Saudi Arabia cut ties with Iran on Sunday and fellow-Sunni Bahrain followed suit on Monday, two days after Iranian demonstrators stormed the Saudi embassy in Tehran in protest at Riyadh’s execution of a senior Shi’ite cleric.
The United Arab Emirates (UAE) also downgraded its ties with Iran, as the dispute between the region’s top Sunni and Shi’ite powers rippled across the region, driving up oil prices and threatening to widen the Middle East’s sectarian divide.
A man was shot dead in Saudi Arabia’s Eastern Province late on Sunday when security officers came under fire, and two Sunni mosques in Iraq’s Shi’ite-majority Hilla province were bombed. After a furious response in Shi’ite communities worldwide to the Sunni kingdom’s execution of Shi’ite Muslim cleric Nimr al-Nimr, Saudi Foreign Minister Adel al-Jubeir accused Iran of creating “terrorist cells” among the kingdom’s Shi’ite minority.
Iran retorted that Riyadh had used the embassy incident and an similar attack on its consulate in the Iranian city of Mashhad as an “excuse” to stoke tensions.
Oil prices rose almost two percent, overcoming economic weakness in Asia, as the two big petroleum exporters traded insults and tensions spilled into other crude producers such as Iraq.
Stock markets across the Gulf dropped sharply, led by Qatar which fell more than 2.5 percent, with geopolitical jitters outweighing any benefit from stronger oil.
Crude importer China declared itself “highly concerned” with the developments, in a rare foray into Middle East diplomacy. The United States and Germany called for restraint, while Russia offered to mediate an end to the dispute.
The tensions threatened to derail efforts to end Syria’s five-year-old civil war, where Saudi Arabia and other Gulf Arab powers support rebel groups against Iran-backed President Bashar al-Assad.