By Alireza Ramezani, for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iran Business News.
Tension seems to be escalating further between Tehran and Riyadh after the Jan. 2 storming of the Saudi Embassy and consulate by a number of “extremists” in Iran. Although the administration of President Hassan Rouhani has distanced itself from the attackers, the Saudi regime was quick to cut diplomatic relations with Iran and call on its Arab allies to follow its lead.
Attempts to de-escalate the situation have so far failed. Even the Iranian and Saudi foreign ministers shaking hands on the sidelines of the World Economic Forum in Davos last week did little to help the two regional rivals come closer over their differences, including the Syrian crisis.
For decades, the two oil-rich countries have been competing for a larger share in the politics of the Middle East, to spread their ideological influence throughout the region and to play a key role in pricing oil as a crucial development tool. That particular power is gaining more significance as crude hit a 12-year low last week, putting overwhelming pressure on the oil-based economies of Iran and Saudi Arabia.
Indeed, Saudi Arabia ran a budget deficit of $98 billion in 2015 and is on track for an $80 billion deficit this year. Falling oil prices coupled with international sanctions have also left Iran with a budget deficit of at least $8.3 billion in the Iranian fiscal year ending March 19. Yet neither Iran nor Saudi Arabia seem willing to compromise despite the looming consequences of their dispute.