International oil majors are set to buy crude direct from Iraq for the first time in two years after Baghdad dropped its surcharge on UN supervised oil sales, an Iraqi oil official and Western company sources said yesterday.

Baghdad's bid to re-engage with top oil companies coincided with its announcement on Monday that it would permit the unconditional return of United Nations weapons inspectors.

There is speculation in oil industry circles that Iraq is renewing commercial ties with top oil companies as part of its campaign to prevent US-led military action against Iraqi leader Saddam Hussein.

"There is contact now, especially with European oil companies about crude oil supplies," a senior Iraqi oil official told Reuters.

"I can't say whether we will sign today or tomorrow."

Renewed direct contracts are likely to boost Iraqi exports, now running at just a third of its 2.2 million barrels per day (bpd) export capacity.

"We are in the process of signing now," said a European oil executive.

Since the surcharge was introduced, Iraq has only been able to attract custom from little-known middlemen.

Iraq on Monday officially informed a select group of companies that its illicit fee, raked in outside the UN oil-for-food programme since late November 2000, was scrapped and invited them back to do business.

"They said, 'We are not charging a surcharge, please come and sign a contract'," said a Western oil executive.

European companies such as Repsol, TotalFinaElf, ENI , OMV and Cepsa stopped buying oil directly from Baghdad when it asked them to pay the controversial fee.

The Iraqi oil official declined to say whether US oil companies would be welcomed back as direct lifters.

Baghdad, for political reasons, removed them about four years ago from the contract roster - along with companies from Japan and Britain.