Restoring order in Basra—Iraq's restive second city—ranks among the most serious security challenges facing Iraq's new government. The oil-rich yet politically fractious city in southern Iraq emerged as a flashpoint of violence after clashes between British troops and various Shiite militias erupted earlier this year. Smuggling and sabotage continue to plague Basra's oil industry, as the provincial and central government dispute the distribution of oil revenues. A state of emergency, imposed by the Iraq's prime minister earlier this month, has temporarily quieted the city, but tensions linger beneath the surface.

Largely because of oil, experts say. "Shiite militias are fighting over that crown in the jewel," says Peter Khalil, a Middle East analyst at the Eurasia Group. "The militias are involved in lots of smuggling, corruption, rackets, and extortion." Basra, until recently one of Iraq's safest cities, is important to the central government in Baghdad not only because the city's oil fields provide around 90 percent of Iraq's budgetary revenue but also because it is Iraq's major outlet to the Persian Gulf. "It is the lifeline to the Iraqi government," Khalil says. Prime Minister Nouri al-Maliki promised to crack down with "an iron fist" and imposed a state of emergency not only to quell the violence in Basra and rein in its militias but to reassert Baghdad's authority over a region itching for greater autonomy. The city's murder rate in May—eighty-five killings—was triple the number from January, according to the New York Times.

• Political turf wars. The city's dominant party is Fadhila, a conservative Shiite group whose members include Basra's governor and the chairman of the Provincial Council. Locals have accused the governor of corruption and failing to provide jobs. Fadhila, which enjoys close ties to Shiite cleric Moqtada al-Sadr, has repeatedly sparred with Iraq's two main Shiite groups, the Supreme Council of Islamic Revolution in Iraq (SCIRI) and Dawa, over revenue sharing and federalism. "We as Fadhila, we want to make our province our own region," Aqeel Talib, a senior member of the party, told the New York Times. "We have two million people, an airport, a port, and oil—everything we need to be a state." Fadhila had hoped to retain control of Iraq's Ministry of Oil. After the portfolio went to an independent Shiite instead, the party withdrew from Maliki's government. On a recent visit, the prime minister failed in his bid to lure Fadhila back into the political fold.
• Clashes between militias. The rise of Sadr's Mahdi Army as a formidable political force in Basra coincided with a wave of militia-related violence that left more than 100 dead. SCIRI's military wing, the Badr Brigade, has repeatedly clashed with the Sadrists, both of which are jockeying for more control over the city's political machinery, commercial assets, and social services. Last summer, similar clashes between the two Shiite militias in the city of Najaf killed dozens. The predominance of Shiites in Basra makes it poor ground for the Sunni-dominated insurgency raging elsewhere in the country. "If you're from Fallujah [a Sunni stronghold], your accent will stand out like a sore thumb in the south," Khalil says.
• Disagreement over the distribution of oil revenues. Basra's oil fields are Iraq's riches. That explains why the local government is pushing for more oil revenues to stay in the province, not be divvied up among Iraq's eighteen provinces. Fadhila threatened Baghdad that unless it received a greater share of the oil revenue, it would slash oil exports and cut production to 500,000 barrels per day (bpd), a significant drop from the port city's current production of roughly 1.5 million bpd. Fadhila controls the force protecting the state-owned Southern Oil Company's infrastructure. Local militia members linked to Basra's political parties, including Fadhila, have been accused of siphoning oil and selling it to Iraq's neighbors. The Oil Protection Force, which often acts as Fadhila's militia, "has repeatedly blocked foreign contractors and military personnel from entering the Rumaila oil fields [located just west of Basra] since October and may develop into an even more violent criminal organization if Fadhila's political star continues to wane," according to a recent report by Oxford Analytica, a UK-based strategic consulting firm.
• Corrupt police. Prime Minister Maliki has little control over Basra's police forces, says Matthew Sherman, a former adviser to Iraq's Ministry of Interior. "Under CPA [Coalition Provisional Authority] Order 71 (PDF) more or less all of the central government's authority to deal with the police force and hiring and firing of governors was stripped away," he says. "This was so Iraq wouldn't become another totalitarian state but in doing so it's struggled to create that monopoly on power that all representative governments must have in order to function." Part of the problem can be traced back to lax background checks during the police force's formation, experts say. The result is 37,000 police (to patrol four provinces), many with strong sectarian militia ties or party affiliations that compromise their work. Sherman says large numbers of the police's rank and file are loyalists of Moqtada al-Sadr.
• Inadequate foreign troop presence. There are only around 8,000 British soldiers responsible for patrolling four southeastern provinces, including Basra, a city larger than 1 million residents. "Given that [British forces] could not control a very much smaller and less well-armed Belfast with 27,000 troops in the 1970s, keeping a lid on an increasingly volatile Basra is something of a forlorn hope," writes Ian Bruce, defense correspondent of The Herald. Seven British soldiers were killed in the latest outbreak of violence. Relations between the British and the local government soured in January after a series of arrests of corrupt police officials. Also complicating matters is Denmark, which is expected to begin drawing down its 535 forces stationed in Basra this summer.
• Simmering Sunni-Shiite tensions. Basra's small Sunni Arab community has increasingly been targeted by armed groups calling themselves the Imam Husain Brigades. Local police often do little to prevent such sectarian attacks. The Association of Muslim Scholars, a top Sunni political party, claims some 1,200 Sunni families have been forced to flee Basra because of the violence. Besides Sunnis, Khalil says Shiite militias have also targeted teachers and intellectuals.

Because the city lacks meters, it's difficult to accurately gauge how much oil is lost to smugglers and saboteurs. Iraq's national-security adviser recently told the New York Times there is an estimated 6,000 bpd difference between the amount of oil produced and the amount exported. Kenneth Katzman, a Middle East analyst at the Congressional Research Service, estimates at least 10 percent of the oil gets illegally intercepted and loaded onto trucks headed for Jordan or Syria. In addition to individuals tied to militias or the police, organized criminals are responsible for much of smuggling. "Oil, and the siphoning of it, is a large cash industry and organized criminal elements recognize that better than anyone else," Sherman says.

Iran has a strong presence in southern Iraq and is very closely tied to SCIRI, one of Iraq's major Shiite parties, as well as its military wing, the Badr Brigade. Abdul Aziz al-Hakim, SCIRI's clerical leader, recently visited Tehran to enlist its help in quelling Basra's violence. Iran also supports Hakim's call for a semi-autonomous state in southern Iraq. Hundreds of Iranian pilgrims visit Basra on a daily basis, sometimes illegally. "It's hard to vet who are genuine pilgrims and who are Iranian intelligence officers," Khalil says. Local police have found Russian-made Katyusha rockets and antitank missiles, reportedly smuggled in from Iran. Meanwhile, not every Iraqi in Basra welcomes Iran's growing presence there. "Many Basra Shiites still hold a grudge against Iran for the latter's shelling of the city during the Iran-Iraq War, 1980-1988," Juan Cole, a Middle East expert at the University of Michigan, writes in his blog. "Sadrist Iraqis in particular denounce the dominance of Persian Shiism over Iraqi Shiism."