RIYADH (Reuters) - A missile attack this week on Riyadh has raised the risk of an escalation in the Yemen war in a region riven with interwoven conflicts, but a direct confrontation between arch-foes Saudi Arabia and Iran still appears unlikely.

FILE PHOTO: Damage created by debris is seen, after ballistic missiles fired by Yemen's Houthi militia, fell at a house in Riyadh, Saudi Arabia March 26, 2018. REUTERS/Faisal Al Nasser

Saudi Arabia’s powerful Crown Prince Mohammed bin Salman, now touring the United States, must balance animosity toward Iran with the need for stability as he pitches the kingdom’s economic transformation plan to foreign investors and drums up support for containing Iran’s regional influence.

However, Iranian authorities - facing the prospect of a more hawkish U.S. administration with Donald Trump’s appointments last week of John Bolton and Mike Pompeo as national security adviser and secretary of state - might crank up pressure in the Yemen war as a form of deterrence, diplomats and analysts say.

Saudi Arabia sharpened its rhetoric against Tehran after Saudi forces shot down a flurry of missiles launched by the Iran-aligned Houthis on Saudi cities late on Sunday. One of the missiles caused the war’s first casualties in the Saudi capital Riyadh when falling debris struck a home and killed an Egyptian man and injured two others.

Saudi King Salman, in comments carried by state media, pledged on Tuesday to “firmly and decisively thwart any hostile attempts” targeting the kingdom’s security and stability.

A day earlier, the spokesman for the Saudi-led coalition fighting the Houthi movement accused it of using Iranian-made missiles and said that Saudi Arabia reserved the right to respond to Iran when and how it deemed appropriate.

The coalition intervened in Yemen in March 2015 in a campaign to restore its internationally recognized government after it was driven into exile by Houthi forces.

“Iran is the appendicitis in the body of the world and should fix itself or else the world will fix the Iranian situation,” spokesman Colonel Turki al-Malki said.

Iran has repeatedly denied giving missiles to the Houthis.

FEW MILITARY OPTIONS

Analysts said that in the short term, the Saudi leadership is unlikely to respond aggressively amid increased international scrutiny of the three-year-old Yemen conflict, which has given rise to the world’s most urgent humanitarian crisis.

“Prince Mohammed would like to be viewed as a more restrained and composed leader” while touring his closest Western ally, the United States, according to Ehsan Khoman, Head of Research and Strategist for MENA at MUFG.

“(He) may leverage the recent Houthi missile attacks to strengthen his narrative that Iran’s encroachment is undermining regional stability and that a more concerted international effort is needed to contain Iran.”

The Yemen conflict pits a coalition of Western-friendly states led by Saudi Arabia and the United Arab Emirates against the Houthis, who are sympathetic to Iran but deny being a pawn of its Shi’ite Muslim theocracy.

Yemen’s war fits into a broader decades-long struggle for supremacy between Middle East powerhouses Iran and Saudi Arabia, which fund and train proxy forces in Iraq, Syria and Lebanon and accuse each other of backing terrorism.

Military escalation in response to the latest rocket salvo could mean more coalition air strikes - which have been widely criticized for killing civilians - or mobilizing the Saudi National Guard from a mostly static position along the border to undertake a concerted ground assault inside northern Yemen.

Diplomats and analysts say that the coalition has few other options short of direct action against an Iranian target, something that remains unlikely unless a Houthi rocket takes out a valuable Saudi asset.

Last year, when the Houthis fired missiles at Riyadh that were intercepted, the coalition responded by shutting Yemen’s airports and ports. The United Nations said that blockade raised the danger of mass starvation, and it was partially lifted.

“They may make similar moves in order to be seen to be doing something, but it won’t really change the dynamics of the conflict,” said Jane Kinninmont, Middle East expert at Chatham House in London.

“My concern is that they could be tempted to take some action directly against some Iranian target, and that any such course of action could escalate further.”

Consultancy Eurasia Group said that a successful Houthi strike on a prized Saudi target would probably prompt a firm military response from Riyadh to try to deter Iran.

Analysts said that while a direct Saudi-Iranian showdown is unlikely, miscalculation remains a risk.

MEDIATION EFFORTS

Western countries have urged Saudi Arabia and its Gulf Arab allies to protect civilians and find a quick end to Yemen’s war. But they also support Riyadh’s argument that it needs to defend itself from cross-border strikes and limit the spread of Iran’s imprint in territory overlooking important trade routes.

The United Nations says more than 10,000 people have died in the war, and 22.2 million Yemenis - three-quarters of the population - need relief aid. More than 1 million cholera cases have been reported, the worst outbreak in modern history.

Analysts said that while Saudi Arabia will probably double down on its military campaign in Yemen to oust the Houthis from the capital Sanaa and reinstate President Abd Rabbu Mansour al-Hadi, it may continue to support mediation efforts.

However, the appointments of Bolton and Pompeo in Washington could encourage Iran to ramp up activities in Yemen to signal its ability and willingness to undermine the United States and its partners, Eurasia Group said.

Economists have played down the impact of the Houthi attacks on the Saudi economy, which Prince Mohammed is trying to wean off oil exports with a slate of reforms that include cutting energy subsidies and expanding the private sector.

Investors may have already largely priced in risks from Houthi missile strikes. But an intensification of the Yemen conflict and certainly an escalation to direct conflict between Iran and Saudi Arabia could scare off foreign investors.

(Fixes misspelling of analyst’s name in paragraph 11, adds title.)