What Saudi Arabia’s Spat With Iran Means for the U.S. by Robert M. Danin @FortuneMagazine January 6, 2016, 1:07 PM EST E-mail Tweet Facebook Linkedin Share icons Earlier this week, Saudi Arabia cut off diplomatic ties with Iran after authorities executed a popular Shiite cleric. Anyone watching this meltdown unfold has every reason to think of worse-case scenarios, as it will only deepen the Middle East’s widening sectarian divide, intensify the region’s multiple conflicts, and set back efforts to defeat the Islamic State and end the bloodshed in Syria. For years, the Middle East has been defined by political instability, and the execution of Sheikh Nimr al-Nimr and subsequent attack on the Saudi embassy in Teheran is only the most recent episode in a longstanding rivalry between the two powers dominating opposite shores of the Gulf — the world’s most important oil chokehold through which 30% of global oil and liquefied natural gas flows. Each claims to be the face of the true and authentic variant of Islam. Saudi Arabia, custodian of Islam’s two leading holy places in Mecca and Medina, sees in the Islamic Republic of Iran a revolutionary Shiite Persian power expanding its reach into the Sunni Arab heartland. Having seen Tehran spread its influence into Iraq, Lebanon, Yemen, and Syria, the Saudis, led by a new and more activist king, are sending a strong message to the world that it will not sit by passively. The most immediate casualty of intensified Saudi-Iranian tensions will be the recently launched U.S.-led diplomatic effort to end the horrific Syrian war that has already claimed more than 250,000 dead. Iranian forces are fighting and dying in Syria to preserve president Bashar al Assad’s regime, while Saudi Arabia is actively backing rebels seeking to topple the dictator. Just getting the Iranian and Saudi foreign ministers into the same room last month was touted as a major accomplishment by Secretary of State John Kerry. While Iran and Saudi Arabia profess a desire to cooperate diplomatically, both countries are now sure to double down their support for the opposing sides in Syria’s war. The Syrian opposition, meanwhile, has urged all Arab countries to break relations with Tehran. A second casualty of Iran’s strained relations with Saudi Arabia is likely to be the regional effort to combat the so-called Islamic State, or Daesh, that currently occupies a large swath of territory across Iraq and Syria. While the United States and Europe, reeling from Islamist terrorism, see defeating Daesh as the paramount objective in the Middle East, this sense of priority is not shared by many Arab allies within the anti-Daesh coalition. That a number of Gulf states have followed Saudi Arabia’s lead and suspended relations with Tehran reflects the fact that they see Shiite Iran, not the Sunni Islamists in Daesh, as their paramount enemy. In Iraq, efforts to unify the multi-ethnic society and mobilize Sunni tribal forces against Daesh will likely be set back as the region’s Sunni-Shiite chasm widens. Tensions have already risen back to the fore in other multi-sectarian countries like Bahrain and Lebanon. And other proxy battles in the region are likely to experience the same polarizing influence. The war in Yemen, where Saudi Arabia has been fiercely battling Iranian-backed Houthi rebels, will likely intensify in the period ahead. This intervention has proven costly in terms of civilian and military casualties, and costs Riyadh close to $1 billion per month. The situation could even get more heated at home for both countries. Low oil prices, sustained in large part by Riyadh’s efforts to deprive Iran of keenly sought after petroleum revenues, is also causing social strains within the Saudi kingdom. Riyadh faces a nearly $100 billion annual budget deficit, forcing the kingdom to cut subsidies and welfare programs, further straining domestic pressures. In nearby Iran, the agreement to suspend its nuclear quest was shaped by the economic pain caused by crippling international sanctions. Yet low oil prices means that the lifting of sanctions may only provide partial and disappointing economic relief to the ailing Iranian economy, which is Riyadh’s intent. Rather than moderate their stand-off, both Iran and Saudi Arabia will seek to deflect their respective domestic pressures by stepping up their regional activism against one other. U.S. led-efforts to negotiate a halt to Iran’s nuclear program, however effective, have exacerbated Saudi and other Sunni Arab states’ fears that long-standing Western protectors are now moving towards a broader accommodation with Iran. This in turn has fueled current Saudi hostility and bellicosity. Unsure of Washington’s ultimate intentions, these Arabs, like Israel, have adopted more strident positions against their Iranian adversary. Administration efforts to then reassure the Arabs have largely fallen on deaf ears. Administration steps to display even-handedness between Iran and Saudi Arabia, rather than reassure the parties, may further estrange and provoke further acts of defiance. Since the nuclear agreement last July, Iran has continued to challenge the U.S. and the international community, conducting missile tests proscribed by the United Nations Security Council and firing in close proximate to U.S. shipping in the Gulf. Administration efforts to blunt the blow of potential new sanctions against Iran for its behavior— apparently in an effort not to jeopardize the nuclear agreement–have sewn further confusion about America’s future plans. The Arab backlash over the past few days may have served as a wake up call in Tehran, including among some of its hard-liners, who are now trying to walk back the damage from the Saudi embassy attack. Yet Iran will doubtless still soon continue to test the limits of Sunni Arab and Western resolve across the myriad Middle East battle fields currently under contention. Either by design or through miscalculation, elements in Iran, especially those opposed to the country opening up to the West, could take actions that then trigger retaliatory sanctions or actions that could undermine the prospects of an economic payoff provided by sanctions relief. Uncertainty and unpredictability are the order of the day. The first few days of 2016 have already proven to be eventful and dangerous on both sides of the Gulf waterway. Cross-straight tensions are sure to intensify in the weeks and months ahead in what is sure to be a tumultuous year of instability and unrest in the Middle East. Robert M. Danin is a senior fellow at the Council on Foreign Relations and at Harvard University’s Belfer Center. He previously served in a variety of senior Middle East positions at the White House and U.S. Department of State.