The news yesterday that King Fahd of Saudi Arabia had died sent only minor ripples through Wall Street, and caused few jitters in the already nervous energy markets. That is largely because the death of the octogenarian king – incapacitated since a 1995 stroke – had been largely expected since he was hospitalized in May. Washington policymakers had been preparing for his death so as not to be surprised by unpleasant changes as power transferred inside the House of Saud.

Yet, while the death of King Fahd will not cause major changes in the desert kingdom, a dramatic shakeup is on the horizon – and Washington must act quickly if it wants events to unfold to its advantage.

Saudi Arabia has no constitution and no formal procedure is established for succession. In 1975, when a disgruntled nephew assassinated King Faisal, the crown went to one of Faisal’s half-brothers, Khalid, even though Khalid’s older brother, Muhammad, was the senior family member. Little wonder that the deaths of Saudi kings have been tinged with some uncertainty.

This time, however, there was little doubt. Crown Prince Abdullah, one of Fahd’s 25 half-brothers, has effectively run the day-to-day operations of the government for the past decade. King Fahd’s death merely formalizes Abdullah’s powers. And, as expected, Prince Sultan, the longtime defense minister and a brother of King Fahd, has been elevated to the title of crown prince.

Yet this successor government will almost certainly be a brief one. Abdullah is over 80. Sultan is in his late 70’s. Thus the potential crisis comes not with the post-Fahd succession, but upon Abdullah’s death. The prospect of a crippling tribal feud within the House of Saud, or of a nationwide movement of discontent among average Saudis who are left out of the royals’ enormous circle of influence and wealth, are real possibilities.

Despite sitting on the world’s largest pool of oil, the kingdom is in bad shape. It has run a budget deficit for 21 of the last 22 years. More than 20 percent of the annual budget goes to the military, while the share spent on education and health steadily declines. The demands of the ever-expanding royal family on the national finances are crippling.

The country’s youth population has soared and the once unshakable Saudi social network that provided cradle-to-grave education, medical care and even housing has retrenched under growing financial constraints. Unemployment for those under 30 has reached 25 percent. The kingdom’s per capita income is less than $7,000, having peaked in 1981 at the equivalent of $25,000.

And all the while, support for radical fundamentalism seems to be growing, if judged by the crowds at mosques on Fridays and the number of Saudi suicide bombers who have joined Al Qaeda or gone to Iraq.

So the real question is whether petrodollars and the Wahhabi sect of Islam can keep the country glued together after leadership passes to a new generation of men including Prince Bandar bin Sultan, who recently retired as ambassador to the United States, and Prince Alwaleed bin Talal, the kingdom’s wealthiest businessmen.

So far, efforts at democratization have been little more than window dressing. This year the House of Saud had its first experiment in democracy, a three-stage nationwide election for municipal councils. The royals heralded it as a significant step toward participatory democracy. But the election actually revealed how far they have to go: while half the council members were elected, the king appointed the other half; women were banned from voting; the councils can make recommendations to the government but have no real power; turnout was low; and many of the winners were conservative Islamists backed by religious authorities.

The regime has also been backsliding in political freedoms. In May, Ali al-Domeini, a leading poet, and two scholars were given long prison sentences for having circulated a letter they had written to Crown Prince Abdullah calling for political, economic and social reforms. Other advocates who endorsed the letter were kept in custody until they signed an agreement to stop their public campaign.

These are not the actions of a strong government or a confident ruling family. It would be in the Saudis’ service, then, as well as our own, if the United States were to use its influence to bring about advances in democracy and moderation in repression. For too long the United States has failed to push the kingdom to change, largely out of fears of upsetting the royals and the effect that might have on the supply and price of oil.

Things may be changing for the better, however. In June the State Department took the rare step of listing Saudi Arabia as one of 14 countries that could face sanctions if it did not adequately address the international trafficking of prostitutes and of migrant workers who are forced into indentured servitude.

The United States should be equally firm when it comes to other important issues like the continuing Saudi crackdown on dissidents; the imprisonment – and sometimes execution – of homosexuals; failures to expand women’s rights; and the kingdom’s inconsistent role in the war on terrorism.

The recent appointment of Prince Turki al-Faisal as ambassador to the United States affords an opportunity for blunt diplomacy. The prince, who ran Saudi intelligence for a quarter-century, knows far more than his predecessor, Prince Bandar, about the labyrinth of Islamic extremism; he even negotiated with Osama bin Laden and Taliban officials in his intelligence role. He may not become the social fixture in Washington that Prince Bandar was, but he is a pragmatist who will understand, and convey to Riyadh, straight talk from Washington.

If the United States can make clear that it condemns the regressive practices of the House of Saud, it might help the younger princes find the personal courage to relinquish enough power that the Saudi public can feel it has a government that is responsive to modern needs and desires. The future of the House of Saud, not to mention that of the United States’ role in the Middle East, depend on our doing what we can to shape the next generation of royals.