(Adds new comments) WASHINGTON, Nov 29 (Reuters) - Using money, weapons or its oil power, Saudi Arabia will intervene to prevent Iranian-backed Shi'ite militias from massacring Iraqi Sunni Muslims once the United States begins pulling out of Iraq, a security adviser to the Saudi government said on Wednesday. Diplomats and analysts say Iraq's Sunni Arab neighbours, led by heavyweight Saudi Arabia, fear that the sectarian violence could spill into large-scale civil war between Shi'ites and Sunnis and set off a political earthquake far beyond Iraq. Nawaf Obaid, writing in The Washington Post, said the Saudi leadership was preparing to revise its Iraq policy to deal with the aftermath of a possible U.S. pullout, and is considering options including flooding the oil market to crash prices and thus limit Iran's ability to finance Shi'ite militias in Iraq. "To be sure, Saudi engagement in Iraq carries great risks -- it could spark a regional war. So be it: The consequences of inaction are far worse," Obaid said. The article said the opinions expressed were Obaid's own and not those of the Saudi government. "To turn a blind eye to the massacre of Iraqi Sunnis would be to abandon the principles upon which the kingdom was founded. It would undermine Saudi Arabia's credibility in the Sunni world and would be a capitulation to Iran's militarist actions in the region," he said. An official Arab source sought to play down the comments. "Saudi Arabia is worried about a new Iran imposing its political agenda on the region. We don't want Iran and its allies to have a free hand and free control," he said. "Iran knows that it is vulnerable and that Saudi Arabia has the upper hand and maintains real weight and power." THREE OPTIONS A Western diplomat based in Riyadh said Saudi Arabia was already funding Sunni tribes in Iraq. "I don't doubt for a second that they do pump money to the tribes, that's the Saudi way of doing things. But if they sent in troops it would be a bloodbath," he said. U.S. President George W. Bush will meet Iraqi Prime Minister Nuri al-Maliki in Jordan on Wednesday to discuss a surge in Sunni-Shi'ite violence in Iraq. Bush has said he does not support calls for a U.S. pullout from Iraq, but he is expected soon to receive proposals for possible changes in U.S. policy in Iraq from a bipartisan panel. Saudi Arabia, the world's biggest oil exporter and a close U.S. ally, fears Shi'ite Iran has been gaining influence since the 2003 U.S.-led invasion of Iraq ousted Saddam Hussein. Obaid said if the United States begins withdrawing from Iraq, "one of the first consequences will be massive Saudi intervention to stop Iranian-backed Shi'ite militias from butchering Iraqi Sunnis." Anthony Cordesman of the Center for Strategic and International Studies said any intervention could only be determined by the course of events. "Until we see what happens and how the situation is going to develop and the implications for those countries it is important to consider the possibilities but who will do what will be determined by the course of events," he told Reuters. Obaid listed three options being considered by the Saudi government: - providing "Sunni military leaders (primarily ex-Baathist members of the former Iraqi officer corps, who make up the backbone of the insurgency) with the same types of assistance", including funding and arms. - establishing new Sunni brigades to combat the Iranian-backed militias. - or the Saudi king "may decide to strangle Iranian funding of the militias through oil policy. If Saudi Arabia boosted production and cut the price of oil in half ... it would be devastating to Iran ... The result would be to limit Tehran's ability to continue funnelling hundreds of millions each year to Shi'ite militias in Iraq and elsewhere." (Additional reporting by Samia Nakhoul and Andrew Hammond)
