The Kingdom of Saudi Arabia and the Islamic Republic of Iran have been at loggerheads ever since the Iranian revolution of 1978-79 that toppled the Shah's pro-Western monarchy, and enabled his arch religious and political opponent, Ayatollah Ruhollah Khomeini, to establish an Islamic order. Two factors have predominantly underpinned their relations.

One is sectarian in nature. The Saudis claim the leadership of the orthodox Sunni Islam, with the Saudi monarch deriving at least part of his legitimacy by acting as the Custodian of the holy sites of Islam in Mecca and Medina. They have done so on the basis of a very conservative Wahabi interpretation of Islam. Many of their learned scholars have often denounced the other main sect in Islam: the heterodox Shia, whose followers constitute about 10-15 percent of the estimated 1.5 billion Muslims in today's world, as deviant and heretic.

Iran is predominantly Shia, to which it was converted from a largely Sunni background some 500 years ago. However, it is only since 1979 that the country has been under the political ascendancy of the Shia clerics for the first time in its history. This has led Iran to play a greater role in championing the cause of Shia Islam.

The Shia-Sunni difference is rooted primarily in a dispute over who was the most rightful companion of Prophet Mohammad to have succeeded his societal leadership after his death in 632. The Shias believe that it was the Prophet's son-in-law and cousin, Ali bin Taleb. However, the Sunnis respect Ali as the last of the four companions of the Prophet in the order of leadership succession.

Over time, this has also given rise to a set of Shia rituals and practices that are different from those of the Sunnis. Whilst neither sect is in any way monolithic, the Shia followers have historically felt threatened by their Sunni counterparts and have exhibited solidarity in the face of such a threat. The issue of which sect is more authentic than the other has played into the hands of extremist elements from both sides to take this difference to new highs from time to time.

The other factor is geopolitical. Hailing from different ethnic, linguistic and cultural backgrounds and historical experiences, both Saudi Arabia and Iran have traditionally vied for dominant regional influence. Their rivalry took an upward trajectory with the advent of the Iranian Islamic government as an anti-hegemonic and therefore anti-American actor, chastising the pro-Western Saudi Arabia as an agent of American influence in the region.

As Iran has sought to build a regional security perimeter for itself in the north of the Gulf, stretching from Afghanistan to Lebanon, Saudi Arabia has increasingly viewed Iranian behaviour as intrusive and contrary to its interests in claiming the Gulf to be an Arab rather than a Persian Gulf. It has shunned Iran's rising influence in the Shia majority but historically Arab Iraq following the flawed 2003 US invasion of the country, its strategic partnership with the Shia-linked Alawite regime of Syria, and its support for the Shia radical group, Hezbollah, which has become a key political and military player in Lebanon, with an anti-US and anti-Israel posture. Iran's backing of the Shia Houthi rebels in Yemen and the failure of the Saudi-led Arab military coalition to dislodge the Houthis from the Yemeni capital in favour of their client regime so far have only increased Riyadh's fear of a perceived Iranian threat.

Iran's conclusion of the July 2015 nuclear deal with world powers, most importantly with Saudi Arabia's traditional source of external security, the United States, in return for the lifting of international sanctions, has caused Riyadh more security concerns. The Saudi leadership has been apprehensive about the deal on the grounds that it could enable Iran to become bolder in its 'regional ambitions'.

The two regional rivals are now locked in a serious tussle, but the crisis is unlikely to affect Iran much. The severance of diplomatic and commercial links between them, initiated by Riyadh, will not necessarily result in Iran's regional isolation. Not all Arab countries have matched Saudi actions in breaking ties with Iran. Only Bahrain, Sudan and Somalia have followed suit. The United Arab Emirates has downgraded its ties, Kuwait and Qatar have recalled their ambassadors (all symbolic actions) and the Sultanate of Oman has done nothing. The other other Arab countries have remained content with a verbal expression of support for Riyadh's position.

The Saudi economic actions will not amount to much either. The annual volume of trade between the two countries is no more than $100 million – something that Tehran could easily do without. Similarly, neither Tehran nor Riyadh will see it in their interest to engage in direct military exchange. Both have enough domestic and regional problems on their hands to deter them from moving in that direction.

Yet, this does not mean that the two sides will not widen their proxy involvement in the ongoing Iraqi, Syrian and Yemeni conflicts, and Tehran may also now augment its support for the rebellious Bahrain Shia majority against the Saudi-backed ruling Sunni monarchy. All this can only hinder international efforts to secure an early resolution of these conflicts, end their associated human tragedies, and help regional stability.

Amin Saikal is distinguished professor of political science and director of the Centre for Arab and Islamic Studies (the Middle East and Central Asia) at the Australian National University, and author of Iran at the Crossroads (2016).