Editor's Note: Mohsen M. Milani is Professor of Politics and Chair of the Department of Government and International Affairs at the University of South Florida in Tampa.

By Mohsen M. Milani, Foreign Affairs

Yesterday afternoon, the U.S. government charged Mansoor Arbabsiar, a dual U.S.–Iranian citizen, and Gholam Shakuri, an alleged member of the Iranian Quds Force (a division of the Revolutionary Guards), with conspiracy to assassinate the Saudi Arabian ambassador to the United States, Adel Al-Jubeir, and to attack both the Saudi and Israeli embassies in Washington, D.C. Although the nature of Iranian government involvement remains to be seen, the indictment is just the latest story in the intricate cold war now developing between Iran and Saudi Arabia.

The two countries, at odds since the 1979 revolution in Iran and ever more so in the wake of the Arab Spring, are competing for dominance in global energy markets and nuclear technology and for political influence in the Persian Gulf and the Levant. Their conflict, with its sectarian overtones, has the potential to weaken pro-democracy forces in the Middle East and North Africa, empower Islamists, and drag the United States into military interventions. To avoid all this, the United States will need strategic imagination to devise ways to mitigate and manage the rivalry between Riyadh and Tehran.

Iran and Saudi Arabia are neither natural allies nor natural enemies but natural rivals who have long competed as major oil producers and self-proclaimed defenders of Shia and Sunni Islam, respectively. Until the Iranian revolution in 1979, their rivalry was managed and controlled by the United States, with whom they were both strategic allies. But after the Shah was overthrown, Saudi Arabia’s leadership became frightened by the Ayatollah Khomenei’s denunciation of the Saudi monarchy as antithetical to Islam and his ambition to export to the revolution to the Arab world. Saudi Arabia remained an ally of the United States; Iran became an implacable foe. Thereafter, the rivalry between Iran and Saudi Arabia became defined by the new U.S. strategy - ally with Saudi Arabia to offset Iran.

As a result, Iran sees Saudi Arabia as a wealthy, ambitious proxy of the United States and Saudi Arabia views Iran as a major source of instability in the region, believing that it seeks to establish a so-called Shia Crescent to dominate Arab Sunnis. The rivalry has shaped both countries' policies as they have attempted to contain and combat each other’s influence. They have accused each other of blatant interference in their internal affairs, including indirect support for acts of terrorism against each other.

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This struggle has played out most prominently in the energy sector, in which both Iran and Saudi Arabia are major forces. At first glance, Iran would seem to be on par with Saudi Arabia; the two countries’ combined oil and natural gas reserves are roughly the same, and Iran has the strategic advantage of sitting between the Caspian Sea and the Persian Gulf, as well as controlling the 34-mile wide Strait of Hormuz, through which roughly 40 percent of the oil traded worldwide is transported.

But U.S. sanctions on Iran have severely restricted its oil production and hindered foreign investments, handing Saudi Arabia the competitive edge. As a result, Saudi Arabia is winning the competition for preeminence in the global energy market. It is the leading member of the Organization of Petroleum Exporting Countries, a position held by Iran under the Shah. It controls $538 billion in foreign reserves, compared to Iran’s $105 billion. Saudi Arabia's nominal GDP totals $567 billion, far exceeding Iran’s $475 billion despite having a population only a third of the size of Iran’s. Saudi Arabia thus enjoys a level of economic clout that Iran can only envy, and, as a result, has no incentive to foster improved relations between Washington and Tehran.

Riyadh has used its influence in the energy markets to tame Tehran, lowering oil prices and attempting to limit foreign investment in Iran's oil and gas industries to cripple its already ailing economy. Saudi Arabia can easily compensate for lower oil prices by increasing its oil production and its total oil revenues, but Iran cannot; it lacks the capability to increase its oil production. With the growing demand for energy in emerging markets, the price of oil has not fallen much in the recent years and is unlikely to dip sufficiently to harm Iran. Moreover, Saudi Arabia has had little success in persuading China and India to decrease their involvement in Iran's energy sector. But a large decrease in oil revenues could have devastating economic consequences for Tehran.

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On the political front, however, Tehran has outmaneuvered Riyadh. This success has been most apparent in Iraq, whose transformation from a Sunni- to a Shia-controlled country has shifted it from Riyadh’s orbit into Tehran’s. This represented a monumental setback for Saudi Arabia and an unintended strategic gift for Iran, which saw Iraq transform from an enemy into an ally. Iran has capitalized on the new Iraq to greatly expand its influence; the two countries are developing joint oil fields, and, according to the American Enterprise Institute, trade between them now stands at nearly $8 billion per year.

Although the United States and Iran both support the nascent Iraqi government, Saudi Arabia flatly opposes it for being too close to Iran. Indeed, Iran has supported extremist Shia forces in Iraq that have attacked the country’s Sunni community and U.S. soldiers. To weaken the government, Riyadh has declined to send an ambassador to Baghdad and has refused to forgive or reduce the huge loan it gave to Saddam Hussein to wage war against Iran in the 1980s, estimated to be almost $30 billion. And, according to WikiLeaks documents, Iraqi Prime Minister Nouri al-Maliki has accused Saudi Arabia of “fomenting sectarian conflict” and “funding a Sunni army.” The competition between Iran and Saudi Arabia over Iraq is only likely to escalate after U.S. troops withdraw later this year, threatening to further destabilize an already shaky political situation.

