By Louis Charbonneau

BERLIN, Sept 20 (Reuters) - An increasing reliance on private security firms in foreign conflicts, with no international oversight to ensure they follow the law, is a worrying trend, Germany's top spy said on Thursday.

Iraq said earlier this week that it would review the status of all security companies after accusing employees of U.S. security firm Blackwater of involvement in a Baghdad shooting in which 11 people were killed.

Iraq's Interior Ministry has said it would revoke the licence of Blackwater, which provides security to the U.S. embassy and its diplomats. Baghdad also said it would prosecute any Blackwater employees believed to have acted unlawfully.

"If this happens it will send a lasting signal to the industry and this lasting signal will be heard not only by the American government," Ernst Uhrlau, the head of Germany's BND foreign intelligence agency, said in a speech in Berlin.

He said it was unclear how many private security firms were active in Iraq though he cited media reports of about 125.

"There is an increasing reliance on private security firms," he said. "Globally the industry is worth an estimated $100 billion."

Uhrlau said there should be some form of international control over private security firms operating in conflict zones, though he offered no specifics about what this would entail.

"There is a broad consensus that an international oversight mechanism is needed ... to prevent abuse of human rights," he said.

FILL THE GAPS

As Western governments have shrunk their armies but continued to wage war, they have turned to contractors to fill the gaps, providing everything from food to intelligence analysis.

To their supporters, these companies bring private sector efficiency to a combat zone and allow troops to focus on their main mission of fighting a war.

The services provided by security firms in war zones are wide-ranging. Uhrlau said they include the protection of diplomats, training of police and security personnel, support for military operations -- even the running of prisons.

The problem, Uhrlau said, is that they are not transparent and governments lack control over their activities to ensure they are acting lawfully. Ultimately they do not answer to governments or parliaments but to their shareholders and the desire for profits, he said.

Uhrlau said the privatisation of war could bring benefits.

"The use of private firms enables a government to keep down official casualties and thereby reduce the public reaction," he said.

They can also help provide short-term stabilisation to enable reconstruction activity. But they are not suited for long-term conflicts which require a sensitivity to the political and social aspects in a conflict environment, Uhrlau said.

"Germany has a different position on this," he said, adding Berlin did not use private firms in foreign peacekeeping missions.

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