Paranoid, competitive and fuelled by guns, alcohol and steroids. That is how one senior contractor in Baghdad describes the private security industry operating in the city's Green Zone.

It was the world to which Danny Fitzsimons, a 29-year-old former soldier suffering from post traumatic stress disorder and paranoia, and with an extensive criminal past, returned three weeks ago.

Despite rules against alcohol, his ArmorGroup colleagues welcomed him with a drinking session. A fight broke out and he shot and killed two of them - a Briton, Paul McGuigan, and an Australian, Darren Hoare - then wounded an Iraqi, Arkhan Mahdi. He faces a premeditated murder charge and execution if found guilty.

Fitzsimons's family is determined to save him and say he was suffering from severe psychiatric problems after a brutal career in the Army and in the security industry. But those on the ground hold little hope.

People in the industry told the Independent that the shooting could not have come at a worse time. They are already resigned to Fitzsimons' execution and say that he is a tiny pawn in a huge, expensive and vicious game of chess.

They say the private security business in Iraq is in a vice-like crush. The goldrush that began with the conflict in 2003 is drying up.

Contracts are not as lucrative, the trend is towards employing Iraqis instead of Westerners and, crucially, the Iraqi authorities - for so long impotent when it came to controlling the armed men swaggering around their cities - are clamping down.

"We are loathed out here. We are the single most hated entity in Iraq," said Ethan Madison, a security contractor who has worked in Baghdad for five years.

"They are going to hang him if he is found guilty. The Iraqis are desperate to put their foot down and make an example, say this is our country and we make the rules."

The big companies - including ArmorGroup - are fighting it out for a lucrative Foreign Office contract worth more than £20 million ($48 million) and are determined to survive the fallow period in the expectation that within a few years the big oil companies will bring another cash cow.

But just months after the private military contractors lost immunity, the Iraqi police are flexing their muscles. For the first time, foreigners are coming under intense scrutiny, compounds are being searched, licences checked and practices - such as blocking roads or banning locals from driving too close - banned.

In this cut-throat industry, there is open astonishment that a man like Fitzsimons, who had been sacked from two companies, Aegis and Olive, was hired again.

"It's a small world. It is easy enough to check on someone with a few emails to former colleagues. I get them all the time," said a former Parachute Regiment officer.