The Iranian-Saudi rivalry has also expanded beyond Iraq and into the greater Middle East, especially in the wake of the Arab Spring. Iran initially praised the uprisings in Tunisia and Egypt as Islamic awakenings, while Saudi Arabia championed the old order and criticized the United States for supporting the revolts and pressuring former Egyptian President Hosni Mubarak to step down. Indeed, Iran could not have been happier with the overthrow of Mubarak, who led the anti-Iran front among the Arab countries. Iran quickly moved to resume diplomatic relations with Egypt after years of strife, believing that an empowered Muslim Brotherhood and a new government that reflects the aspirations of the Egyptian people might turn Egypt into a potential ally due to its Islamist leanings. Having pledged $4 billion aid to Egypt’s military rulers, Saudi Arabia is determined to prevent normalization of relations between Cairo and Tehran.

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Saudi Arabia truly panicked, however, when the Arab Spring reached its neighbor, Bahrain, which is connected by a 16-mile causeway to Saudi Arabia’s oil-rich eastern province, where 15 percent of the population is Shia. Saudi Arabia could not tolerate a revolt so close to its borders. And with its predominantly Shia population, which is ruled by Sunni overlords, Bahrain seemed ripe for dramatic change when protesters, including the suppressed Shia, gathered at Pearl Square to demand reforms. Fearing growing Iranian influence, Saudi Arabia persuaded Bahrain’s rulers to refrain from negotiating with the demonstrators and then sent troops to quash them. If the revolution in Tahrir Square in Cairo is the icon of a new Middle East, the demolition of Pearl Square is the symbol of the old order reasserting itself.

To justify the intervention, the Saudi government and its Bahraini allies accused the Shia community of acting on behalf of Iran and attempting to establish an Iranian satellite in Bahrain. Iran did, in fact, support the uprising and accused Saudi Arabia of committing “genocide” in its incursion. But it is unlikely that Iran will stage a military intervention in Bahrain, due to the presence of the U.S. Navy’s Fifth Fleet and because a protracted struggle by the Shia community in Bahrain serves the Islamic Republic’s interests more than a military confrontation with Saudi Arabia, giving Iran the opportunity to win influence with the Shia, among whom it had not previously enjoyed much sway.

For now, with its allies in control of Bahrain, Saudi Arabia seems to have the upper hand. But meaningful reform that will empower the Shia majority is essential for long-term stability. In navigating the Iranian-Saudi rivalry, the United States must pressure the Bahraini government to open up to the Shia, or risk the Shia population falling into the arms of the Iranians.

In the Levant, meanwhile, Saudi Arabia is truly pressing the advantage by exploiting the weakness of Syria, Iran’s staunch ally. Tehran’s hope of deterring an Israeli attack on its nuclear facilities and preserving a foothold in the Middle East revolves around supporting Damascus, which has long been the conduit for weapons and cash to Hezbollah and home to the Palestinian Islamic Jihad and Hamas. Although the alliance between Iran, Hezbollah, and Syria seemed stronger than ever at the beginning of the year - a Hezbollah-led coalition took power in Lebanon at the expense of the Saudi-backed Sunni government - the Arab Spring soon hit Syria and threw Iran’s support for the revolts across the region into doubt. Indeed, rather than express sympathy with Syria’s protesters, Iran became the single greatest defender of the repressive regime of Syrian President Bashar al-Assad. Although it will do everything possible to keep Assad in power, Iran is hoping to preserve Syria’s governing elite and security forces should he fall.

In an attempt to undermine the Iranian-Syrian alliance, Saudi Arabia declared its support for the pro-democracy movement in Syria and was the first Arab county to recall its ambassador from Damascus. If Saudi Arabia wins this particular battle, Iran will likely pursue much more aggressive policies against Saudi Arabia across the region, particularly in Bahrain and Iraq.

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Perhaps most significant, Iran and Saudi Arabia will continue their struggle over Tehran’s nuclear ambitions. The Saudis recognize that, once armed with nuclear technology, Iran will have a clear and fundamental strategic advantage. As a result, Saudi officials have threatened to pursue a bomb should Iran successfully develop one. Riyadh has already begun to develop a civilian nuclear energy program, negotiating with the United States and other countries to build 16 nuclear reactors in the next two decades. Saudi Arabia insists that, as a signatory to the Non-Proliferation Treaty, its nuclear program is for energy generation and peaceful purposes. Iran, which continues to insist that its nuclear program is also for peaceful purposes, has publicly supported Saudi Arabia’s nuclear energy program. But Iran is likely concerned that, as the international community focuses on its nuclear activities, Saudi Arabia, with Pakistan’s assistance, could quietly become a nuclear power.

In energy, geopolitics, and nuclear power, the rivalry between Iran and Saudi Arabia will likely deepen in the coming years. With plenty of petrodollars at their disposal, two powerful clerical establishments that push their own unique versions of Islam, and proxies and allies spread out across the Islamic world, Iran and Saudi Arabia will aggressively seek to reshape the new Middle East to preserve and expand their power.

To mitigate the potential for conflict, the United States should encourage Iran and Saudi Arabia to cooperate and reduce tension. U.S. interests are not always aligned with Saudi Arabia’s or inevitably antithetical to Iran’s. Unless the United States finds a way to navigate between the two countries and avoid automatically taking sides, the cold war between Iran and Saudi Arabia will push the region away from democracy, ultimately chilling the Arab Spring.

The views expressed in this article are solely those of Mohsen M. Milani.