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Will Saudi Arabia's Stimulus Calm Sectarian Tensions?

Saudi Arabia's plan to shell out some $90 billion as part of a state-backed economic aid package continued to buoy regional markets Monday, but it is too early to tell how much the spending package will do to assuage sectarian tensions in the country, market analysts told CNBC.

Saudi youth wave their national flag as they celebrate the return of King Abdullah bin Abdul Aziz in the Saudi capital Riyadh.
Fayez Noureldine | AFP | Getty Images
Saudi youth wave their national flag as they celebrate the return of King Abdullah bin Abdul Aziz in the Saudi capital Riyadh.

"The region’s leaders have expected that increasing government spending is enough, but from our perspective much more needs to be done," Angus Blair, head of research at Beltone Financial in Cairo, said.

"In Saudi Arabia, progress has been steady under King Abdullah, and he is widely acclaimed for that, but demographic pressures will mean that the speed of this change should gear up to cope with rising demands," Blair said. "We would like to see both a more pragmatic approach to developing long-term job creation and an improved social contract between the people and government," he added.

The recent spate of opposition protests in the Kingdom, including those condemning Saudi support of a GCC-backed crackdown on anti-government protestors in Bahrain, have been closely contained and security experts seem loathe to characterize the situation in Saudi Arabia as anything like that of conflicts elsewhere in the region.

"Saudi Arabia has not experienced any protests remotely comparable with those seen in countries such as Egypt, Libya or Bahrain, and there is little reason to believe this will change in the near future," Crispian Cuss, security analyst with Olive Group in London, said.

The announcement of some 60,000 new security jobs for Saudis as part of the latest economic package may not mean any added production capacity, but the contribution to the country's security apparatus cannot ignored.

"Saudi security forces are pervasive and have had real success in infiltrating and disrupting groups opposed to the regime," says Cuss.

National Dialogue In Bahrain, the majority of civil servants returned to duty Monday and the operation of all ministries is back to normal, a government spokesman told CNBC.

The country's official news agency quoted Bahrain's King Hamad as saying that a foreign plot, some two decades in the making, has been foiled. This just days after a GCC-backed government force cleared protestors from the country's Pearl Roundabout area, and security forces demolished the area's central structure.

While both the King and the country's prime minister have been visible in the press in recent days, conspicuously absent has been the country's crown prince, tasked with dealing with protestors' demands in mid-February.

King Hamad authorized Crown Prince Salman bin Hamad to begin a national dialogue last month, but it's a conversation with the opposition that has yet to begin. This despite a signal from the movement's leaders over the weekend that they are ready to come to the table.

"There has been no communication from the government," Mattar Ibrahim, a member of the largest Shiite opposition parliamentary block Wefaq, said. "We are entering a new phase and in this phase, the allies of Saudi Arabia are controlling everything. The royal family is divided and the hardliners who are close to Saudi Arabia, they are controlling the country," Ibrahim added.

"We don't feel there is any willingness for change from the ruling family." One security analyst tasked with assessing the risk to clients in Bahrain told CNBC that the government's failure to communicate effectively with opposition groups other than through the application of direct force is merely hardening sectarian attitudes.

While the prospect of the opposition using al-Qaeda guerrilla tactics may not be visible in the short term, a substantial gesture towards the Shia community must come soon to avoid further conflict, the analyst added.

As international companies assess the risk of returning to Bahrain, the outlook remains gloomy.

"We do not see foreign companies looking at Bahrain for the foreseeable future, given the change to the risk profile of the country," Blair said. "We would anticipate some companies scaling back operations and others changing their location altogether."

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