The New Tehran-Riyadh Rivalry

A cold war between Iran and Saudi Arabia is at the heart of regional troubles

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Illustration by Harry Campbell for TIME

Afghanistan has been something of a forgotten war in recent months because of the world's preoccupation with Libya and Egypt and the wave of antigovernment protests spreading throughout the Middle East. That will soon change, now that the Obama Administration is stepping up talks with the Taliban in an effort to come up with some peaceable endgame to the half-trillion-dollar war. Part of the plan is to involve nations like Saudi Arabia and the United Arab Emirates in the talks — the U.S. has recognized that there can be no lasting solution in Afghanistan without regional buy-in. But the likelihood of getting those nations' help is slim, thanks to a new war: the cold one between Iran and Saudi Arabia.

The growing tensions between Shi'ite Iran and Saudi Arabia's Sunni regime indeed may turn out to be a threat not only to peace in Afghanistan but also to an Arab Spring. For some time now, Arab governments have been boosting their military spending in anticipation of this regional conflict. The Saudis in particular are feeling surrounded: in addition to a Shi'ite-dominated government in Baghdad, Syria is a key ally of Iran's (Tehran may be helping squelch pro-democratic protests in Syria), as is Lebanon's Hizballah-controlled government and Hamas in the Palestinian territories. There are also Shi'ite rebels in Yemen, which shares a long border with Saudi Arabia.

The Saudis believe that Iran has helped instigate Shi'ite protests in Yemen and Bahrain. That was one reason the Saudis, already rattled by the toppling of autocrats in Egypt and Tunisia, led a Gulf Cooperation Council military intervention in Bahrain to quell the rebellion, while accusing Iran of "violating the sovereignty" of its member states. No matter that about two-thirds of Bahrainis are Shi'ite. In the past month hundreds of protesters have been arrested. Human Rights Watch claims that at least seven have died; others may have been tortured.

While the U.S. has condemned such crackdowns elsewhere, the Administration soft-shoed it in Bahrain rather than upset the folks in Riyadh who control 25% of the world's known oil reserves and were already angry that the U.S. backed the overthrow of the region's top Sunni, Hosni Mubarak.

One of the results of the regional chaos has been much higher oil prices: oil is now over $120 a barrel, which is one reason the turmoil in Bahrain is so important. Bahrain is small potatoes compared with, say, Libya; the country produces only 40,000 barrels of crude oil a day — a tiny fraction of world supply — and its economy is minuscule. But the U.S.'s Fifth Fleet is based there, and one-fifth of the world's oil supply happens to pass by each day. To the extent that the possibility of increased conflict in that neighborhood keeps oil prices high, it's a drag on the global recovery.

And high oil prices also make a broader Arab Spring unlikely. Increased petro-wealth will enable the Saudis and other Gulf nations to keep paying off their citizens to pacify them rather than fundamentally reforming their economies and their political systems. The risk of further conflict from suppression of personal freedoms could lead to a flight of useful foreign investment in non-energy-related industries in the region at the very moment these regimes need to be diversifying economies to meet the demands of younger populations.

Meanwhile, in countries without oil wealth, like Egypt, Jordan, Lebanon and Tunisia, the result could be a return to the stagnant 1980s and 1990s, when GDP growth averaged 2.7% (compared with 5% in the past decade). But in order to create jobs and improve living conditions — both crucial to avoiding more social unrest — these countries need at least 6% to 7% growth. Starting with a single fruit seller in Tunisia, we've seen what can happen when pervasive unemployment leads to despondency.

The Obama Administration should pay careful attention to how it chooses sides in this worsening crisis. So far there's been a rather knee-jerk siding with the Saudis, in large part because fears of a more influential, nuclear-powered Iran loom so large in the minds of Washington policymakers. But it's possible we have our priorities backward. While there's been a lot of talk of involving Afghanistan's neighbors in its fate, Iran hasn't yet been invited to the party — though it's clear that its shared border, culture and history make it crucial to any peace process. Let's hope the cold war roiling the Gulf doesn't spread to Kabul.