KUWAIT (Reuters) - Kuwait, a major OPEC producer, is heading for a deep political crisis as a rebellious parliament steps up its pressure on the government and divisions appear in the ruling family.
The Gulf Arab state has avoided an 'Arab spring' uprising but is locked in a long-running battle between a government dominated by the ruling al-Sabah family, and a parliament which likes to challenge it -- unusual in a region largely controlled by powerful families.
Last month, Prime Minister Sheikh Nasser al-Mohammad al-Sabah unveiled his seventh cabinet -- the previous one had quit to avoid questioning by lawmakers alleging misuse of public funds.
Within days several MPs returned to the attack, saying they wanted to question Nasser and deputy prime minister Sheikh Ahmed al-Fahd al-Sabah about allegations of mismanagement of public funds, corruption and inefficiency. Both deny the charges.
Splits within the ruling family are worsening the hostility between government and parliament as ruling family members use parliament to push their agenda, MPs and analysts say.
Share prices on the local bourse have fallen as investors fear the crisis will delay economic projects like a $109 billion (66 billion pound) state development plan because cabinet ministers are busy fending off attacks by deputies.
The daily al-Qabas, in a rare frontpage editorial "Enough fighting among sons of the (ruling) family," accused unnamed al-Sabah members of using parliament for their power struggles.
"For the first time the conflict is in the open, reaching this sharpness and making it into parliament," Qabas said.
"Kuwait is going through a critical phase... Leaders of the (ruling) family were always united. Now there are conflicts inside the family," liberal lawmaker Abdulrahman al-Anjari said. "These conflict will have a negative impact."
"It won't get any better. The government is weak, there is a vacuum and parliament opposes the prime minister," said Shafiq al-Ghabra, a political analyst.
Sheikh Nasser has faced opposition in parliament ever since taking office in 2006, but analysts say tension is rising as MPs and opposition activists take to the streets.
Emboldened by protests in Egypt and Tunisia, opposition groups have for several weeks staged rallies every Friday, dubbed a "day of anger," urging the emir, who has the last say in Kuwaiti politics, to sack the prime minister.
NO WAY OUT
"We have a 55 billion dinar budget but people don't benefit from it," said Fawaz al-Bahr, a young man who works in the state oil industry and joined recent protests.
"This crisis is much worse then previous ones. Nasser must go," he said. At the last rally a large crowd vowed to keep protesting until Sheikh Nasser quit.
Ghabra said he saw no way out of the stalemate as the ruling family regarded attacks on the prime minister as a 'red line' and the emir, Sheikh Sabah al-Ahmad al-Sabah, would continue to back Sheikh Nasser, his nephew.
The al-Sabah family allows more freedom than other Gulf states -- parliamentary approval is needed for all major bills, the budget and state investments, in contrast to Saudi Arabia, an absolute monarchy where few criticise the ruling family.
Analysts say some members of the al-Sabah family appear to be positioning themselves for the day when elderly leaders will have to hand power to younger relatives, and are encouraging deputies to attack Sheikh Nasser and Sheikh Ahmed.
"There seems to be a power conflict. It's about power, not about a vision for Kuwait," said analyst Shamlan al-Eissa.
Splits within the ruling family, which holds key portfolios such as defence, interior and foreign affairs, surfaced in 2006 when the late Sheikh Saad al-Abdullah al-Sabah was forced to step down as emir just over a week after assuming power.
The family, following the constitution and family tradition, had named Sheikh Saad as ruler despite his poor health. He quit under pressure from family members and MPs.
In appointing the current emir, Sheikh Sabah, the family interrupted a long tradition of alternating power between its two main wings -- the Jabers and Salems.
"I think the main issue is that they didn't agree on a new mechanism after Saad died," said an activist who helped organise recent protests. "That has encouraged rivalry inside the family since then," he said, declining to be named.
On handling the rebellious parliament, Ghabra said the emir was in a difficult position because dissolving it -- as Kuwaiti rulers have done six times since it was established in the 1960s -- might not work this time.
"This parliament is still from the time before the Arab spring. The next parliament will be stronger. There will be more political demands, it will be more difficult," he said.
Investors worry that the stalemate will hold up a $109 billion state development plan because the minister in charge of carrying it out, deputy prime minister Sheikh Ahmed, is busy fighting off MPs.
The plan is part of efforts to boost the private sector and diversify the economy, a strategy that has made little progress as many projects have been shelved in parliament.
"Kuwait's Foreign Direct Investment (FDI) inflows over the last decade were around $800 million, compared to Bahrain's more than $10 billion, the UAE's $73 billion and Saudi Arabia's $130 billion," said John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh.
(Editing by Tim Pearce)