It was a very discreet meeting deep in the English countryside. The main speaker was Prince Turki al-Faisal, one of Saudi Arabia's best-known and best-connected royals. The audience was composed of senior American and British military officials. The location was RAF Molesworth, one of three bases used by American forces in the UK since the second world war. Now a Nato intelligence centre focused on the Mediterranean and the Middle East, the sprawling compound amid green fields was an ideal venue for the sensitive topics that Turki, former head of Saudi Arabian intelligence, wanted to raise.

After an anecdote about how Franklin D Roosevelt was told by a naked Winston Churchill that nothing between them or their countries should be hidden, Turki warmed to his theme: "A Saudi national security doctrine for the next decade."

For the next half an hour, the veteran diplomat, a former ambassador to Washington and tipped to be the next foreign minister in Riyadh, entertained his audience to a sweeping survey of his country's concerns in a region seized by momentous changes. Like Churchill, Turki said, the kingdom "had nothing to hide".

Even if they wanted to, the leaders of the desert kingdom would have difficulty concealing their concern at the stunning developments across the Arab world. Few – excepting the vast revenues pouring in from oil selling at around $100 a barrel for much of the year – have brought much relief to Riyadh.

Chief among the challenges, from the perspective of the Saudi royal rulers, are the difficulties of preserving stability in the region when local autocracies that have lasted for decades are falling one after another; of preserving security when the resultant chaos provides opportunities to all kinds of groups deemed enemies; of maintaining good relations with the west; and, perhaps most importantly of all, of ensuring that Iran, the bigger but poorer historic regional and religious rival just across the Gulf from Saudi Arabia's eastern provinces, does not emerge as the winner as the upheavals of the Arab spring continue into the summer.

"The [Saudi king], crown prince and government cannot ignore the Arab situations, we live the Arab situation and hope stability returns," the al-Sharq al-Awsat newspaper quoted Prince Nayef, the second in line to the throne and minister of the interior, as saying in Riyadh last week.

The prince, known as a conservative, went on to add that the possibility "of interference to prolong the chaos and killing between the sons of the Arab people … could not be discounted".

Iran, a majority Shia state committed to a rigorous and highly politicised Islamist ideology, remains at the heart of such fears in Saudi Arabia, a predominantly Sunni state ruled by the al-Saud family since its foundation in 1932. Recent moves such as the Saudi-inspired invitation to Morocco and Jordan, both Sunni monarchies, to join the Gulf Cooperation Council (GCC), a group of Sunni autocratic states, are seen by analysts as part of Riyadh's effort to bolster defences against Tehran. So too is the deployment of Saudi troops under the umbrella of the GCC to Bahrain, where largely Shia demonstrators took to the streets to demand greater democratic rights from the Sunni rulers.

One fear in Riyadh is that the 15% or so of Saudi citizens who are Shia – and who largely live in the oil-rich eastern province – might mobilise in response to an Iranian call to arms.

"It is a kind of ideological struggle," said a Ministry of Interior official.

Describing Iran as a "paper tiger" because of its "dysfunctional government … whose hold on power is only possible if it is able, as it barely is now, to maintain a level of economic prosperity that is just enough to pacify its people", Turki, according to a copy of his speech at RAF Molesworth obtained by the Guardian, said the rival state nonetheless had "steel claws", which were "effective tools … to interfere in other countries".

This Tehran did with "destructive" consequences in countries with very large Shia communities such as Iraq, which Turki said was taking a "sectarian, Iranian-influenced direction", as well as states with smaller ones such as Kuwait and Lebanon. Until Iraq changed course, the former intelligence chief warned, Riyadh would not write off Baghdad's $20bn (£12.5bn) debts or send an ambassador.

More worryingly for western diplomats was Turki's implicit threat that if Iran looked close to obtaining nuclear weapons, Saudi Arabia would follow suit, threatening a nuclear war between the two powers. "Iran [developing] a nuclear weapon would compel Saudi Arabia … to pursue policies which could lead to untold and possibly dramatic consequences," Turki said.

A senior adviser told the Guardian that it was "inconceivable that there would be a day when Iran had a nuclear weapon and Saudi Arabia did not".

"If they successfully pursue a military programme, we will have to follow suit," he said. For the moment, however, the prince told his audience, "sanctions [against Iran] are working" and military strikes would be "counterproductive".

One alternative, Turki told his audience, would be to "squeeze" Iran by undermining its profits from oil, explaining that this was something the Saudis, with new spare pumping capacity and deep pockets, were ideally positioned to do.

Money has long been a key foreign policy tool for Saudi Arabia. Turki's speech reveals the extent to which the kingdom is relying on its wealth to buy goodwill and support allies. In Lebanon, to counter Syrian influence and the Shia Hezbollah movement, the kingdom has spent $2.5bn (£1.6bn) since 2006.

Several billion more will reach the Palestinians, either directly or via the Palestinian Authority, Turki said. Then there is the $4bn (£2.5bn) in unconditional "grants, loans and deposits to Egypt's emerging government", which "stand in stark comparison to the conditional loans that the US and Europe have promised".

