* Riyadh signals anger over U.S. policy in Middle East
* Source says shift could affect arms, oil trade
* Prince Bandar set to end cooperation over Syria war
* In Washington, Saudi prince assails Obama's Mideast moves
By Amena Bakr and Warren Strobel
DOHA/WASHINGTON, Oct 22 (Reuters) - Upset at PresidentBarack Obama's policies on Iran and Syria, members of SaudiArabia's ruling family are threatening a rift with the UnitedStates that could take the alliance between Washington and thekingdom to its lowest point in years.
Saudi Arabia's intelligence chief is vowing that the kingdomwill make a "major shift" in relations with the United States toprotest perceived American inaction over Syria's civil war aswell as recent U.S. overtures to Iran, a source close to Saudipolicy said on Tuesday.
Prince Bandar bin Sultan told European diplomats that theUnited States had failed to act effectively against SyrianPresident Bashar al-Assad and the Israeli-Palestinian conflict,was growing closer to Tehran, and had failed to back Saudisupport for Bahrain when it crushed an anti-government revolt in2011, the source said.
"The shift away from the U.S. is a major one," the sourceclose to Saudi policy said. "Saudi doesn't want to find itselfany longer in a situation where it is dependent."
It was not immediately clear whether the reported statementsby Prince Bandar, who was the Saudi ambassador to Washington for22 years, had the full backing of King Abdullah.
The growing breach between the United States and SaudiArabia was also on display in Washington, where another seniorSaudi prince criticized Obama's Middle East policies, accusinghim of "dithering" on Syria and Israeli-Palestinian peace.
In unusually blunt public remarks, Prince Turki al-Faisalcalled Obama's policies in Syria "lamentable" and ridiculed aU.S.-Russian deal to eliminate Assad's chemical weapons. Hesuggested it was a ruse to let Obama avoid military action inSyria.
"The current charade of international control over Bashar'schemical arsenal would be funny if it were not so blatantlyperfidious. And designed not only to give Mr. Obama anopportunity to back down (from military strikes), but also tohelp Assad to butcher his people," said Prince Turki, a memberof the Saudi royal family and former director of Saudiintelligence.
The United States and Saudi Arabia have been allies sincethe kingdom was declared in 1932, giving Riyadh a powerfulmilitary protector and Washington secure oil supplies.
The Saudi criticism came days after the 40th anniversary ofthe October 1973 Arab oil embargo imposed to punish the West forsupporting Israel in the Yom Kippur war.
That was one of the low points in U.S.-Saudi ties, whichwere also badly shaken by the Sept. 11, 2001, attacks on theUnited States. Most of the 9/11 hijackers were Saudi nationals.
Saudi Arabia gave a clear sign of its displeasure overObama's foreign policy last week when it rejected a covetedtwo-year term on the U.N. Security Council in a display of angerover the failure of the international community to end the warin Syria and act on other Middle East issues.
Prince Turki indicated that Saudi Arabia will not reversethat decision, which he said was a result of the SecurityCouncil's failure to stop Assad and implement its own decisionon the Israeli-Palestinian conflict.
"There is nothing whimsical about the decision to foregomembership of the Security Council. It is based on theineffectual experience of that body," he said in a speech to theWashington-based National Council on U.S.-Arab Relations.
'FRIENDS AND ALLIES'
In London, U.S. Secretary of State John Kerry said hediscussed Riyadh's concerns when he met Foreign Minister Saudal-Faisal in Paris on Monday.
Kerry said he told the Saudi minister no deal with Iran wasbetter than a bad deal. "I have great confidence that the UnitedStates and Saudi Arabia will continue to be the close andimportant friends and allies that we have been," Kerry toldreporters.
Prince Bandar is seen as a foreign policy hawk, especiallyon Iran. The Sunni Muslim kingdom's rivalry with Shi'ite Iran,an ally of Syria, has amplified sectarian tensions across theMiddle East.
