* OPEC curbs may be needed in 2013 as stocks swell
* Iraq won't consider output restraint until 2014
* Delegates say Saudi thinks Iraq should contribute to next cut
* Saudi, Iraq fail to compromise on secretary-general
* OPEC keeps 30 mbpd output target, meets next May 31
By Amena Bakr and Peg Mackey
VIENNA, Dec 12 (Reuters) - A new rivalry at the top of OPEC has emerged, pitting up-and-coming Iraq against undisputed oil cartel heavyweight Saudi Arabia.
Having overtaken Iran as OPEC's second biggest producer, a rejuvenated Iraq is beginning to worry Riyadh.
At Wednesday's meeting of the Organization of the Petroleum Exporting Countries the opening salvos were fired in the struggle over who takes responsibility for cutting output if oil prices, comfortable for now at $109 a barrel, start falling.
OPEC agreed to retain its 30-million barrel-a-day output target and meet next on May 31, but many market observers think supply restrictions will be needed sooner rather than later if producers want to prevent slow global growth and fast-growing inventories sending prices tumbling.
After 20 years of war, sanctions and civil strife that left its oil industry in disarray, Iraq is no mood to consider curtailing output just as it starts to take off.
"Iraq will never cut production," said Iraq's OPEC Governor Falah Alamri. "Some countries that have increased their production in the last two years - they should do so. This is a sovereign issue, not an OPEC issue."
That was a clear reference to Saudi Arabia, which this summer lifted output to a 30-year high above 10 million barrels a day to prevent oil prices ballooning after Western sanctions on Iran halved its production.
The view from Riyadh, said delegates at the meeting, is that Iraq should contribute to the next round of OPEC supply curbs.
A senior Iraqi official warned that if Saudi pushed that line there would be "dark days ahead" for OPEC, saying Baghdad would not even consider output restraints until 2014.
"Every additional barrel that Iraq produces reinforces its confidence and its expectations that higher production is achievable - and it will negotiate on that basis," said Iraqi expert Raad Alkadiri of Washington consultancy PFC Energy.
"Now OPEC is dealing with a much more confident Iraq and Baghdad is looking at regional politics and is less willing to compromise."
"Iraq is impervious to arguments. It says that it was subject to sanctions for so long that it has a free pass to rebuild its economy," said Neil Atkinson, director of energy research at Datamonitor.
Output from OPEC is already down sharply from the highs of the summer when the Saudi surge took the 12-member group to nearly 32 million bpd. Production in November was down to 30.8 million with Saudi easing to 9.5 million.
But OPEC may need to ease further to balance the market in the first half of next year when, demand depressed by a stagnant economy, its own forecasts indicate the requirement for OPEC crude will come in at only 29.25 million bpd.
"We're concerned by the drop in demand and the high level of stocks," said Algerian Energy Minister Youcef Yousfi.
"There is rising oil from places like the United States and Iraqi output is rising quite sharply. There's a risk that we see a sharp drop in price next year," said Atkinson.
The world's fastest growing crude exporter, Iraq expects more gains next year as foreign companies push production towards the highest level ever, Iraqi Oil Minister Abdul-Kareem Luaibi told reporters on Sunday ahead of the Vienna meeting.
Output began to rise in earnest in 2010 after Baghdad secured service contracts with companies such as BP, Eni , Exxon Mobil and Royal Dutch Shell
Flows have now reached 3.4 million bpd - up nearly a million bpd from when companies got down to work three years ago.
Luaibi said output in 2013 is expected to average 3.7 million bpd - just shy of an all-time high of 3.8 million, hit in 1979 with exports running at 2.9 million bpd, including 250,000 bpd contributed by the semi-autonomous northern Kurdistan Regional Government (KRG). While that may be ambitious, 3.5-3.6 million appears possible.
The changing shape of Middle East politics after the U.S.-led overthrow of Saddam Hussein in 2003 and the 2011 Arab Spring plays into OPEC dynamics.
"Political issues sit behind this rivalry," said PFC's Alkadiri. "Regional alliances are pitting Saudi Arabia, Iraq and Iran against each other."
That was illustrated at Wednesday's meeting by a quarrel over the appointment of OPEC's next secretary-general, the group's public face and head of its Vienna headquarters.
Iran dropped its nomination to back Iraq's candidate against Saudi Arabia but neither Riyadh or Baghdad would give way and Libya's Abdullah al-Badri was reappointed for another year.
"It is clear that both sides view the issue in the context of growing sectarian and regional tension in the Middle East, making the issue even more difficult to resolve than usual," said PFC Energy.
Adding to the heat on OPEC is the dramatic rise in oil output from the United States, spurred by hydraulic fracturing, or fracking, of shale reserves.
The U.S. Energy Information Administration said on Tuesday that U.S. output will increase 760,000 bpd in 2012, the fastest pace since commercial oil production began in 1859.
"It is obviously something we are looking at very carefully because it is increasing and we expect it will have a major impact on OPEC producing countries," said Nigerian Oil Minister Diezani Alison-Madueke.
After years outside OPEC's quota system because of low output, Iraq was brought into the fold a year ago when OPEC set its 30 million bpd target for all 12 producers. But unlike previous OPEC deals no individual quotas were assigned.
That suited Saudi Arabia, leaving it free this year to balance the markets by using its spare capacity as it saw fit.
But in the event of a build in inventories that hits prices, OPEC may need to restore quotas if it is to enforce a credible production cut.
That is likely to prove very difficult, not just because of Iraq but because Iran is very unlikely to accept a quota anywhere near its sanctions-constrained production. Venezuela too could resist a lower quota after disputing independent estimates of its output for years.
"Quotas would become a big issue if we see a price drop and then everyone would have to come to the table," said Datamonitor's Atkinson. "That would cause enormous problems for Iran and Venezuela."
OPEC can only hope that a difficult decision is postponed by a continued stand-off between Western powers and Iran over Iran's nuclear programme, and the threat of Israeli military action, keeping oil prices high.
That could mean a repeat of 2012, with oil prices supported in 2013 for fear of an attack on Iran, even if demand is poor and market fundamentals weaken.
"Lady luck has been a huge help for OPEC because the macro numbers do not add up to 2012 being a successful year," said oil brokers PVM. "She has come in the form of geopolitical tensions and supply uncertainties which have kept speculative interest in oil lively and stimulated stock building."