Owen vs. Shawn was the logical next step, but never happened. I've heard it said here that Shawn refused to work with Owen, and you're probably right that Vince was scared of letting Owen get too big. But Owen winning the title back from Shawn, even if it was just for a month, would have been incredible. Then Shawn gets it back to drop it to Stone Cold at WM 14 and Austin has an elevated Owen to feud with again as champion.
I often think about how Shawn/Owen made more sense for the Royal Rumble match rather than Shawn vs. Taker in the casket match that seriously injured Shawn. If that's Owen instead, does Shawn not get hurt and then not need to take that time off? Does he go on to have classics with Stone Cold for the next year, or does he use his influence to interfere with Austin's ascension to the unquestioned top dog in the WWF? If Shawn doesn't get hurt does he ever get himself clean so we get those classics with Taker, Angle, Cena, Trips, and the greatest Superkick of all time on Benjamin? Or does he drug himself out even more and become another tragedy story?
Assuming Shawn still left after WM, Owen having that title win would have put him in the perfect position to be Austin's next opponent. There could even been a "deal with the devil" type thing where Vince asks Owen to help him get the belt off of Owen and Owen makes Vince apologize for what he did to Bret. "I apologize, dammit! Now you go beat that no good redneck or I'll screw you ten times harder than I screwed your no good damn brotherrrrrrrrrrrrr."