The Government today defended its decision to close the full British consulate in the Iraqi city Basra amid warnings that lucrative infrastructure contracts could be lost to foreign rivals.
Foreign Office minister Alistair Burt insisted the UK would continue to maintain links with the city - which was the centre of British military operations - with embassy staff flying in from Baghdad when needed.
However the move was condemned by former Foreign Office minister David Mellor as "short-sighted" and "deeply damaging" to British interests.
Under the review of Britain's diplomatic presence across the country ordered by Foreign Secretary Mr Hague, there will no longer be a permanent consulate-general in Basra, which currently costs £6.5 million a year to maintain.
There will still be a British embassy office in the city although it will not be staffed on a permanent basis.
Instead, the political section in the embassy in Baghdad will be expanded and more staff will be deployed at the consulate general in Irbil in the Kurdish region of northern Iraq.
The savings will help the Foreign Office to expand its diplomatic presence across the rest of the developing world with 11 new embassies and eight new consulates planned for countries in Asia, Africa and South America.
Mr Burt said that with the travel time from Baghdad now down to just one hour, it was no longer necessary to have a permanent presence in Basra.
"Our team in Baghdad will do the job in Basra that needs to be done," he told BBC Radio 4's The World at One.
"It is a very important area for us with the oilfields, with the potential for infrastructure development. If we were to abandon the area completely that would have some sort of resonance but we are not doing that. We are able to put the resources into Baghdad, we are able to make sure we are able to service Basra from Baghdad."
However Mr Mellor warned that British businesses could lose out as a result to rivals from countries such as China and South Korea.
"Basra is likely to become in the next decade one of the most prominent cities in the Middle East. It is the centre of the Iraq oil and gas industry, and there are massive reserves to be exploited.
"The decision to shut the British consulate is a short-sighted one and the amount of money saved - allegedly around £6 million - a drop in the ocean compared to the benefit British business can gain by being there, and having a centre of expertise at the consulate to help them.
"I deplore a short-sighted, inept decision, deeply damaging to British interests."
Baroness Nicholson, executive chairman of the Iraq Britain Business Council, said it appeared to be a Treasury-driven decision which she hoped the Foreign Office would reverse.
"The British business presence down in Basra is absolutely critical she said.
"I think this is a foolish short-term thing but I don't think that's a Foreign Office decision, I think it is something that is done from the Treasury.
"I'm very hopeful that Foreign Office cuts, which I think should not have happened and should not be affecting Basra, may be reversed before too long."