By Angus McDowall
DUBAI (Reuters) - Saudi Arabia mourned on Sunday the death of Crown Prince Sultan, as King Abdullah prepared to nominate his new heir and choose a new occupant of the key defence minister's job.
With much of the rest of the Middle East in turmoil, U.S. Defence Secretary Leon Panetta expressed confidence in Riyadh's ability to stage an effective transition in the area of defence after the death of the crown prince.
Prince Sultan, who had been heir to the Saudi king since 2006 and defence and aviation minister since 1962, died of colon cancer in New York on Saturday.
While most analysts expect the veteran Interior Minister Prince Nayef to become crown prince, there is less certainty about the defence role, a key post in a country that uses multi-billion dollar arms deals to cement relations with top allies.
In making the appointments, King Abdullah must maintain a delicate balance of power in a royal family that has thousands of members, dozens of branches and dominates Saudi Arabia's government, armed forces and business.
"Balance is always the concern of kings," said Khaled al-Dakhil, a political science professor in Riyadh. "It's to keep the balance within the family at all levels."
The changes to top Saudi personnel might prompt King Abdullah to undertake the first major government reshuffle of his reign, an event that has long prompted speculation.
However, analysts said he might prefer to wait to avoid any perception that changes were being made under pressure.
State-owned news channel Ekhbariya devoted most of its coverage on Sunday to the death, carrying a photograph of Sultan praying as it broadcast interviews with commentators and black-and-white footage of him inspecting Saudi troops in the 1960s.
NEXT IN LINE
King Abdullah will probably seek approval of his nomination for crown prince from the Allegiance Council, which he set up in 2006 to regulate the kingdom's opaque system of succession.
The council does not legally have to come into force until after Abdullah's death, but analysts in the kingdom say he is unlikely to bypass the body by simply appointing the new Crown Prince himself.
"Considering the fact that the Crown Prince died at this time, with the situation in the Middle East and the Arab world in turmoil now, it would be positive to activate the council and give it a chance to choose the new crown prince," said Dakhil.
Prince Nayef, the most likely choice, has expressed hawkish positions in the past on democracy and women's rights.
He also was quoted after the September 11, 2001 attacks on the United States doubting that Saudi citizens were involved when they in fact constituted 15 of the 19 hijackers.
However, he later oversaw the kingdom's suppression of an al-Qaeda bombing campaign inside Saudi Arabia and analysts say that as king he might disprove a reputation for conservatism.
Nayef's expected elevation would put more focus on the likely candidates to follow him -- particularly on Prince Salman, the Riyadh governor who is seen as the next most senior prince with the requisite experience to one day hold top office.
Another potential successor among the sons of King Abdulaziz Ibn Saud, the founder of the kingdom, is Prince Muqrin the head of Saudi intelligence.
DEFENCE
Saudi Arabia's defence minister has responsibility for arranging multi-billion dollar defence purchases that Riyadh has historically used to strengthen its relations with top allies including the United States, Britain and France.
Speaking in Indonesia, Panetta expressed confidence over the future of Saudi defence policy.
"I believe that we can have an effective transition in Saudi Arabia with regards to the defence area," he said.
"We've been able to have these transitions before. I think I feel confident that we can go through this transition as we move to a new defence minister."
Leadership of the kingdom's armed forces is also a pivotal position in domestic politics ensuring a seat at the top table of Saudi decision making.
Prince Sultan's son, Prince Khaled bin Sultan, is now the deputy defence minister and has for many years been seen as a strong candidate to replace his father as minister one day.
However, analysts said it was not certain he would be appointed to the role by King Abdullah.
CHALLENGES ON THE HORIZON
King Abdullah's appointments this week will determine the direction of Saudi Arabia for years, if not decades, as the world's top oil exporter prepares to tackle long-term problems.
"The crown prince will have a lot on his plate," said Khaled al-Maeena, editor at large at the English-language Aran News daily in Jeddah. "He will have to face new challenges on the horizon within and without the borders. He will have to find ways to modernise the country."
Unemployment is high, as the Saudi population is growing more quickly than suitable jobs are being created. Rising domestic energy consumption is reducing the amount of oil available for export while liberal and conservative Saudis support starkly different visions of development.
Meanwhile, the Arab Spring uprisings have destabilised neighbouring Bahrain and Yemen, feeding Saudi concerns that regional rival Iran might use the unrest to expand its influence across the Gulf.
Saudi television late on Saturday night showed footage of King Abdullah leaving a Riyadh hospital a week after having a back operation.
After two rounds of back surgery late last year, Abdullah had to spend three months recuperating before he returned to the kingdom in March.
A spinal surgeon in London said the operation Abdullah had last week to tighten the ligament around a vertebra could limit the movement of an elderly patient for some time, but pictures from Saturday night showed the king walking out of the door with the aid of a frame.
(Additional reporting by Asma Alsharif in Jeddah, Nour Merza in Dubai and Phil Stewart in Bali; Editing by Michael Roddy)
