Saudi Arabia has announced it is severing diplomatic ties with Iran following Saturday’s (January 2) attack on its embassy in Tehran during protests against executions in the kingdom.

Adel al-Jubeir, the Saudi foreign minister, made the announcement on Sunday while the foreign ministry said it was asking Iranian diplomatic mission to leave the kingdom within 48 hours.

The Saudi foreign ministry also announced that the staff of its diplomatic mission had been evacuated and were on their way back to the kingdom.

Later reports said the flight carrying the Saudi embassy staff had landed in Dubai in the UAE.

Saudi Arabia’s interior ministry announced on Saturday the execution of 47 people on terrorism charges, including a convicted al-Qaeda leader and a Shia religious leader.

Many of the men executed had been linked to attacks in Saudi Arabia between 2003 and 2006, blamed on al-Qaeda.

Four of those executed were said to be Shia.

Nimr al-Nimr, the Shia leader, was accused of inciting violence and leading anti-government protests in the country’s east in 2011. He was convicted of sedition, disobedience and bearing arms.

He did not deny the political charges against him, but said he never carried weapons or called for violence.

Nimr spent more than a decade studying theology in predominantly Shia Iran.

His execution prompted demonstrations in a number of countries, with protesters breaking into the Saudi embassy in Tehran late on Saturday night and starting fires.

At Sunday’s press conference in Riyadh, Jubeir said the Saudi diplomatic representative had sought help from the Iranian foreign ministry when the building was stormed, but the requests were ignored three times.

He accused the Iranian authorities of being complicit in the attack, saying that documents and computers were taken from the embassy building.

Calling the incident an act of “aggression”, he said Iran had a history of “violating diplomatic missions”, citing the attacks on the US embassy in Tehran in 1979 and the British embassy in 2011.

“These ongoing aggressions against diplomatic missions are a violation of all agreements and international conventions,” he said, calling them part of an effort by Iran to “destabilise” the region.

– With Inputs from Al Jazeera

IRANIAN ACTION

Earlier on Sunday, Iranian President Hassan Rouhani ordered the arrest and prosecution of individuals involved in the embassy attack, while also condemning the execution of Nimr.

Asked at the press conference what other steps the Saudis would take against Iran, Jubeir said “we will cross each bridge when we will get to it”.

“We are determined not to allow Iran to undermine our security,” he said.

Ellie Geranmayeh, an Iran expert at the European Council on Foreign Relations, said the Saudi decision was likely to have repercussions for the region, particularly concerning the Syrian negotiations.

“Western powers must increase efforts to safeguard this process and encourage the Saudis and Iran to continue their participation [in the Syria peace talks],” she told Al Jazeera from London.

“These events further set back the urgently needed rapprochement between Tehran and Riyadh, and spell further trouble for an already fragile region.”

BAHRAIN, UAE AND SUDAN RALLY TO SAUDI SIDE IN IRAN ROW

Saudi Arabia’s regional allies have stepped up diplomatic pressure on Iran, breaking or downgrading relations with the country following an attack on the Saudi embassy in Tehran, which followed executions in the kingdom.

Bahrain announced on Monday that it was closing its embassy in Iran, and called upon Iranian diplomats to leave the country within 48 hours.

Bahrain frequently accuses Iran of being behind protests among its majority Shia population.

Within hours of the announcement, Sudan also said it was cutting off diplomatic relations with Iran “in solidarity with Saudi Arabia”.

For its part, the UAE said it was downgrading its ties with Iran, replacing its ambassador with an embassy officer-in-charge.

Saudi Arabia announced on Sunday it was severing diplomatic relations with Iran and urged its allies to follow its move.

The decision came after Iranian protesters attacked its embassy in Tehran, following the kingdom’s decision to execute Shia religious figure Nimr al-Nimr along with 46 other mostly Sunni convicts on terrorism charges.

Shia minorities across the Middle East have been demonstrating after Nimr’s execution.

Saudi Arabia is adamant Nimr got a fair trial. Many of the men executed had been linked to attacks in Saudi Arabia between 2003 and 2006, blamed on al-Qaeda.

Saudi Arabia further announced on Monday that it was cutting commercial ties with Iran and cancelling all flights to and from Iran, according to Reuters.

In an interview with the news agency, Adel al-Jubeir, Saudi foreign minister, said the kindom was banning all its citizens from travelling to Iran.

However, Iranian pilgrims are still welcome to visit Saudi Arabia and Mecca, Islam’s holiest site, he said.

Earlier, Abdul Latif bin Rashid al-Zayani, secretary-general of the Gulf Cooperation Council, condemned the attack in Tehran and held Iranian authorities fully responsible for failing to protect the Saudi diplomatic mission.

IRANIAN PERSPECTIVE

It is not the first time diplomatic relations have been cut between Saudi Arabia and Iran. However, there are fears it could lead to more violence.

Iran’s foreign ministry said Saudi Arabia was using the attack on its embassy in Tehran as a pretext to fuel tensions..

The statement came after Iran was given a 48-hour deadline to remove its diplomatic mission from Riyadh.

“Iran … is committed to providing diplomatic security based on international conventions. But Saudi Arabia, which thrives on tensions, has used this incident as an excuse to fuel the tensions,” Hossein Jaberi Ansari, Iran’s foreign ministry spokesman, said in televised remarks on Monday.

On the other hand, Jubeir has accused Iranian authorities of being complicit in the attack, saying that documents and computers were taken from the embassy building.

He said the Saudi diplomatic representative had sought help from the Iranian foreign ministry when the building was stormed, but the requests were ignored three times.

Hamid Soorghali, a UK-based Iran observer said, the attack of the Saudi embassy “only works to damage and affect the image of Iran”.

