The break through comes after several deals fell through because crude and oil product sellers were not willing to accept LCs from domestic Indonesian banks.

Bankers and oil traders said the deal represented a small step by Indonesia in re-establishing normal international trade flows after the financial and political upheaval of the past year.

"The problem is not one cargo. The problem is much broader than that. The problem is to re-establish a regular trade flow," said one banker.

"This could be the start," he said.

Oil traders said British Petroleum Co Plc sold 600,000 barrels of Malaysian Tapis crude oil to Pertamina. The deal included a letter of credit in favour of BP issued by an international bank, the trade sources said.

Companies worldwide have treated trade with Indonesia with extremecaution because of the 85 per cent fall in the rupiah and the recent political upheaval.A letter of credit issued by an international bank would be perceived as largely shielding the seller from Indonesian financing risk.

Indonesia is Asia's only member of the Organisation of Petroleum Exporting Countries (OPEC).

It is a net exporter of oil, but imports some types of crude to suit refinery needs and some oil products to fill domestic supply gaps.

Before the resignation of president Suharto in May, Pertamina imported oil through two affiliates. But now it has effectively severed those contracts because the two affiliates had links with Suharto.That has left Pertamina to trade directly with the international market for the first time.

Traders said the BP deal is one of the first achieved by Pertamina using an international LC.

Pertamina has purchased 1.5 million barrels of Malaysian crude oil for July lifting from Malaysian state-owned oil firm Petronas.

But the deal was on open credit so that atraditional commercial LC was not needed.It bought its first gas oil cargo in direct trading from a Middle East National oil company. The sellers was happy with the LC involved, although it was not clear if the LC was issued by Indonesian banks or international ones.

However, Australia's the Broken Hill Pty Ltd pulled out of a deal to sell Kutubu crude to Pertamina because it was not happy with the LC arrangements.