UPDATE 6-Oil steady above $113 as Iran relations thaw offsets Iraq ...

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* Iran, world powers to meet in Vienna for nuclear talks

* Iraq's main refinery shuts down (Updates prices, adds analysts' quotes)

By Lorenzo Ligato

NEW YORK, June 17 (Reuters) - Brent oil held steady above $113 per barrel on Tuesday as fears that violence in Iraq could hit exports offset thawing relations between Iran and the West that could boost that nation's output.

Scores of Iraqis were killed on Tuesday during a battle for the provincial capital of Baquba as an uprising by Sunni insurgents continued to threaten the disintegration of Iraq. The fighting also shut the country's main oil refinery, starving parts of the country of fuel.

Islamic militants marching south towards Baghdad's Shi'ite-led government seized towns in the north of the country in the past week. However, Iraq's oil refineries in the south, which process most of the country's 3.3 million barrels per day of oil exports, have been unaffected so far.

Brent prices rose around 4 percent last week, the most since July last year, but the rally stalled after the Iraqi government tightened security around oil infrastructure.

"The market is going to be stable until there's more news about who is going to succeed," said Paul Smith, chief risk officer at Mobius Risk Group in Houston, Texas.

Brent crude for August delivery was up 62 cents at $113.56 per barrel at 11:25 a.m. EDT (1525 GMT).

U.S. July crude rose 13 cents to $107.03 a barrel, after closing 1 cent lower on Monday.

"The fighting also shut the country's main oil refinery, starving parts of the country of fuel.Islamic militants marching south towards Baghdad's Shi'ite-led government seized towns in the north of the country in the past week"The U.S. July contract expires on June 20.

BP Chief Executive Bob Dudley said on Tuesday the oil company's operations in Iraq were unaffected by the violence.

Still, Iraq's oil growth targets look increasingly at risk, the International Energy Agency said, highlighting the threat to supplies from political instability and violence.

The loss of one third of total Iraqi oil production, along with rising demand in the second half of 2014, may slash global spare capacity and generate a price increase of up to $40 per barrel, according to a report released by Securing America's Future Energy on Tuesday.

Underlining that threat, Iraq's largest oil refinery, a 170,000-bpd-processing facility in Baiji, has been shut down, refinery officials said on Tuesday.

Iraq will need to import about half its oil product needs, more than 300,000 barrels per day, said Adnan al-Janabi, a senior Iraqi oil official.

Andrey Kryuchenkov, analyst at VTB Capital in London, calculated a $5 risk premium in the oil price, but added that the outage of Libyan oil exports, which are down to almost nothing from above 1 million barrels per day, were also an important factor.

Meanwhile, U.S. and Iranian diplomats discussed the Iraq crisis on Tuesday, although both ruled out any military cooperation.

They met on the sidelines of a meeting in Vienna, as Iran and six world powers aimed to narrow differences and end a decade-old nuclear dispute.

A successful outcome could see additional Iranian crude exported to global markets if sanctions are eased, although no such move is expected imminently. (Additional reporting by Simon Falush in London and Jacob Gronholt-Pederson in Singapore; editing by Jason Neely and Keiron Henderson, Jessica Resnick-Ault and Peter Galloway)

FILED UNDER: Energy

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