Iraq has agreed with Australia to resume wheat sales by mid-next year in a step that could help the top exporter regain its decades of dominance in a major Middle East market, officials and trade sources said.

They said the move was agreed during a visit to Australia by executives of the Iraqi Grain Board who accompanied Trade Minister Abdul Falah al Sudani on a trip almost 10 days ago where they met wheat exporter AWB.

Iraq suspended dealings with AWB in February 2006 as an Australian judicial inquiry began into allegations that AWB paid $222 million to the former government of Saddam Hussein in order to secure sales.

'We had very fruitful discussions that resolved many of the outstanding issues and we told the Australians we want to open a new chapter and resume purchasing wheat as soon as possible to meet Iraq's needs,' a source involved in the talks said.

The Australians told the Iraqi delegation they may be able to start selling Iraq one or two cargoes as early as mid-year 2008 when the season's harvest is ready even despite shortages and lesser quality crop, a source said without elaborating.

The dispute over alleged shipment of contaminated Australian wheat cargoes in 2005 that preceded the suspension of contracts were a 'matter of the past', said the source, without elaborating.

Australia wants to resume being a long term supplier of wheat to Iraq, one of the world's largest importers.

It had a stranglehold for years on the Iraqi market, exporting up to 2.5 million tonnes of wheat a year -- the bulk of the country's 3 million tonnes of imports.

'The goal for Australia is not to sell something right now. It's to get the relationship going again because Iraq was always one of their biggest customers,' the trade source said.

'Now because Iraq is such an important customer, they will find maybe one or two cargoes as a token,' a trade source said.

Exports from Australia's last crop were rationed among leading core customers and exports seem likely to be tight again in 2007/2008 as the crop shrinks because of a new bout of drought.

Iraq was motivated by a desire to diversify away from North American supplies which it turned to after ending AWB sales, another official said.

'We need to get the relationship going again because Iraq has to have diverse sources right now. Iraq is just relying on too few sources. The US and Canada are the biggest suppliers of wheat and it is always better to have more sources,' the official said.

'Australia has been the biggest supplier of wheat to Iraq for over 50 years. Iraq should have many sources ... when you don't have one of your main sources then you are eliminating your choices,' the official source added.

Another official said restoring Australia's role as a major supplier was a priority for a more effective Iraqi grain board that has speeded food deliveries and eased bottlenecks under a state run food distribution system riddled with corruption.

'We like Australian wheat but we just don't want to deal with the AWB only ... So we are happy to buy Australian wheat from other companies,' the official said. Reuters