By Alex Lawler and Rania El Gamal
LONDON/DUBAI (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 programme. 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.
Saudi Arabia produced a near-record-high 10.26 million barrels per day in April and has kept output relatively steady over the past year, its submissions to OPEC show.
Iran, according to delegates from other OPEC members, is unlikely to restrain supplies, given that it believes Saudi Arabia should cut back itself to make room for Iranian oil.
"Iran won't support any freeze or cut," said a non-Iranian OPEC delegate. "But Iran may put pressure on Saudi Arabia that they hold the responsibility."
Saudi thinking, however, has moved on from the days when Riyadh cut or increased output unilaterally. Talks in Doha on the proposed output freeze by OPEC and non-OPEC producers fell through after Saudi insisted that Iran participate.
Indeed, differences between Saudi Arabia and Iran, which helped found the Organization of the Petroleum Exporting Countries 56 years ago, over OPEC policy have made cooperation harder - to say nothing of more fundamental disagreements.
For more than a decade after oil crashed to $10 in 1997, the two set aside rivalries to manage the market and support prices, although they fell into opposing OPEC camps with Iran wanting high prices and Saudi more moderate.
Now, the Sunni-Shia conflicts setting Saudi Arabia and Iran at each other's throats, particularly in Syria and Yemen, make the relationship between the two even more fraught.
The two disagree over OPEC's future direction. Earlier in May, OPEC failed to decide on a long-term strategy as Saudi Arabia objected to Iran's proposal that the exporter group aim for "effective production management".
With that backdrop, ministers may be advised to keep expectations low, an OPEC watcher said.
"The only aspiration OPEC should have for its 2 June meeting is simply not to repeat the chaos of the Doha process," said Paul Horsnell, analyst at Standard Chartered.
"A straightforward meeting with no binding commitments and, most importantly, no overt arguments would be the best outcome for ministers."
(Reporting by Alex Lawler and Rania El Gamal; Editing by Dale Hudson)