Iraqi drivers sitting in stationary traffic in Baghdad glare at a British private security convoy as it pushes past them, waved on by a wary policeman.

Sounding an emergency siren and flashing a set of small red and blue lights, the security team navigates its three armoured vehicles around the queue, keen to keep its one British and two American passengers safe.

“As we are going along we are not aggressive, unlike some of the security firms. We operate under military rules of engagement,” said Steven Lloyd, the team leader for the convoy run by Aegis Defence Services, the largest British private security contractor in Iraq.

The status of such companies is under review after a shootout by guards working for Blackwater, a US company, last month, which left 17 Iraqis dead. Adding fuel to the fire, last week two women were shot dead by guards working for Unity Resources Group, a security company based in Dubai. The review could spell sweeping changes for an industry that has boomed because of demand for hired guns after the wars in Iraq and Afghanistan. But tighter regulation could drive many companies away.

Iraqi, American and British government officials say that much of their work would grind to a halt without the help of private security expertise.

“Without these guys we would not be able to get around,” said Colonel Mike Moon, of the US Army Corps of Engineers, as he was driven by the Aegis security detail to a renovated power station north of Baghdad.

A well-founded fear of bombs, kidnappings and shootings in Iraq means that Iraqi ministers, foreign diplomats, corporate officials, Western contractors and foreign journalists rely on private security in one form or another.

The evolution of the modern army has also created a niche for hired help, with private guards from countries such as Peru, Georgia and Nepal increasingly undertaking the more mundane tasks such as guarding bases, transporting supplies, cooking and cleaning, so freeing troops to fight.

Tim Spicer, the chief executive of Aegis, told The Times in an interview during a recent trip to Baghdad: “If we weren’t here there would be a lot more troops. I think they take quite a lot of the burden of routine duties off the military to enable them to go out and do what they are best at.”

Recent troubles have reportedly prompted the US State Department to explore phasing out or limiting the use of private guards in Iraq. But such a move would be difficult because of America’s reliance on contractors.

Adding further pressure on the industry, the United Nations has recommended that the American authorities should hold private security firms accountable for unjustified killings of Iraqi civilians. The mood in the Iraqi Government and on the street towards what many people see as private armies is also increasingly bitter.

Nouri al-Maliki, the Prime Minister, called for Blackwater specifically to be expelled from the country.

Asked what she thought about foreign guards, Farah Duraid, 30, a housewife, said: “They behave like monsters, killing anyone in their way.”

Muscle-bound, often tattooed and always armed, private security guards can strike an intimidating pose, in particular those who insist on wearing wraparound sunglasses and strapping a pistol to one thigh. Varying in age from about 25 years old to over 50, most of these men have military backgrounds, including those who were once part of the elite special forces in Britain, the United States, South Africa, Australia or New Zealand. Driven by money, they leave behind families to work for weeks, sometimes months, at a time.

“Doing this job for me is an opportunity to get ahead because of the amount of money that you earn,” one South African security contractor said.

Insisting that he performed with consideration for the local population, he conceded that not all guards acted in the same way. Noting Blackwater in particular, he said: “You can’t tell those guys anything because they think that they know best.”

Mr Spicer defended the industry’s role, noting that Aegis, as a contractor to the US Department of Defence, adheres to about 15 layers of regulatory control and constraint to ensure that it is fully accountable. Aegis is an example of the lucrative nature of the private security business. Mr Spicer, who has worked in the sector since 1994, arrived in Iraq in late 2003 to assess the situation on the ground. Six months later Aegis began operating and now has a multimillion-dollar US government contract to support reconstruction efforts, escort convoys and offer close protection. Its presence in Iraq has since grown to a staff of 1,200, which is set to rise to 1,500 in the coming days.

Jack Holly, a former Marine colonel who is logistics director for the US Army Corps of Engineers’ Gulf Region Division, said: “In the next year or two there will be a growth in the demand for private security so that we can slowly pull both US and British forces out of the mix and retrograde them home, and do more things that are of a mundane nature on the private side.”

Times Recommends

• 'Radio Rancid' is scourge of Obama
• French gulp as global warming alters wines
• Colton, the barefoot boy bandit, outfoxes sheriffs