An emerging alliance between former foes Iran and Iraq in OPEC is expected to undermine Saudi Arabia, long the oil cartel's dominant force, and other moderate Arab states which could threaten the 12-member oil producers' group and push up oil prices sharply.

This also underlines Iran's ceaseless efforts to dominate its western neighbor politically and economically that began the moment the Americans toppled Saddam Hussein in April 2003 and has accelerated since the U.S. military withdrawal in December 2011.

Iran and Iraq are two of the top producers in the Organization of Petroleum Exporting Countries and between them of nearly 300 billion barrels of oil. Oil industry insiders say Iraq also sits on as much as 150 billion barrels in unexplored reservoirs.

An agreement by these two countries that dominate the northern Persian Gulf, a strategic zone that currently produces at least one third of the world's oil supplies, could have immense geopolitical consequences, despite an expected U.S. shale oil boom.

Iran has always been a price hawk, seeking to keep prices as high as the market will entertain, while the Saudis and the other Arab monarchies in the gulf have generally sought to moderate prices to support the industrialized powers that are their main customers.

The recovery of Iraq's badly rundown oil industry since Saddam's downfall has thrust it back into the major producers' league and it needs high prices to generate the funds for its post-Saddam reconstruction.

So it has moved from its alignment with Saudi Arabia to stand alongside Iran within OPEC, adding significant weight to the price hawks and increasingly politicizing the cartel's decision-making.

The Shiite-dominated government of Iraqi Prime Minister Nouri al-Maliki, who like other senior Shiite politicians has close links to Iran where he found sanctuary during Saddam's brutal rule in the 1970s and '80s, is also seeking to lessen its dependence on the United States since U.S. forces pulled out.

Indeed, Maliki owes his premiership in large part to Tehran and is kept in power by the backing of a powerful Iran-run Shiite alliance.

This trend, and Iran's determination to dominate its most inveterate opponent with whom it fought a terrible war in 1980-88, is likely to alter the geopolitical landscape in the strategic gulf region.

Before the Americans left Iraq, Iran had been waging a clandestine war against them in Iraq and poured billions of dollars into building up a vast patronage and intelligence network in the country so its political influence is immense.

"Over time, the likelihood of Iraq needing to accommodate Iranian strategic interests is most likely," observed George Friedman, chief executive officer of the U.S. global security consultancy Stratfor.

"The possibility of Iraq becoming a puppet of Iran cannot be ruled out, and this has especially wide regional consequences."

Now Algeria's military-backed government, in sore need of copious oil revenue to buy itself out of the pro-democracy current surging through the Arab world, has became what the Financial Times calls "the uber hawk" in OPEC.

"Algeria's growing hawkish voice is important because it is giving firepower to the other countries calling for higher oil prices in OPEC," Javier Blas, the Financial Times' commodities editor, observed recently.

Tehran's alliance with Iraq is vitally important for Iran, whose oil production and exports are steadily shrinking because of ever-tightening economic sanctions by the United States and the European Union imposed to force it to abandon its contentious nuclear program.

Bereft of badly need foreign investment to recharge its ailing hydrocarbons industry, Tehran needs Iraq's increasing clout within OPEC as its output steadily grows, eclipsing the Islamic Republic as a production power.

"Riyadh is determined to prevent the group being dragged into Iran's nuclear standoff with the West" and, until recently, "member states had done a good job of papering over their differences on the issue," the Financial Times observed.

Oil prices are running at around $100-$110 a barrel. Iraq, for example, would like to see that go up to $120 as it shoots for a production level of around 10 million bpd over the next 5-6 years.

Amid growing global economic uncertainty, soaring oil prices are a significant threat that could plunge the world back into recession. The general consensus among analysts is that prices have to come down.