In a region already torn by sectarian conflict, Saudi Arabia's execution of a prominent Shia cleric is adding fuel to the fire. It is a mistaken step by the country's rulers
Oil price jitters used to be a good indicator of geopolitical turmoil in the Middle East. Days after Saudi Arabia ignored Iranian warnings not to kill Nimr Baqr al-Nimr, a revered Shia cleric, there are reasons to think they're not playing that role so well anymore.
The execution was swiftly followed by the torching of the Saudi embassy in Tehran, to which the Kingdom replied by severing all diplomatic, trade and air ties with the Islamic Republic. Insults were traded aplenty between leaders of the two countries, amid calls for restraint by a perplexed international community.
Yet after recording a bump in the aftermath of all this, oil prices soon resumed their slide. More preoccupied by renewed upheaval in China's stock market than the row's consequences, the market this morning even pushed the price of Brent crude to below $33 a barrel for the first time since 2004.
This may reflect analysts' belief that the crisis will be contained – and that its effects on oil production will stay relatively muted. This may well turn out to be true.
Seeing the self-styled champions of Sunni and Shia Islam trading barbs could have led to a further polarisation of the Middle East and surrounding regions, and indeed Djibouti, Sudan and Bahrain have followed the Saudis in severing diplomatic ties with Tehran. But elsewhere the reaction has been more muted. The UAE, Kuwait and Qatar have merely recalled their ambassadors; Jordan and Turkey have only expressed support. Oman did nothing more than deploring the attacks. Iraq offered to mediate.
No one has a real interest in seeing direct military confrontation between both powers. Iran wants to reconcile itself with the West so as to revive its oil industry and shore up its ailing economy. Gulf nations are grappling with the fiscal and economic impact of a persistently depressed oil price. Turkey has found other enemies to deal with.
Saudi Arabia itself doesn't have much to gain from a conflict with Tehran. Riyadh is already bogged down in Yemen, where its efforts to battle the Houti rebels, a Shia tribe, are no longer making progress. It is bleeding cash to support Sunni friends in Egypt, Syria and elsewhere. Defence and security already drain 25 percent of its strained budget.
So why did the Saudis do this? Riyadh claims that al-Nimr's killing was just one of a batch of executions aimed at sending a signal to terrorists, most notably those with allegiance to Islamic State, that it will have little mercy for would-be attackers. And indeed, most of the 47 people killed last week were Sunni extremists. But al-Nimr, though he called for the fall of the Saudi regime, was no terrorist. That has not escaped the West, which has denounced the recklessness of both the Saudi execution and the embassy attack.
The killing, instead, is best understood in the context of domestic politics. Saudi Arabia may be driving oil prices down for strategic reasons, but it is nevertheless being hurt by the resulting fall in revenues: its fiscal deficit reached 15 percent last year, while foreign reserves have already dropped by $100bn. This is forcing it to cut subsidies and welfare payments so far used to appease dissenters – in a country that remains one of the most autocratic and conservative in the world. It may even start levying taxes. Distracting its majority Sunni population by shoring up anti-Shia sentiment is a trick the regime seems ready to use without qualms.
That is a mistake. Adding fuel to sectarian flames will worsen tensions within Saudi Arabia's own borders, where the Shia minority is already restive. Most importantly, it promises to prolong chaos in the region's most troubled nations – Syria, Iraq and Libya – where efforts at building peace very much depend on Sunni and Shia powers working together. This matters to Saudi Arabia: the country, which faces the time-bomb of a fast-expanding workforce, wants to diversify its economy away from oil; it needs trillions of dollars from foreign investors to finance its transformation. It's hard to see this happen while the region remains a massive powder keg.