* Oil price collapse hampers reconstruction
* Price fall expected after OPEC keeps output target steady
* Oil firms reluctant to sign new deals due economy
By Simon Webb
VIENNA, March 16 (Reuters) - Iraq's shattered economy will face even worse hardship next year if oil prices do not recover, Iraq's OPEC governor said on Monday. Iraq needs oil money to rebuild after years of sanctions and war. The $100 price slump to under $44 a barrel from a record near $150 last summer has already forced Baghdad to curb government spending by a fifth for 2009, and more belt-tightening may be needed.
"We have sufficient funds for the budget this year but it is going to be difficult for Iraq next year," Falah Alamri, Iraq's top representative to OPEC, told Reuters in an interview.
"The problem is the economy and how it is affecting oil demand. The world economy is in a mess."
The price of Iraqi oil so far in 2009 stood at around $37, down $50 from the 2008 average, he said. Oil fell over 4 percent on Monday after the Organization of the Petroleum Exporting Countries (OPEC) decided to keep output targets unchanged at its meeting in Vienna on Sunday. "We knew the price would fall if we didn't cut again," Alamri said. "But the problem is the economy. Until the economy reaches bottom, we're not going to see more demand and a better price."
The fragility of the economy and the belief that oil prices were stabilising due to OPEC cuts since September stayed the group's hand on Sunday, despite concerns about oversupply and high inventories. If global initiatives to prop up faltering banks and revitalise credit markets succeed then the oil price could recover to around $50 to $60 a barrel in the fourth quarter, Alamri said. "The problem is that there is so much economic uncertainty out there," he said. "We don't know how much worse it is going to get, at least for the next few months."
DIVERSIFY
Baghdad aimed to boost oil exports to 2 million barrels per day (bpd) by the end of the year from 1.83 million bpd now, Alamri said. Exports have slipped from the 1.85 million bpd average last year, he added. "However, the export level for the rest of the year should increase gradually and our target is to reach 2 million bpd during the fourth quarter of 2009," he said. Iraq had seen strong demand for Basra crude, its main oil export blend, despite falling demand globally, he said.
New and upgraded plants worldwide meant refiners could get better margins refining a medium sour crude such as Basra than they could in the past, he added. The impact of the low price on Iraq's economy had sparked a debate in the country about economic diversification that was positive for the longer-term future, Alamri said. "This is a good opportunity for all sectors to put plans together to increase their share of Iraq's GDP," he said. "At the moment, oil accounts for more than two thirds of GDP."
Iraq needs to attract foreign investment and technology both in its oil industry and in the wider economy in order to develop quickly, he said. Aside from oil, the country should focus on development across the economy and in particular in agriculture, industry and when security conditions allow, tourism, he said.
Iraq sits atop about 116 billion barrels of oil, the world's third largest reserves after Saudi Arabia and Iran. It needs billions of dollars of investment to overhaul its dilapidated oil sector and boost production. The world's largest international oil companies are competing for contracts to service some of Iraq's biggest oil fields, in what Baghdad hopes will be a big step toward attracting foreign investors back to the country's energy sector.
(Reporting by Simon Webb; editing by William Hardy)