German minister seeks joint-Russian strategy for Middle East
The minister also called for a "Marshall Plan" to stem the flow of refugees from the Middle East into Europe.
In an opinion piece published by Frankfurter Allgemeine Zeitung on Monday, Schaeuble called for European-Russian cooperation in the region.
"If I correctly understand Russia's security interests with regard to Islamist terror, it rather has problems with Sunni-based aspirations," Schaeuble said.
"Why then shouldn't we be able to develop a joint strategy with Russia to reduce differences between a Saudi-led Sunni coalition and an Iran-led Shia coalition?" he asked.
Schaeuble said that Europe could only pursue an effective strategy in the Middle East and Africa if it worked jointly with Russia and the United States.
The German Minister's comments echo concerns in European foreign ministries that the Saudi-Iran rivalry risks escasperating regional tension that will only increase the flow of refugees to Europe's shores.
Tensions erupted between Riyadh and Tehran earlier this month when the Saudi embassy in Tehran was attacked by protesters following the execution of a prominent Shia cleric in Saudi Arabia.
The rivalry between Saudi Arabia and Iran has left each government backing opposing factions in Syria, Yemen and Lebanon.
"Marshall plan" needed to stop the refugee influx
Schaeuble had earlier said the refugee influx into Europe costs "more than we thought" and argued for a Marshall-Plan type solution to the crisis.
The "Marshall Plan" refers to the US government's major aid programme, which begun in 1948 to help rebuild economies of Western European countries after the Second World War.
"We need a Marshall Plan for the regions that are being destroyed," Schaeuble said at the World Economic Forum at Davos on Thursday.
"We will have to invest billions into the countries of origin of the refugees in order to reduce the migratory pressure on Europe, he said.
Without this "Europe becomes a fortress and that would be a disgrace" the veteran finance Minister added.
Estimates say Germany has already accepted more than 1.1 million refugees, a significant majority from Syria, over the past 12 months.
The influx has lead to increased xenophobic sentiments particularly following reports of attacks on women in Cologne by suspected refugees.