As Iran reaches pre-sanction output levels, rising political tensions could dampen hopes for a production deal at the next OPEC meeting.
LONDON/DUBAI, May 25 (Reuters) - OPEC's thorniest dilemma of the past year - at least from a purely oil standpoint - is about to disappear.
Less than six months after the lifting of Western sanctions, Iran is close to regaining normal oil export volumes, adding extra barrels to the market in an unexpectedly smooth way and helped by supply disruptions from Canada to Nigeria.
But the development will do little to repair dialogue, let alone help clinch a production deal, when OPEC meets next week amid rising political tensions between arch-rivals Iran and oil superpower Saudi Arabia, OPEC sources and delegates say.
Earlier this year, Tehran refused to join an initiative to boost prices by freezing output but signalled it would be part of a future effort once its production had recovered sufficiently. OPEC has no supply limit, having at its last meeting in December scrapped its production target.
According to International Energy Agency (IEA) figures, Iran's output has reached levels seen before the imposition of sanctions over its nuclear program. Tehran says it is not yet there.
But while Iran may be more willing now to talk, an increase in oil prices has reduced the urgency of propping up the market, OPEC delegates say. Oil has risen towards a more producer-friendly $50 from a 12-year low near $27 in January.
"I don't think OPEC will decide anything," a delegate from a major Middle East producer said. "The market is recovering because of supply disruptions and demand recovery."
A senior OPEC delegate, asked whether the group would make any changes to output policy at its June 2 meeting, said: "Nothing. The freeze is finished."
Within OPEC, Iran has long pushed for measures to support oil prices. That position puts it at odds with Saudi Arabia, the driving force behind OPEC's landmark November 2014 refusal to cut supply in order to boost the market.
Sources familiar with Iranian oil policy see no sign of any change of approach by Riyadh under new Saudi Energy Minister Khalid al-Falih - who is seen as a believer in reform and low oil prices.
"It really depends on those countries within OPEC with a high level of production," one such source said. "It does not seem that Saudi Arabia will be ready to cooperate with other members."
Iran has managed to increase oil exports significantly in 2016 after the lifting of sanctions in January.
It notched up output of 3.56 million barrels of oil per day in April, the IEA said, a level last reached in November 2011 before sanctions were tightened.
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