A son of the late defence minister and crown prince, PrinceSultan, and a protege of the late King Fahd, he fell from favourwith King Abdullah after clashing on foreign policy in 2005.
But he was called in from the cold last year with a mandateto bring down Assad, diplomats in the Gulf say. Over the pastyear, he has led Saudi efforts to bring arms and other aid toSyrian rebels.
"Prince Bandar told diplomats that he plans to limitinteraction with the U.S.," the source close to Saudi policysaid.
"This happens after the U.S. failed to take any effectiveaction on Syria and Palestine. Relations with the U.S. have beendeteriorating for a while, as Saudi feels that the U.S. isgrowing closer with Iran and the U.S. also failed to supportSaudi during the Bahrain uprising," the source said.
The source declined to provide more details of Bandar'stalks with the diplomats, which took place in the past few days.
But he suggested that the planned change in ties between theenergy superpower and the United States would have wide-rangingconsequences, including on arms purchases and oil sales.
Saudi Arabia, the world's biggest oil exporter, ploughs muchof its earnings back into U.S. assets. Most of the Saudi centralbank's net foreign assets of $690 billion are thought to bedenominated in dollars, much of them in U.S. Treasury bonds.
"All options are on the table now, and for sure there willbe some impact," the Saudi source said.
He said there would be no further coordination with theUnited States over the war in Syria, where the Saudis have armedand financed rebel groups fighting Assad.
The kingdom has informed the United States of its actions inSyria, and diplomats say it has respected U.S. requests not tosupply the groups with advanced weaponry that the West fearscould fall into the hands of al Qaeda-aligned groups.
Saudi anger boiled over after Washington refrained frommilitary strikes in response to a poison gas attack in Damascusin August when Assad agreed to give up his chemical weaponsarsenal.
'A BIG MISTAKE'
Representative Chris Van Hollen, a member of the U.S. Houseof Representatives' Democratic leadership, told Reuters'Washington Summit on Tuesday that the Saudi moves were intendedto pressure Obama to take action in Syria.
"We know their game. They're trying to send a signal that weshould all get involved militarily in Syria, and I think thatwould be a big mistake to get in the middle of the Syrian civilwar," Van Hollen said.
"And the Saudis should start by stopping their funding ofthe al Qaeda-related groups in Syria. In addition to the factthat it's a country that doesn't allow women to drive," said VanHollen, who is close to Obama on domestic issues in Congress butis less influential on foreign policy.
Saudi Arabia is concerned about signs of a tentativereconciliation between Washington and Tehran, something Riyadhfears may lead to a "grand bargain" on the Iranian nuclearprogram that would leave Riyadh at a disadvantage.
Prince Turki expressed doubt that Obama would succeed inwhat he called an "open arms approach" to Iran, which he accusedof meddling in Syria, Lebanon, Yemen, Iraq and Bahrain.
"We Saudis observe President Obama's efforts in this regard.The road ahead is arduous," he said. "Whether (Iranian PresidentHassan) Rouhani will succeed in steering Iran toward sensiblepolicies is already contested in Iran. The forces of darkness inQom and Tehran are well entrenched."
The U.N. Security Council has been paralysed over the31-month-old Syria conflict, with permanent members Russia andChina repeatedly blocking measures to condemn Assad.
Saudi Arabia backs Assad's mostly Sunni rebel foes. TheSyrian leader, whose Alawite sect is derived from Shi'ite Islam,has support from Iran and the armed Lebanese Shi'ite movementHezbollah. The Syrian leader denounces the insurgents as alQaeda-linked groups backed by Sunni-ruled states.
In Bahrain, home of the U.S Fifth Fleet, a simmeringpro-democracy revolt by its Shi'ite majority has prompted callsby some in Washington for U.S. ships to be based elsewhere.
Many U.S. economic interests in Saudi Arabia involvegovernment contracts in defence, other security sectors, healthcare, education, information technology and construction.
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