Iran and Saudi Arabia are competitors for influence in the Middle East. Saudi Arabia also represents Sunni influence in the area while Iran is a prime supporter of Shia groups. Lately, the rise of the Islamic State, both in Syria and especially in Iraq, has created common areas of interest that may lead to improved relations. The recent attack by the Islamic State on a Saudi border post showed the Saudis the degree to which the Islamic State was becoming a threat to the kingdom. The attack killed two border guards and also the commanding officer. The attackers included three Saudi nationals.
The Saudis have decided to reopen their embassy in Baghdad, establishing relations with a country that has close relations with Iran and has a Shia majority. The new Iraqi government is reaching out to Sunni powers such as the Saudis in the hope of getting support from them to help fight IS in return for more accommodation of Sunni interests within the Shia majority government.
The Saudis have an interest in cooperating with Iran to meet the IS threat in Iraq. The Iran Daily noted that differences between Iran and the Saudis were not so substantial that they could not be resolved. The paper also claimed that the Islamic State "could jeopardize the system of government in Saudi Arabia."
The drive to improve relations between the two countries is supported by prominent religious authorities as described in detail in this article in Al-Monitor :"Al-Monitor learned from a religious source close to Ali al-Sistani in Najaf that Sistani has a similar vision regarding the necessity of a rapprochement with Saudi Arabia, since both countries face the common threat of Salafist jihadism as represented by the Islamic State (IS). Iraqi President Fouad Massoum visited Najaf Nov. 11 to meet with Sistani before embarking on a formal visit to Saudi Arabia. Sistani praised the Iraqi government’s efforts to improve its regional relations and called for the strengthening of ties with all neighboring countries. The Saudi king praised Sistani’s great positions, and expressed his wishes for further unity and consistency among the different components in Iraq." Grand Ayatollah al-Sistani is one of the most influential clerical leaders in Iraq.
Of course, there are many issues that divide Iran and the Saudis. Iran supports the Assad regime in Syria and also the Lebanese Shia group Hezbollah, while the Saudis oppose Assad and have aided rebel groups against him. In Yemen, Iran has supported the Shia Houthi rebels who have vastly increased their influence and area they control in the country, whereas the Saudis support Mansour Hadi the prime minister and the Sunni majority. However, the Saudis might decide to gain the support of Iran to pressure the Houthis to negotiate with the Sunni government an end to their continuing expansion. The unrest is leading to more Sunnis allying with Al Qaeda in the Arab Peninsula which is a threat both to the Saudis and the Yemen government.
Another main issue between the two countries is the price of oil. Iran wants the Saudis to cut production to stem the steep drop in the price of oil. The decline is hurting the Iranians. Iran claims that ultimately it could hurt the Saudis, as there will not be sufficient funds for the government programs that generate support for the monarchy. A visit to Saudi Arabia planned by Iranian Foreign Minister Mohammad Zarif was postponed due to the disagreement over oil policy.
An article by Fariborz Saremi in CounterPunch claims that the three main policy foreign policy objectives of Iran are survival of the regime, national security, and regional influence. The article details the many obstacles to improving relations between Iran and the Saudis. However, some Gulf States such as Kuwait and Oman have had reasonably good relations with Iran for some time. The threat of the Islamic State may provide grounds to begin a process of cooperation between the two countries which can serve as a spring-board to improved relations.