(FORTUNE Magazine) – With almost daily bombings and terror attacks, Iraq borders on anarchy. The situation is so dicey that not even diplomats can conceal the danger. David Kay, the chief U.S. weapons inspector, says Iraq has a "nonpermissive environment," by which he means that his inspectors must either carry guns or know how to use them. But what's bad for Baghdad is good for Washington consultants. With billions of dollars of reconstruction contracts up for grabs, most of the city's major lobbying shops and law firms have opened "Iraq practices" run by a Who's Who of ex-government officials, including President Bush's former campaign manager Joe Allbaugh.

The potential for crony capitalism can't be ignored. "More than ever, former insiders are holding out the notion that they have the juice to get things done inside the Bush administration, and that's unseemly," says Fred Wertheimer of Democracy 21, a nonpartisan watchdog group. Republicans and Democrats alike expressed outrage last spring after a unit of Halliburton--once led by Vice President Dick Cheney--got a $500 million no-bid contract to extinguish oil fires and repair Iraq's oil infrastructure. But that contract has since been put out for bids (Halliburton could lose all or part of it), and Jerry Bremer, head of the U.S.-led Coalition Provisional Authority, said last month that future contracts will be competitively bid.

If that's the case, what's left for lobbyists to do? More than you might think. In the chaos that followed the end of major combat in May, it was never clear where reconstruction funds would come from: the Pentagon, the State Department, or authorities in Baghdad. Knowing who to know--the lobbyists' stock-in-trade--was at a premium. Furthermore, influencing a contract's specifications at the margins--another lobbying trick--could give some companies advantages over others.

Clearly lobbyists closest to the Republicans in power have a head start. And few are closer than Joe Allbaugh. Since March he's been a corporate gun for hire and a leading go-between in the lucrative government marketplace. He dipped his finger into the homeland security honey pot this past summer by joining the board of Civitas Group, a homeland-security consultancy co-chaired by Sandy Berger, who was President Clinton's National Security Advisor, and Charlie Black, a major Republican lobbyist and fundraiser. By then he had already been involved in Iraq work as chairman of New Bridge Strategies, which he runs with two former aides to Bush's father.

Allbaugh met George W. when they worked on the 1988 campaign of Bush senior. Allbaugh went on to run the younger Bush's campaign for governor of Texas in 1994, to manage his presidential campaign in 2000, and to head the Federal Emergency Management Agency in the critical days after Sept. 11. The New Bridge website isn't shy about touting its connections: "New Bridge Strategies principals...have held positions in the Reagan administration and both Bush administrations and are particularly well suited to working with international agencies in the Executive Branch, Department of Defense and the U.S. Agency for International Development, the American rebuilding apparatus and establishing early links to Congress."

Allbaugh is cagey about what he does and for whom he does it. In an interview, he says New Bridge clients include companies in "telecommunications, food services, transportation, construction, [and] oil and gas--just about any discipline out there." He also boasts that "being affiliated with the President for nine years of my life, I know a lot of people who are part of the administration." But he says he would never lean on those people to benefit a client. "If they think I'm going to be in the business of calling in chits or guaranteeing some particular action," he says, "that's not what I do." He also confirms that New Bridge has yet to secure any U.S. government contracts in Iraq for its clients.

But it does protect clients who travel to Iraq. New Bridge is part owner of a security firm, Diligence Iraq. A New Bridge principal explains its modus operandi: "In a gold rush, you can make money by selling picks and shovels." The equivalent in Iraq is dispatching beefy guys with guns and armored cars. "We provide armed security teams, logistical support, delivery of payrolls, and screening of local hires," says Mike Baker of Diligence Iraq. "It's a good business right now."

The law firm Akin Gump Strauss Hauer & Feld provides something equally practical: legal advice to companies owed money by Iraq. Akin Gump partner Mark Medish, a former midlevel Treasury Department appointee in the Clinton administration, represents Hyundai Engineering & Construction of South Korea. Iraq owes the company $1 billion, making it the country's largest creditor. Medish is now assembling other corporate creditors from the around the world into a single entity. The larger the group, he says, the more leverage he'll have to negotiate repayment. He considers his former government position irrelevant. "I was not the Secretary of State or the Secretary of the Treasury," says Medish. "I was a minion."

Most K Street firms aren't so demure, and talk up every come-on they can. Riva Levinson of BKSH Associates is using the contacts she made promoting anti-Saddam Iraqis for the U.S. State Department to help General Motors find prospective car dealers in Baghdad. The Livingston Group, led by Bob Livingston, a former GOP chairman of the House Appropriations Committee, hired Mohammed al-Rehaief, the young Iraqi lawyer who told U.S. soldiers where to find the Iraq war's most famous POW, Private Jessica Lynch.

Iraq may eventually become an excellent place to do business. It has the largest oil reserves in the world after Saudi Arabia, and once the oil starts flowing, Iraqis will almost certainly want to buy the Western amenities that other resource-rich nations consume in abundance. But the country's lingering violence and crumbling infrastructure assure that it won't prosper anytime soon. That doesn't deter Washington's gold diggers. Levinson sees good prospects ahead--and not just in Iraq. She does PR for supporters of democracy in Iran and for opponents of Charles Taylor, Liberia's recently ousted President. If those countries ever become "permissive environments," Levinson--and the rest of the K Street crowd--will be the first to let you know. --Jeffrey H. Birnbaum