rising threats to the security status quo.

Moreover, Saudi Arabia is also providing concessional oil to strategic allies hurt by the escalation in market oil prices, such as Pakistan. Saudi Arabia's output increase will surely be matched by Kuwait and the UAE, its traditional Gulf allies in Opec. The UN Secretary General's presence in Riyadh alone symbolises the Kingdom's strategic role at the highest pinnacles of power in global economics and politics.

Matein Khalid is a Dubai-based investment banker and commentator