This was an indication of the "contrast in values between the kingdom and its western allies", the prince said.

The aim of such expenditure – only a fraction of the state's $550bn (£343bn) reserves – is to minimise any potential ill-will towards Saudi Arabia among populations who have deposed rulers backed previously by Riyadh.

King Abdullah, who has ruled Saudi Arabia since 2005, initially backed long-term ally Hosni Mubarak, reportedly personally interceding on his behalf with President Barack Obama.

"The calculation in Riyadh is very simple: you cannot stop the Arab spring so the question is how to accommodate the new reality on the ground. So far there is no hostility to the Saudis in Tunisia, Egypt or elsewhere, popular or political," said Dr Mustafa Alani, from the Gulf Research Centre, Dubai.

One difficult issue is that of the "unwanted house guests". Saudi Arabia has a long tradition of offering a comfortable retirement home to ex-dictators, and two of the deposed leaders – Zine al-Abidine Ben Ali of Tunisia and Ali Abdullah Saleh of Yemen – are now in the kingdom. Ben Ali is reported to have been housed in a villa on the Red Sea coast. Saleh is in a luxury hospital receiving treatment for wounds caused by the bomb that forced his flight from the country he ruled for 21 years as president, and is now under pressure from his hosts to retire permanently.

Other regional rulers are being gently pressured to ease crackdowns, in part in response to western outcry over human-rights abuses, one official said.

Yemen, however, remains a major security concern to the Saudis, who worry about the presence of Islamic militants and Shia rebels who, again, they view as proxies of Iran.

"It is very important to make sure Yemen is stable and secure and without any internal struggle," said one Interior Ministry official.

In his speech in the UK, Turki worried that Yemen's more remote areas had become a safe haven for terrorism comparable to Pakistan's tribal areas.

Along with money, religion too has been used as a weapon of Saudi foreign policy. Since 1986, Saudi kings have used the title of custodian of the two holy mosques – Mecca and Medina – and "as such [the kingdom] feels itself the eminent leader of the wider Muslim world", said Turki. Iran challenges this claim.

One key western concern has long been the export of rigorous and sometimes intolerant strands of Islam. Between the 1979 Iranian revolution and the 9/11 attacks, this was seen as a key part of Saudi foreign policy. It also served to placate clerical establishment internally. In the last decade, a major effort has been made to cut back funding for extremism abroad. The results, government spokesmen admit, are sometimes mixed.

Senior Saudi charity officials told the Guardian that their work was not only "non-political" but also avoided any attempt to spread Wahhabism, as the puritanical Saudi strands of Islamic practice are often known, too.

"We follow the wishes of local communities and never get involved in politics. We are a purely humanitarian organisation, said Dr Saleh al-Wohaibi, the secretary-general of the World Assembly of Muslim Youth (Wamy), a Riyadh-based NGO engaged in relief work and development assistance across the Islamic world, which has been accused of funding extremism.

However, al-Wohaibi confirmed Wamy had built thousands of religious schools in countries such as Pakistan. Since 9/11, he said, donations from within Saudi Arabia had reduced considerably.

At mosques in Riyadh last week, religious students said they hoped to travel overseas as soon as possible. "It is our duty to help other countries all over the world to improve their practice of Islam and [to improve] the image of Saudi Arabia," said Abdalillah al'Ajmi, 18, after evening prayers at the al-Rajhi mosque in Riyadh.

In his speech at Molesworth, Turki simply referred to Islam playing "a central … role" in ensuring Saudi security in the years to come. "Saudi Arabia is … the birthplace of Islam …. Iran portrays itself as the leader of not just the Shia world but of all Muslim revolutionaries interested in standing up to the west," he said.



A Saudi bomb?

Julian Borger

Diplomatic editor

Prince Turki al-Faisal's remarks reflect alarm at the progress of Iran's nuclear programme and eroding confidence in the protective umbrella of Saudi Arabia's longstanding ally, America.

In 2003, as its forces got bogged down in Iraq and the US began to look vulnerable, the Saudi government laid out three alternatives for itself: build its own bomb, shelter under someone else's, or agree a Middle East nuclear-free zone. Tentative talks on a zone are underway with a view to a UN-chaired conference next year, but few observers believe Israel would surrender its nuclear arsenal or that Iran would halt its programme.

As for its own weapon, Saudi Arabia has declared it will spend $300bn on 16 nuclear reactors, for which it is about to open bids. But they would be turnkey projects with safeguards making it almost impossible to use the fuel to make weapons.

Building a Saudi bomb would require starting a uranium enrichment programme from scratch. Even with unlimited resources that would take years.

In the short term, Saudi Arabia could look to other states. Since the Arab spring, the monarchy has become disillusioned with Washington's capacity to defend it. Instead, it may see its best option for a rapid response (to an Iran nuclear test, for example) as Pakistan. Saudi Arabia is reported to have an "option" on Pakistan's nuclear capability, in return for financing Pakistan for decades.

And the US would find it hard to stop such destabilising nuclear co-operation. Its influence with both the Pakistanis and the Saudis has frayed considerably.