"While events in Libya are undoubtedly of prime importance, they are a red herring for the oil market," said Helima Croft from Barclays Capital. "We believe the unrest in Bahrain may be of far greater importance to the strategic balance in the Middle East and to the oil market."
The risk group Exclusive Analysis said there is a "moderate risk of an extremely violent transition" in Bahrain, the linchpin of stability in the Gulf and host to the US 5th Fleet. "There is a significant probability that the present order is completely overthrown and replaced by a new order aligned with Iran," it said.
Marchers from Bahrain’s Shi’ite community, 70pc of the Island’s 800,000 population, poured into Manama’s Lulu square on Tuesday in another day of civic protest after the royal familypromised to call off the bloody crackdown.
King Hamad is under intense pressure from the US to refrain from further bloodshed, but this softly-softly policy contains its own risks. While the centrist Shia party al-Wefaq wants peaceful reform, the more radical Haq movement is less easy to control.
Exiled Haq leader Hassan Meshaima, wanted for alleged sedition, has announced plans to return to Bahrain next week. It is unclear whether he has a green light from authorities hoping to defuse the crisis, or whether he is throwing down the gauntlet in a move with echoes of Ayatollah Khomeini’s return to Iran thirty years ago.
"If he is detained on arrival, this is likely to galvanise the opposition and increase the risk of a violent widespread uprising, " said Exclusive Analysis, which sees a one third chance that the 200-year old monarchy will be overthrown.
Gary Sick, a former White House adviser on the Mid-East, said it is "too late for dialogue" after the killing of 10 people, deemed a massacre by Shi’ite clerics. He said the Saudis are "terrified" of contagion and are determined the line drawn in Bahrain before protests spread through the Gulf. "There does not seem to be any happy ending to this story," he said.
Iran is clearly hoping to bring Bahrain into its orbit. An aide to supreme leader Ali Khameneicalled three years ago for Bahrain to be absorbed as Iran’s 14th province. Manama has repeatedly accused Tehran of inciting revolt.
However, the immediate concern is that Bahrain’s troubles will either cause Saudi Arabia to step in directly, or serve as model for revolt in the kingdom’s Eastern Province nearby. This region also has a restless Shi’ite majority, and holds a fifth of the world’s oil reserves.
There have been low-level clashes been Saudi security and Shi’ite activists in the province over the years, though Riyadh has made efforts to address grievances. A small protest this week in Awwamiya was handled with kid gloves. Three Shi’ite prisoners were released as a goodwill gesture. However, Saudi dissidents are calling for a much bigger 'Day of Wrath’ on March 13 to press for political freedoms.
Exclusive Analysis said there is a 25pc chance that the Saudi Kingdom will disintegrate, perhaps into three states. "We don’t think it is likely, but it will have a very big impact if it does happen," said Firas Abi Ali, the group’s Mid-East strategist.
"The threat to Saudi Arabia is if they have both a Shi’ite uprising and a Hejazi uprising at the same time on the other side of the country. The Saudi royal family depends on Sunni clerics for its own legitimacy. It cannot easily meet the demands of Shi’ite protesters, and is likely to oppose any move by Bahrain to do a deal in order to avoid setting a precedent," he said.
Barclays said the tectonic shifts of the last three weeks will cause "lasting unease in the oil markets", and may push up crude prices to $135 barrel sooner than its 2015 target.
While there is little danger of any country cutting off the oil supplies that generate vital revenues, there is a risk that the turmoil will slow desperately needed exploration and investment. "In a world where demand growth is continuing at a phenomenal pace, these lost barrels of output in the medium term can be extremely precious at the margin of the oil market," said Ms Croft.
The mid-decade crunch is looking ever more certain.