BEIRUT (Reuters) - Iran’s release from sanctions testifies to its new relationship with the United States as it moves from pariah state to regional power, a status that could come at the cost of Saudi Arabia, Washington’s chief Arab ally.

Enemies and allies alike must adjust to Iran becoming an uninhibited power broker in the Middle East after its nuclear deal with world powers and Saturday’s lifting of sanctions that bring it to the top table of international politics.

The swift release last week of U.S. Navy sailors after they drifted into Iranian waters marked the new era in relations following decades of hostility with the West.

After the 1979 revolution that brought Shi’ite Muslim clerics to power, Iran would typically use hostages to extract concessions from its western adversaries.

Early on, it held 52 hostages taken from the U.S. embassy in Tehran for 444 days. That incident ranked alongside Iranian-backed suicide bombings against Western embassies and troops in Lebanon, the hijacking of planes and the kidnapping of Western hostages in the country.

All this left deep scars and incited hostility towards Iran as an outlaw, in the region and the world. Yet last week’s naval incident contrasted to 2007 when Iran captured British sailors in similar circumstances, but accused of them of spying and held them for two weeks.

The hiccup over the American sailors was easily contained by the new rapprochement and “summarizes the emergence of a new relationship between Washington and Tehran”, said Fawaz Gerges, a Middle East expert at the London School of Economics.

NO LONGER A SPOILER?

Washington remains far from enamored of the mullahs ruling in Tehran, and is formally committed to Iran’s arch-rival, Saudi Arabia. But Iran’s attractions are both political and economic: a country that is “a potential regional superpower, and an emerging market with huge potential along similar lines to Turkey”, said Gerges.

“There is a new relationship based on a new understanding of Iran’s pivotal role in the region – that Iran is here to stay,” he said. So, for Washington, Iran would no longer be a spoiler state, but one that could play a positive role in stabilizing the region and “help put out the fires”.

Saudi Arabia, however, remains implacably at loggerheads with Iran. Its rigid Wahhabi Sunni Muslim clerical leaders treat Shi’ites as heretics, not far short of how Islamic State jihadis regard Shi’ites as idolaters to be exterminated.

An Iranian flag flutters in front of the International Atomic Energy Agency (IAEA) headquarters in Vienna, Austria, January 15, 2016. REUTERS/Leonhard Foeger

The Saudis have been badly rattled by Iran’s success in forging a Shi’ite axis stretching from Iraq through Syria to Lebanon, where Tehran’s paramilitary ally Hezbollah is also the strongest political force.

Riyadh says Iran is also behind unrest in neighboring Bahrain, which has a Shi’ite majority, as well as the insurgency of Shi’ite Houthis in Yemen, where the Saudis launched an air war last year. It also believes Tehran is stirring up Saudi Arabia’s Eastern Province, which contains nearly all the kingdom’s oil and most of its marginalized Shi’ite minority.

The execution this month of Sheikh Nimr al-Nimr, a dissident Saudi Shi’ite cleric, has further poisoned relations with Iran.

Yet for the United States and its European allies, getting Iran on-side is likely to be vital to their interests. In particular, Tehran could be crucial in the fight against Islamic State in Iraq and Syria.

The same goes for the search for ending the civil war in Syria. There Iran kept President Bashar al-Assad in power as his sole foreign ally offering battlefield help until Russia arrived with its air force last autumn.

ON THE DEFENSIVE

While Iranian confidence grows, Riyadh appears defensive - and unpredictable since last year’s succession of the elderly King Salman, who has vested vast power in his young son, Prince Mohammed bin Salman, Saudi watchers say.

“There is a widespread perception that Saudi Arabia is pursuing chaotic, counter-productive policies,” said Gerges, and that Wahhabism lies behind the rise of al Qaeda and Islamic State, with the Saudi leadership lacking experience and wisdom.

“The Saudis are really behaving with a sense of siege, reacting to events as if each was the end of the world,” Gerges said, “lashing out angrily and recklessly, with no long-term perspective”.

Iran, by contrast “believes it is a rising power, that the world needs it”. Tehran also appears to have grasped that the huge increase in U.S. shale oil production has freed America from its dependence on Saudi crude.

Saudi officials say their regional policy is coherent, not ideologically or religiously motivated.

“We will not allow Iran to destabilize our region. We will not allow Iran to do harm to our citizens or those of our allies and so we will react. But it is a reaction in response to Iranian aggression,” Foreign Minister Adel al-Jubeir told Reuters this month.

Farhang Jahanpour of Oxford University argues that the Saudis need to agree a regional security structure with Iran and all other Gulf states, as well as Sunni powers Egypt and Turkey.

“They should cooperate because if the present state of antagonism continues they will be the losers, and we will be witnessing wars for decades in the entire region and beyond,” Jahanpour said.

NEW DILEMMAS

Rivalry between Sunni and Shi’ite Islam goes back many centuries. In modern times, this often translated into a strategic contest between Saudi Arabia’s Wahhabi version of Sunni orthodoxy and the Shi’ite theocracy of Iran.

The 2003 overthrow of Sunni minority rule in Iraq by the U.S.-led invasion and its replacement by a Shi’ite government under the sway of Iran has rekindled the sectarian firestorm.

Ali al-Amin, a Lebanese analyst and researcher, says Riyadh seems to believe the real threat comes from Sunni rivals such as Islamic State and a restive young Saudi population indoctrinated with Wahhabi prejudice against Shi’ites.

“The fight with Iran strengthens it internally, it strengthens its nerve,” says al-Amin. “Its purpose is to protect the regime and rally all Sunnis behind it.”

But Iran, too, has its vulnerabilities. It faces the dilemma of how far to liberalize once its economy reconnects to world markets and investment creates new power groups.

Its successes in countries such as Lebanon, Iraq and Syria have come as these states were cracked open by war or invasion, leading to de facto partition. Tehran has advanced its interests by bypassing state institutions with unstable alternatives such as militias, its principal weapon of influence.

Above all, Tehran needs to win acceptance in the Middle East as a legitimate and constructive regional power.

“Iran’s role was always built on divisions and fractures in society and not through government institutions,” al-Amin said. “The Iranian project cannot survive without crises, it has no option for stability through ties with states. In Syria, all the Iranian influence is outside the state and the same in Iraq and Lebanon.”

If Iran is to win Arab recognition as a regional power, it will need to compromise and that includes accepting a less assertive role in the affairs of Iraq, Lebanon and Syria.

“Iran has become a regional power but to be a recognized regional power, it has to define its role. It cannot preserve its presence in Syria and Lebanon,” veteran Lebanese commentator Sarkis Naoum told Reuters.

Faisal al-Yafai, commentator at the The National newspaper in the United Arab Emirates, said Tehran must review its support for various armed groups in the region. If Iran “wants genuinely to be part of the international community it has to obey the rules of the international community,” he said.

In the contest for the Middle East, it is too early to declare Iran as the winner, said Gerges.

However, he added: “The Iranians have really shown sophistication, cleverness, bargaining ability and gamesmanship ... Iran has established itself as a major player in its own environment and has the capacity to be major player in the (world) economy.”