He said while the leadership in Iran is unified in condemning the execution of Nimr, it is divided in terms of the reaction.

“We get different responses from different institutions and leaders in Iran. We get a harsher message from Iran’s supreme leader, which very much reverberates in the mood and scenes of protesters in front of the embassy,” he told Al Jazeera.

‘NO LOVE LOST’

Ghanbar Naderi, a journalist with Kayhan, a publication closely linked to Ayatollah Ali Khamenei, Iran’s supreme leader, said the breaking of diplomatic relations between Saudi Arabia and Iran was inevitable.

“It was going to happen today or tomorrow. This is a natural outcome of what has been going on for the past four or five years in Syria, Iraq and Yemen,” he told Al Jazeera.

“Make no mistake about it, there is no love lost between the Iranians and the Saudis.”

Al Jazeera’s James Bays, reporting from New York, said diplomats at the UN have expressed worries over the escalating war of words.

“What we are seeing is the fallout across the Gulf countries,” he said. “In terms of the relationship between Saudi Arabia and Iran, I think most people think that this is probably as bad as you can get.”

On Sunday, Ban Ki-moon, UN secretary-general, issued a statement saying he was “concerned” about both sides of the diplomatic dispute, while criticising both the executions and the attack on the Saudi embassy in Tehran.

Ban was to send Staffan de Mistura, the UN special representative for Syria, to Riyadh and Tehran on Monday, a UN official told Al Jazeera.

In a call on Monday, Ban conveyed his concerns to the foreign ministers of Saudi Arabia and Iran, a UN statement said.

The statement said he urged the two countries “to avoid any actions that could further exacerbate the situation between two countries and in the region as a whole”.

THE OIL PRICE, IRAN AND SAUDI’S ECONOMY

Analysis: How Iran’s return to global oil markets may impact Saudi Arabia’s 2016 budget.

During last month’s OPEC meeting, Saudi Arabia again declined to cut oil production despite the world being awash with oil.

The great unanswered question for Saudi Arabia is: How low can prices go, and for how long?

Saudi Arabia’s refusal to reduce oil output shows no sign of abating, but its determination to drive out US shale producers is taking a toll on the kingdom’s economy, recent data suggests. And with the expectation of Iran’s return to global oil markets already undermining fragile prices, Riyadh’s strategy looks increasingly like it might be a gamble with declining odds.

Although the kingdom has substantial reserves, it appears to be burning through its financial war chest at an alarming rate. According to the Saudi Arabian Monetary Agency, foreign exchange reserves fell to $648bn at the end of October from $742bn a year earlier.

OIL PRICES AND OPEC

If OPEC does not compensate for the increase in Iran’s oil exports by cutting oil production, the International Monetary Fund says oil prices could fall between five and 10 percent in the medium term. Energy giant BP estimates that Iran has the fourth-largest proven oil reserves in the world after Venezuela, Saudi Arabia and Canada, as well as the second-largest gas reserves, according to the IMF.

How quickly Iran can ramp up production is up for debate, but a consensus appears to be emerging. Industry Think Tanks believe that Iran will add between 0.5 to one million barrels a day within a year, while the IMF forecasts an increase of around 0.6 million barrels a day in 2016.

Bijan Zangeneh, Iran’s oil minister, is considerably more bullish about the country’s ability to bolster output but, whatever the figure, it is expected to increase pressure on Saudi’s economy, in which about 90 percent of government revenues are derived from hydrocarbons.

At the same time, there are signs that the Saudi campaign against US shale is having an impact. There is mounting evidence that shale production in the United States is beginning to wane, while energy consumption in advanced economies is rising. Elsewhere in the world, major energy companies have shelved a number of projects – a move that will support of prices in the medium term.

SAUDI ECONOMY

Even so, the IMF predicts that the gross domestic product in Saudi Arabia will grow by only 2.2 percent in 2016, compared with 4.4 percent in Iran.

Eduard Gracia, a principal at the AT Kearney consulting firm, says Saudi Arabia’s decision not to cut production is due in part to the supply-demand dynamics of the global market.

“It only makes sense ‎to cut production if the supply situation is such that a small output reduction results in a substantial price increase,” Gracia told Al Jazeera. “In a situation of global oversupply this may not be the case, so the appeal of a production-cutting strategy is not clear.”

By the end of this year, Saudi Arabia’s budget deficit will reach 20 percent of GDP, according to a December report from Capital Economics. The situation has prompted the IMF to warn that Saudi could exhaust its reserves within five years if policies remain unchanged. Riyadh has responded with cutbacks in spending, and is under intense pressure to reduce expensive energy subsidies.

The IMF estimates that these implicit subsidies cost the government $83bn in 2014, one of the highest totals in the Gulf Cooperation Council countries, second only to Bahrain. Attention is now turning to Saudi’s 2016 budget. It is expected to be one of mostly heavily scrutinised budgets in years, as investors seek reassurance that the kingdom’s finances are under control.

According to press reports, leaked memos from King Salman to the Ministry of Finance in October ordered government entities to stop new infrastructure projects and to postpone purchases of new cars and furniture. Mounting economic uncertainty led Standard & Poor’s to downgrade Saudi’s rating from AA-/A-1+ to A /A-1 in October, with a warning of a possible further downgrades.

The downgrade pushes up the costs of borrowing at a time when government revenues have fallen sharply. There has also been speculation in financial markets about how this could affect the Saudi riyal, with the spread between forward and spot rates recently widening to the highest level since 2003.

However, according to Capital Economics, that scenario would be the last resort, and Saudi has other options that could include tapping into the international bond markets early in 2016 – something it has never done before. Authorities are currently issuing around SAR 20bn ($5bn) of debt per month to local banks, reducing the amount local banks have left to lend to the private sector, according to an estimate from Capital Economics.