* Sources in Doha say Total favoured for gas expansion
* Qatar and Iran have grown closer economically
* Saudis wants Qatar to sever diplomatic ties with Iran
By Tom Finn, Ron Bousso and Dmitry Zhdannikov
DOHA/LONDON, July 10 (Reuters) - Total is well placed to take a lead role in helping Qatar expand output from the world's largest gas field, largely thanks to its involvement in the Iranian side of the shared deposit, two sources familiar with Doha's thinking said.
That puts the French oil major ahead of rivals like Exxon and Shell in the early running for developing the expansion, which the tiny Gulf state announced as it seeks to counter growing isolation caused by a regional diplomatic rift.
Total boss Patrick Pouyanne signed a deal this month to develop the South Pars field, as Iran's part of the shared reserves are known, becoming the first oil major to return to the country since the lifting of sanctions.
As he was ironing out details of that agreement, he was careful to keep Qatar in the loop.
"Of course, I won't go to the same field in Iran without telling Qatar," Pouyanne told Reuters.
"The Iranian block where we are supposed to produce is next to the border with Qatar. When I travelled to Doha I discussed it with the (Qatari) authorities and they told us: 'It is ok - we know you'."
Pouyanne says Total strictly respects confidentiality of data vis-à-vis each country. The executive's cross-border strategy, however, appears to be paying early dividends.
"I would expect Total to be in the strongest position for the new (Qatari) project, because of the political issues at play and their recent deals in (Iran's) South Pars," one senior Gulf energy source said.
On one level, working with both countries who share a prized gas asset seems obvious. But it is not without risks for Total.
Saudi Arabia, the United Arab Emirates, Bahrain and Egypt have imposed political and economic sanctions on Qatar, demanding that it stops fostering terrorism and courting Iran, Riyadh's main rival. Qatar denies the accusations.
Besides Iran and Qatar, Total also has large projects in Saudi Arabia and the UAE, highlighting the complexity of investing in the Middle East.
Qatar, already the world's largest liquefied gas exporter, lifted a self-imposed ban on development of the North Field in April and last week it said it would raise gas output capacity by around 30 percent to 100 billion cubic metres.
The move was widely seen as a show of strength in its dispute with Gulf neighbours and Egypt.
Qatar has built its gas export power over the past decade with support from global oil majors including ExxonMobil , Total, and Royal Dutch Shell.
The projects have generated billions of dollars for Qatar and its Western partners and the planned expansion to its gas capacity would make Qatar even more dominant in the gas market, accounting for a third of current global LNG output.
Sources told Reuters earlier this month that Exxon, Shell and Total have all expressed interest in helping Qatar expand its gas facilities, with top executives travelling to Doha in recent weeks even after a spike in political tensions.
Exxon, Shell and Total declined to comment on plans to participate in Qatar's tenders to expand gas capacity, which are yet to be announced and will take several years to complete.
Even without those tenders, Total's role in Qatar is set to grow significantly after it won a 30 percent stake in 2016 in a new 25-year contract to operate its largest offshore Al-Shaheen oilfield.
Total, which will take over the field operation from Maersk Oil on July 14, plans to invest $2 billion in expanding the field over the next five years.
With Qatar's gas production costs among the lowest in the world, being a part of any expansion would give Total a strategic advantage over rivals in the fast-growing global LNG market.
Total's involvement in fields on both sides of the Qatari-Iranian border may also help save on costs and service contracts as well as better understand the fields' geology, although Pouyanne said there was no mechanism to coordinate production jointly by the countries.
The development of the new capacity over the next 5-7 years could cost between $14-$18 billion, according to consultant Wood Mackenzie.
"Qatar may also be keen to show it is still open for business despite the current diplomatic disputes with some of its Gulf neighbours," it said.
Writing by Dmitry Zhdannikov; Editing by Mike Collett-White