If I understand your question, here's what happened:

Saudi Arabia -> Iraq with support from Syria
Arabian Sea -> Saudi Arabia supported by Iraq
Iran support hold Iraq

Is that right?

If so, the reason you lost Saudi Arabia is that you can't cut support from the province the support is being given to. In simpler terms, since Iraq was supporting an attack on Saudi Arabia, then Saudi Arabia can't cut the support. If you had attacked from Syria with support from Saudi Arabia, then the attacks would have bounced.

This rule is there so that 1 unit cannot defeat 2 units. Consider the implications if the rule wasn't there. Consider the classic board and assume that France is attacking Belgium from Burgundy and Picardy, and Germany has an army in Belgium. If Germany guesses correct, he would be able to hold out indefinitely by simply attacking the supporting army and cutting it's support, thus making the 1 German army essentially more powerful than the 2 French armies.

Here's the corresponding rule: If a unit ordered to support in a given space is attacked from a space DIFFERENT FROM the one into which it is giving support, or is dislodged by an attack from any space, including the one into which it is giving support, then its support is "cut".

Since you didn't dislodge Iraq, and Iraq was supporting into the "attacking" country (Saudi Arabia), the support stays valid.