A man in jeans and a jumper is standing in the road, waving his arms in brave defiance as bullets crackle around him. A few seconds later, he crumples and is loaded, bleeding, into a car to be taken to hospital. It's a few minutes of footage from the streets of Manama in Bahrain and the kind of incident that has become familiar in the last few months of Arab uprisings. But pause a moment, because this image of extraordinary, reckless bravery can become iconic in different ways to its many web audiences. Do we understand all of them?

Westerners see a political activist; some Sunni Muslims see a Shia troublemaker; and Shias across the Muslim world see a martyr. There is no more powerful a mobilising idea in Shia Islam than the martyr. For nearly one and a half thousand years, Shias have revered Ali, the prophet's son-in-law, who was assassinated, and the prophet's grandson, Hussein, who was killed in battle at Karbala; betrayal has become a passionate narrative of identity.

What has filled western observers with optimism is that the spirit of the Arab protesters in recent months has been so unequivocally non-sectarian. Egyptian Muslims and Christians side by side on the streets, Bahraini Shias and Sunnis insisting they were Bahrainis first and foremost, jointly demanding political reform. But as the revolutions grow older, the highly fluid politics shifts, secular national identities can fragment and religious identities gather force; can the latter be contained? Everyone is haunted by Iraq; after the fall of Saddam, Iraqis celebrated "as Iraqis and as Muslims", but what ensued was the deadliest sectarian conflict the region has ever seen. How does peaceful nationalism fail to hold its ground?

The question is emerging in Egypt, the country at the centre of the Arab spring. The recent burning of a church and the rough handling of a demonstration of Coptic Christians in Cairo has set nerves on edge. Christians are anxious about newly confident Islamist groups; their leaders urged them to vote no to constitutional amendments in the referendum at the weekend, while Islamist leaders were urging a yes vote.

But it is, above all, in Bahrain that a popular political reform movement is increasingly being framed in sectarian terms, and as a result takes on entirely different dimensions with repercussions across the region. Bahrain's significance is out of all proportion to its tiny size. An island at the centre of western oil dependency and US military capability – as home of the US Fifth Fleet – Bahrain is bang on the faultline of Islam's deepest and most embittered of divisions between Sunnis and Shias. It is a division that the west has often failed to understand, and it has frequently miscalculated how it is being used and for what purposes – as was very evident in the Iraq war. Could it be doing so again?

A majority of the Bahrain population is Shia and they are governed by a Sunni monarchy with a long history of discrimination. There are very few Shias in the army and police, they suffer disproportionate unemployment and lack access to housing. For years there has been periodic unrest. In recent weeks, as the violent repression by the Sunni monarchy in Bahrain has intensified, the Shias have been radicalised, moving beyond the demand for constitutional reform to one of regime change, and that has cost them their Sunni allies. But the factor that has transformed a delicate situation into an explosive one was the intervention of the Saudi and Gulf Co-operation Council's troops last week in support of the Bahraini king.

The Saudis are using the threat of sectarianism as cover, insisting that urgent action was necessary to prevent what they are, in fact, fuelling. Senior figures in Saudi justified their action in Bahrain as necessary to prevent Shia fitna (chaos), points out the Middle East analyst Mai Yanami. Provoking the fear of Shias meets domestic requirements; it inhibits the cautious Saudi version of the Arab spring – a nervous internet petition movement asking for reforms had been gathering strength.

With violent unrest in Yemen on its southern border and in Bahrain, Saudi government figures are edgy, pouring money into food subsidies and pay rises; they warn that democracy risks "60 years of bloodshed". It's an old trick for repressive regimes to exploit fear that change could unleash unmanageable forces, but for a region that has just witnessed the sectarian violence of Iraq, it doesn't sound like an empty threat.

Highlighting sectarianism serves Saudi well with another constituency – its American allies. There have been plenty of thinly veiled references to Iranian links with their co-religionists in Bahrain; presumably, allegations of "foreign interference" in Bahrain have been poured into American ears to keep them on side. Saudi's treatment of its own nearly 2 million Shia minority is infamous. Children are taught that Shias are apostates; to some Wahhabi clerics, Shias are worse than infidels.

Religious identities have always crossed the arbitrary, colonial-imposed borders in the Arab world – ideas and people have followed the Shia pilgrimage routes to sites such as Mashhad near the Iranian-Afghan border, and to Najaf and Karbala in Iraq – building strong links and family networks. The Gulf is what Toby Mathiesen, of the School of Oriental and African Studies, calls a transnational space. The internet reinforces this; just as it helped spread the Arab political uprisings, so it can reinforce religious identities. In the last few days there have been demonstrations against Saudi intervention in Bahrain in Shia communities in Iraq, Lebanon, Iran and the crucial Saudi eastern province of Qatif, where most of its Shia live – and where Saudi oil is also concentrated.

For the US, this amounts to a massive headache that makes even Libya look straightforward. Its invasion of Iraq in 2003 inadvertently boosted the reach and influence of Shia Iran in the region; for the first time in centuries the Shias have gained power and there has been much talk of a Shia revival, points out Rosemary Hollis, professor of Middle Eastern studies at City University. This has made Sunnis throughout the Middle East increasingly anxious. Instability in the Gulf risks higher oil prices, and that risks global recession. But the repressive response can only work in the short term, while it makes nonsense of America's narrative of human rights and democracy. Increasingly, the danger is that America – and thus Britain – are on the wrong side, alongside regimes that can no longer secure their interests, and whose brutality blows apart western claims to the moral high ground.

One final point. Britain's intimate relations with the Bahrain royal family now look embarrassing. The island was one of the last outposts of the empire, and close relations have been sustained through military co-operation, commercial links and royal visits. Britain exports weapons and military advisers and imports Bahraini offspring to Sandhurst. The king of Bahrain was on the invitation list for Prince William's wedding and rapid diplomatic manoeuvrings are being deployed to avoid the event being hijacked by pro-democracy demonstrations; reportedly the king has now declined. That still leaves the issue of the Saudi king turning up at Westminster Abbey. Every wedding has its share of necessary but unwelcome guests, but the presence of Middle Eastern despots risks exposing the seediness of British foreign policy.