FACTBOX-Key political risks to watch in Saudi Arabia

RIYADH, Sept 1 (Reuters) - Saudi Arabia, under the rule of an ageing King Abdullah, has the dilemma of making reforms that keep the austere clerical establishment that opposes change on side and violent Islamist militants at bay.

Any instability at the helm of Saudi Arabia, which controls more than a fifth of the world's crude oil reserves and is a regional linchpin of U.S. policy in the Middle East, would be a concern for the rest of the Arab Gulf region.

The absolute monarchy is ruled by the Al Saud family with influence from clerics who follow the austere Wahhabi school of Islam and have sometimes stood in the way of political and social reforms and modernisation efforts.

SUCCESSION

King Abdullah, who took over Saudi's helm in 2005, is estimated to be around 86 years old, raising the likelihood of a change of leadership in the not too distant future.

Most other top Saudi leaders are already elderly, including Crown Prince Sultan who is officially next in line to rule a country with no political parties or elected parliament and where governance is the prerogative of the Al Saud family.

But diplomats say Prince Sultan, who is believed to be in his mid-80s, was treated for cancer. He was absent from the kingdom for most of last year for medical reasons, giving rise to speculation about changes at the top.

The temporary void also led to intense rivalry and jockeying among princes hoping to move up the ladder one day, diplomats say. Saudi Arabia has said Sultan's treatment was successful, without giving details, and he has returned to his duties.

While Sultan was away last year, the powerful and conservative interior minister Prince Nayef was promoted to second deputy prime minister, leaving him in charge when both the king and crown prince are absent. That could put him in a prime position to become king one day.

Abdullah has set up an "allegiance council" of sons and grandsons of the kingdom's founder to decide on future kings. But it is not clear when and how it will be started.

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 to a next generation.

Whoever succeeds the current king, few expect major changes in Riyadh's energy, foreign and economic policy. Yet members of the top echelon of the royal family have differing approaches.

Nayef, who is thought to be around 76, is seen as more conservative. He has repeatedly backed the controversial religious police who roam streets to make sure unrelated men and women do not mix and shops close during prayer times.

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 targeted by al Qaeda in a suicide attack last August. Another leading face among the grandsons of Ibn Saud is Sultan's son Khaled, assistant defence minister.

Other contenders include Riyadh governor Prince Salman. He underwent spine surgery in the U.S. in August, state media said.

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.

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 Jihadis simply 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 Yemeni 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.

An al Qaeda suicide bomber who last year tried to kill Saudi Prince Mohammed bin Nayef was a Saudi citizen who returned from Yemen posing as a repentant militant.

Saudi Arabia and Yemen's Western allies want the impoverished country to resolve its own myriad internal conflicts to focus on fighting al Qaeda.

Spillover from Yemen's conflicts remains a major concern. Riyadh was drawn into fighting with northern Shi'ite rebels in November before a truce between Sanaa and the rebels brought a calm.

What to watch:

- Will al Qaeda's resurgent Yemen arm mount more operations in Saudi territory, as it has within Yemen. Will the truce between Sanaa and Shi'ite rebels hold?

- Riyadh wants to build a fence to seal the mountainous 1,500 km Yemen border, which could help stop militants from crossing, but experts say the frontier will be hard to control.

RISING POPULATION, UNEMPLOYMENT

Offering young Saudis a bright future is important to combat al-Qaeda style militancy. It was mainly Saudis who were behind the Sept. 11, 2001 attacks on U.S. cities, while others joined militants in Iraq.

Among the biggest challenges is to create jobs, housing and opportunities for a burgeoning population of 18 million Saudis, two-thirds of whom are under the age of 30, in a country with unemployment that climbed last year officially to 10.5 percent.

Abdullah has tried to reform the kingdom and overhaul an outdated education and judicial system but faces stiff resistance from a religious elite that has been given wide powers according to a historical pact with the Al Saud family.

An outdated school system with a focus on religion leaves few qualified for jobs in the private sector, which prefers to hire foreigners who often work for less pay and longer hours.

Saudi Arabia has spent billions on building new universities and schools and modernising old ones, hoping to hone graduates' job skills. But, wary of clerics' opposition, the government has not yet launched a serious drive at reforming the curriculum.

Abdullah has begun overhauling a judiciary dominated by clerics and last year removed a hardline cleric who headed the supreme court. The government is also working on the planned launch of appeals and commercial courts.

Transparency in the financial sector remains a serious concern for investors. The Arab world's largest bourse has allowed limited ownership of shares, but disclosure rules fall short of standards of more mature markets.

What to watch:

- Any protests of Saudis demanding state jobs or benefits.

- Saudi Arabia plans to further open the bourse and banking sector for foreigners to create more non-oil jobs.

- Any signs for approval of a much-delayed mortgage law, which aims to ease pressure on the housing market where young couples struggle to find cheap apartments.

IRAN CONFLICT

Saudi Arabia, a Sunni-led regional diplomatic heavyweight that is home to Islam's holiest sites, is worried about Shi'ite Iran's regional influence but also wants to stay out of the fray in any conflict over Tehran's nuclear programme.

Riyadh shares Washington's concern that rival Tehran wants to become a nuclear weapons power.

The United States and Israel have not ruled out military action to curb Iran, which says it wants nuclear power to generate electricity. Gulf states fear they could become the target of retaliatory strikes in the event of a conflict.

Most Saudi oil facilities lie on the coast across from Iran.

What to watch:

- 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. (Editing by Samia Nakhoul)