The Iraqi government is poised to launch a security operation to stop Shia insurgents stealing revenues from Iraq’s deepsea port at Umm Qasr, which is hindering a $500m privatisation of the site.

On 24 February, Iraq’s National Security Council adopted a resolution to restore security at the port, arresting or expelling members of the Shia insurgent group Jaysh al-Mahdi (Jam), which has infiltrated the site.

The action has been backed by the Interior Ministry and will be confirmed by Prime Minister Nouri al-Maliki in the coming days.

Jam is an umbrella group that includes the Mahdi Army, which is run by the radical Shia cleric Moqtada al-Sadr.

A large proportion of the revenues from the port are being siphoned off to finance the group, with barely a fraction making it back to central government coffers, according to senior sources in the transport sector.

“Accurate figures are difficult to find but we believe that a significant percentage of the port’s revenue is being passed to local militias rather than Baghdad,” says a US source in the Iraqi capital.

Iraqi and US sources say that while they do not believe Jam has penetrated the senior levels of management at Umm Qasr’s port authority, officials at the site are subject to constant threats to allow the group to go about its work at ground level.

“Jam works in customs, immigration, cargo handling and truck loading - anywhere where cash changes hands,” says the US source. “It is not operating personally at a higher level in the port authority, but it does influence the management with threats and intimidation.”

Jam’s presence at Umm Qasr’s northern port is also hindering efforts to redevelop and privatise the neighbouring southern port, with foreign operators seeking assurances that the area will be secure before any bidding process can take place.

Umm Qasr’s southern port has been targeted for a multi-million dollar refit under foreign ownership, with the Transport Ministry poised to issue details of the proposed privatisation, which will include a new container terminal.

Although the southern port is free of criminality, the facilities are run down.

Baghdad says it has received several unsolicited expressions of interest from international port operators, but security concerns at the neighbouring site will need to be assuaged first.

“Jam’s control of the port is a real negative from potential investors’ point of view,” says another US source in Baghdad. “The central and local governments are aware that they have to engage with this issue before any reconstruction of the port can begin.”

Sources in Iraq are reluctant to discuss details of the forthcoming operation at the northern port. Security responsibility in Basra province was handed over to the Iraqis by the UK in December 2007, and the effort to clear the port of criminal elements will be a major test of the local government’s ability to enforce the rule of law.

An estimated $1bn is needed to clear silt and nine wrecked ships from the channel to the southern port. In total, 230 wrecks have been abandoned in the local waterways.

Umm Qasr’s two port sites have been kept deliberately separate by officials, because of the problems at the northern port.

They are hopeful that the preliminary stages of a tender process can get under way while the issues are being resolved.

Since British troops withdrew to Basra airbase last year, there has been a surge in activity by local militias in the province. Iranian influence in the province is also particularly strong.