Last week’s swift release by Iran of 10 US sailors held for entering its territorial waters while training in the Gulf would have been unimaginable only a few years ago and showed how America’s relationship with Iran has changed.

A statement from the Iranian Revolutionary Guards said the incursion was “unintentional” and was due to one of the vessels breaking down. An unfortunate incident was therefore defused quickly instead of being allowed to escalate into an international crisis.

US Secretary of State John Kerry said the resolution of the matter was “testament to the critical role diplomacy plays in keeping our country safe” – a reference to the rapprochement between the two countries which enabled a deal to reached on Iran’s nuclear programme.

While the potential for better relations between Iran and the West has generally been welcomed in Washington and European capitals, however, this has raised eyebrows in Saudi Arabia, where the ruling monarchy is somewhat paranoid about Iran. Riyadh has in fact adopted more of an assertive foreign policy since the death of King Abdullah last year and his replacement with King Salman.

Saudi Arabia and Iran are the leaders of the Sunni and Shi’ite branches of Islam respectively, they compete for regional influence in countries such as Bahrain, Lebanon and Iraq and support rival factions in the conflicts in Syria and Yemen. They are immensely suspicious of each other and their mutual antagonism is a force for instability in the region.

Indeed, the latest rift between the two countries caused by the execution by the Saudis of senior Shi’ite cleric Sheikh Nimar al-Nimr presents a huge challenge to the international community, in particular the US, on how to engage with these two countries.

Saudi Arabia broke off diplomatic ties with Iran after the storming of its Teheran embassy in response to the execution of al-Nimr, representing a new, and dangerous, low in the relations between the two countries.

The Saudis, who are very unhappy with the Iran nuclear accord, have long accused the Iranians of interfering in their internal affairs by supporting the Shi’ite minority in the country’s eastern province (where Sheikh al-Nimr was based), as well as meddling in the affairs of other Arab countries by supporting the Shi’ites in Bahrain (who make up the majority in a country ruled by a Sunni monarchy), the Shi’ite Houthi rebels in Yemen, Hizbollah in Lebanon, Shi’ite militias in Iraq and of course President Bashar al-Assad in Syria.

The Iranians, on the other hand, accuse the Saudis of practising a fundamentalist form of Sunni Islam which jihadist terrorist organisations like al-Qaeda, the Taliban and the so-called Islamic State draw inspiration, and of promoting sectarian hatred, especially towards Shi’ites. Furthermore, the Iranians will never forgive the Saudis and other Gulf States for backing Iraq in the 1980-1988 Iran-Iraq war.

After Allah we trust the United States- the late Saudi King Faisal

Saudi Arabia and Iran are both extremely important regional players in the Middle East; the US and most of the EU have close relations with Riyadh, while the potential for much better relations with Teheran certainly exists. The challenge for the West is how to have good relations with both without antagonising the other and at the same time trying to bring about a degree of positive change in these countries.

Saudi Arabia has one-fifth of world’s oil reserves, it is the largest exporter of petroleum, it hosts the two holiest cities for Muslims, Mecca and Medina, it is one of the wealthiest countries in the world, and it has a lot of influence in the Sunni Muslim world. It also has a poor human rights record, its leaders are autocratic and dissent is often suppressed. Even though it plays a key role in the fight against al-Qaeda and the Islamic State, the ultraconservative Wahhabi form of Islam that it practises has been exported to other countries as well as to Muslim communities in the West, often leading to radicalisation.

Saudi Arabia is also going through a difficult period. It has been targeted by Sunni jihadists, it is scared of a Shi’ite revolt in its eastern province, it is paranoid about Iran’s rapprochement with the West and the war in Yemen is said to be costing the kingdom nearly $1 billion a month.

Furthermore, the sharp decline in the price of oil is a major concern and the kingdom now plans to open up the economy including the possible sale of shares in the national oil firm, Saudi Aramco.

The international community, particularly the US, must continue engaging with the Saudis, advising them on how to liberalise their economy, but making more of an effort to convince them to improve their human rights record, curb the influence of the Wahhabi clerics who have far too much power and to stop the funding of centres of radical Islam in Europe and elsewhere.

The US has an important role here as Saudi Arabia is influenced to a considerable extent by Washington. After all the late King Faisal once admitted: “After Allah we trust the United States”. Whether the Saudis still feel as close to the US as in the past still remains to be seen, however.

Iran, on the other hand, has tremendous influence among Shi’ite Muslims, is politically stable, it stands to have $100 billion of its assets unfrozen as a result of the nuclear accord, it has nearly 80 million people, an educated workforce, a large middle class, a proud tradition of manufacturing and the world’s largest oil and gas reserves. After years of economic isolation, the lifting of sanctions offers massive opportunities for business growth, higher standards of living and political reform.

Of course, Iran still locks up dissidents, the unelected clerics wield far too much power, its human rights record is poor and its unreserved support for Bashar al-Assad in Syria certainly does not help resolve the conflict. However, Iran does have a basis for representative government and one hopes that the lifting of sanctions will strengthen the hands of the moderates led by President Hassan Rouhani and lead to a further opening up of the country, both politically and economically.

The nuclear deal will naturally require constant policing by the international community to ensure that Teheran abides by the terms of the agreement; however, should this accord work out, it could provide a very good opportunity for improved relations between Iran and the US, which will contribute to regional stability, while hopefully not disturbing the delicate balancing act with Saudi Arabia.

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