Dubai Iraq, seeking to more than double oil output by 2015, is poised to overtake Iran as Opec's second-largest producer by the end of the year as sanctions hobble crude production in its neighbour.

Iraq is pumping at the highest rate since Saddam Hussain seized power in 1979, supported by foreign investors such as ExxonMobil and BP that are developing new fields and reworking older deposits.

The country produced 3.03 million barrels a day in April, 7.7 per cent more than in March, while Iranian production declined to 3.2 million barrels a day, according to an Opec monthly report on Thursday.

Iraq's output last exceeded Iran's in 1988, when the countries ended their eight-year war, statistics compiled by BP show.

With rising oil supply from Libya and Saudi Arabia, the recovery of Iraq's biggest foreign currency earner is helping alleviate concern that a European Union embargo on Iranian crude starting July 1 will squeeze global supply.

Tensions over Iran's nuclear programme and the prospect of curbs on its oil sales pushed Brent crude to a three-and-a-half-year high of $128.40 a barrel (Dh471.61) on March 1. Oil fell as low as $111.40 yesterday.

"Iraq appears to be a steady and growing producer," Victor Shum, managing director at consultant Purvin and Gertz Inc in Singapore, said on Thursday.

"That's certainly a positive for world supply as there have been lingering concerns on output and spare capacity."

Prices ‘acceptable'

The Organisation of Petroleum Exporting Countries (Opec) plans to meet next month in Vienna to assess output after absorbing Iraq into its quota system when the group's ceiling was raised to 30 million barrels a day at a meeting in December.

Oil prices of $100 to $120 a barrel are "acceptable" and won't damage the world economy, Iraqi Oil Minister Abdul Kareem Al Luaibi said in Baghdad on Thursday.

Iraq holds the world's fifth-largest crude reserves, according to data from BP.

Production has revived since the US-led invasion of 2003 ended more than two decades of stagnation caused by wars, sanctions and underinvestment.

Since Saddam's fall, the government has awarded 15 oil and gas licences to foreign companies, and 47 bidders have signed up for its next auction of exploration rights scheduled for May 30.