If extra-terrestrials were to have read Monday’s WikiLeaks revelations on the Middle East, they would conclude that the earth’s two superpowers are the US and Iran. The Iranian menace dominates Washington’s diplomatic discussions. And angst is felt even more acutely by Sunni Arab leaders, in particular those of Saudi Arabia, who privately encourage America to deliver Shia Iran its military comeuppance.

So far, the Obama administration has admirably eschewed their advice. Instead it has used a recent $60bn arms deal with Saudi Arabia, along with further multi-billion-dollar deals with the United Arab Emirates, Oman and Kuwait, to develop a strategy of military containment.

Yet such an approach ignores the fact that Iran’s strength lies primarily in its political influence, not its military prowess. Tehran’s military budget is less than a quarter of regional rival Saudi Arabia’s. But its soft power, along with it support for militias, can undermine governments with vastly superior armies, as has been evidenced by the US in Iraq.

The WikiLeaks revelations make clear that Arab officials believe Iran to be inherently dishonest and dangerous. The feeling is probably mutual. But they hide perhaps a more interesting issue, namely what type of Iranian government would actually best serve Gulf Arab interests.

President Mahmoud Ahmadi-Nejad and the Islamic Republic may be loathed, but equally the advent of a more progressive, democratic Iran would enable Tehran to emerge from its largely self-inflicted isolation and begin to realise its enormous potential. In the zero-sum game of Middle Eastern politics, a democratic Iran would pose huge challenges to Persian Gulf sheikhdoms.

Today Iran is not, of course, a global superpower by any metric. Its economy suffers from endemic mismanagement; its military budget is less than 2 per cent that of the US. Apart from North Korea, Venezuela and Syria, it has few reliable strategic allies.

Indeed, while its international profile has been rising, however, Iran’s internal decay has seemingly been accelerating. The palpable disaffection of its youth clearly came to a head after the contested 2009 presidential elections. Further deep internal fissures have forced the regime to rely on coercion and intimidation in order to maintain power.

Nonetheless, without Iran’s co-operation it is going to be difficult to bring long-term stability to Iraq, Afghanistan, the Levant or the Holy Land. At the same time, a peaceful and prosperous region seems inimical to the interests of the current Islamic Republic.

Anxious Gulf Arab countries, therefore, have little to fear: the US and Iran will not be friends anytime soon. As one Iranian diplomat once told me, “Iran derives its popularity in the region and the Muslim world based on our defiance towards the US and Israel.”

A US general once said that Iran only offers to help resolve problems that it itself helps to create. But he might also have reflected that it is at times of crisis and carnage in the region, and especially those linked to either the US or Israel, when Iran’s soft power and ideology gains most purchase.