Sir Malcolm has been a fierce critic of the war, but an investigation into his financial interests shows the conflict is proving a moneyspinner.
His share options in a private security firm are rocketing in value as the company wins new contracts while the insurgency in Iraq continues. Sir Malcolm insists it is a reputable organisation, providing much-needed protection to those working in danger zones.
But his stake in ArmorGroup has angered antiwar protesters who question why he is prepared to make money from a conflict he opposed.
They say it represents a conflict of interest and he should give it up.
The former foreign secretary was one of the first candidates to enter the leadership contest. The Iraq war has already proved a key theme, with rival candidate Kenneth Clarke highlighting his own opposition to the war at his campaign launch.
But while Mr Clarke is using his stance on the war to savage the Government, Sir Malcolm is benefiting from the disarray in post-conflict Iraq. He is chairman of ArmorGroup, which is making huge sums from security operations in the Middle Eastern country He took on his role just over a year ago and is paid £31,000 a year by the firm, which employs more than 1,000 people in Iraq.
The company provides guards for foreigners in dangerous countries, with Iraq the single biggest source of business. It also runs a security training camp near Baghdad, supplies police mentors in Basra for the Foreign Office, and carries out mine removal.
In addition to his basic salary, Sir Malcolm has the option of buying 38,685 shares in ArmorGroup every year for the next three years at 14.8p a share.
Shares have risen by a third since the company first listed on the London Stock Exchange last December.
Latest share prices show that his 2005 share options would be worth more than 165p each if he sold them today, netting him almost £60,000. If the former foreign secretary stays with the firm, he could make even more in 2006 and 2007 - with the company predicting it is in line for many more lucrative contracts in Iraq.
ArmorGroup describes last year as a "watershed" for the business thanks to the war. It boasts of "unprecedented financial and operational growth", with turnover doubling to $19.9 million (Pounds 10.8 million).
The latest company report says: "The Middle East, because of increased opportunity in Iraq, became the group's largest revenue-producing region."
Speaking about making profits from protecting workers rebuilding Iraq, the report says: "The board sees this activity continuing into 2005 and beyond.
Directly funded Iraqi government work is likely to become more prominent."
ArmorGroup's board also believes it stands to make huge sums from mine removal. Last year, it earned US $3.4 million (Pounds 1.85 million) from such work.
But the report says: "The main focus of this activity has yet to start ...
2005 is likely to see increased activity in this area."
Sir Malcolm, who is currently shadow work and pensions secretary, is also a non-executive director of two other companies. He has consistently opposed the war in Iraq.
Supporters said they saw no clash between his opposition to the Iraq invasion and the activities of Armor-Group in post-Saddam Iraq.
But Sir Malcolm's spokesman said he would cut his ties with ArmorGroup if he were to win the Tory leadership contest, adding: "If there was any ethical problem with the company, he would not be working for it.
"ArmorGroup is very involved in demining work and never gets involved in civil conflicts."
But Andrew Burgin, of the Stop The War Coalition, said: "If Sir Malcolm is opposed to the illegal occupation of Iraq, the honourable thing for him to do would be to dispose of his shares and disassociate himself from the company."
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