(Adds Canadian analyst comments, barley sales figure)
HAMBURG, Aug 7 (Reuters) - Saudi Arabia's main state wheat buying agency has told grains exporters it will no longer buy Canadian wheat and barley in its international tenders, European traders said on Tuesday, as a diplomatic dispute between the two countries escalates.
Traders said they had received an official notice from the Saudi Grains Organization (SAGO) about its decision.
Canada on Monday refused to back down in its defence of human rights after Saudi Arabia froze new trade and investment and expelled the Canadian ambassador in retaliation for Ottawa's call to free arrested Saudi civil society activists.
"As of Tuesday August 7, 2018, Saudi Grains Organization (SAGO) can no longer accept milling wheat or feed barley cargoes of Canadian origin to be supplied,” a copy of the notice seen by Reuters said.
One European trader said it was not clear if the decision involved only new purchases or delivery of previously agreed contracts. "But I would not deliver Canadian grains to Saudi Arabia now, even on previous contracts," the trader added.
Another trader said: "This is to me clearly part of the diplomatic dispute between Saudi Arabia and Canada, there is no other reason."
Winnipeg-based grain trader G3 said it was continuing with business as normal. G3 is a partnership of Saudi Arabian agriculture company SALIC and U.S. grain handler Bunge Ltd .
The SAGO agency generally specifies that wheat purchased at international tenders must be sourced from the European Union, North America, South America or Australia.
In SAGO's last purchase of 625,000 tonnes of wheat in an international tender on July 16, Canada was seen as a possible supplier.
Analysts said the Middle East had been importing less wheat from Canada and the United States in recent years due to higher shipping costs, while China has become a bigger barley buyer.
"There will be plenty of opportunities for Canada to sell barley and wheat elsewhere," said Chuck Penner, analyst with LeftField Commodity Research, based in Winnipeg.
According to Statistics Canada, the Canadian government's statistics agency, total Canadian wheat sales to Saudi Arabia excluding durum were 66,000 tonnes in 2017 and 68,250 tonnes in 2016. Canadian barley sales totalled 132,000 tonnes in 2017.
But given tightening global grain supplies due to weather problems in Russia, Europe and Australia, Canada might have been poised to win more Saudi barley business.
"This year could have been a year where we could have seen some (Canadian) barley trade there in October-November," said Jerry Klassen, manager at trading house GAP SA Grains and Products in Winnipeg. (Reporting by Michael Hogan, Gus Trompiz and Maha El Dahan; Additional reporting by Julie Ingwersen and Tom Polansek in Chicago; Editing by Mark Potter and Tom Brown)