The battle for Basra now raging on the streets of Iraq’s second city shows every sign of turning into a nightmare for the dwindling British forces based near by.

For months Britain has been quietly reducing its presence in Iraq with the intention of pulling out altogether. First it withdrew last September from the Basra Palace base in the city centre and moved its forces to the airport. Then it changed its tactical role to “overwatch”, a vague term for supporting the Iraqi security forces nominally in control of the port city.

The intention was to withdraw British forces from frontline duties and concentrate on training Iraqis and offering support when needed. But the problem from the outset has been the failure of the Iraqi army and police to take control of the city, a mission that British troops, with the advantage of modern equipment and training, had failed to do during their four years in southern Iraq. Instead the Shia Muslim militias — the Mahdi Army loyal to Moqtadr al-Sadr, the Badr Brigades of the Supreme Council for the Islamic Revolution in Iraq and the smaller Fadillah Party — effectively took over the streets.

The three groups were in open contest for control of the city. The battle has little to do with ideology but everything to do with economics. Basra is the hub of Iraq’s valuable oil industry and the militias are making millions by taking their cut of the exports.

The problem now facing the British is how to respond to the fast-changing situation.

Nuri al-Maliki, the Iraqi Prime Minister, who flew to Basra to take personal control, said that his forces would fight “to the end” against the militias. Unfortunately for him, the end may come sooner than he expected. The Iraqi Army contingent of 30,000 troops has failed to dislodge the Mahdi Army, there are widespread reports of defections from the police to the militias and there are clear signs that the operation could backfire badly.

British forces, who can probably cobble together an armoured battle group of a few hundred soldiers, may well be asked to intervene should the Iraqi offensive fail. If that happens, any hope of the withdrawal promised by Gordon Brown last year of another 1,500 British troops this spring will have to be shelved until Basra can be stabilised.

It may even be necessary to reinforce the British contingent with more combat troops, something that the Ministry of Defence can ill afford as it prepares for the fighting season in Afghanistan.

The only other option would be for Britain to admit finally that it has lost the fight in southern Iraq. That would mean an ignominious withdrawal and handing over control of Basra to the Americans, who grudgingly would have to take over responsibility for the south. As American officers and officials have privately made clear, much of today’s problems in Basra can be traced back to Britain’s failure to commit the forces necessary to control Basra and southern Iraq in general.

Whereas President Bush’s “surge” tactic of sending 30,000 reinforcements to central Iraq has succeeded in bringing down the level of violence in Baghdad and Anbar province, the Americans believe that the gradual withdrawal of British troops from the south has had the opposite effect, a point that Mr al-Maliki and his soldiers are discovering to their cost on the streets of Basra today.

Battle lines

March 2003 46,000 troops
Mission Topple Saddam

May 2003 18,000 troops
Mission Secure the peace

May 2004 8,600 troops
Mission Win hearts and minds

January 2007 7,000 troops
Mission Curb violence

September 2007 5,500 troops
Mission Withdraw to Basra airport for “overwatch” role

December 2007 4,500 troops
Mission Support and training for Iraqi troops

Spring 2008 Planned reduction to 2,500 troops

Source: Times archive, agencies

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