Will Iraq's Blackwater Ban Raise Troop Levels in Baghdad?

Sunday's firefight took place near Nusoor Square, an area that straddles the predominantly Sunni Arab neighborhoods of Mansour and Yarmouk.

In addition to the fatalities, 14 people were wounded, most of them civilians, the official said.

The ministry said the incident began around midday, when a convoy of sport utility vehicles came under fire from unidentified gunmen in the square.

The men in the SUVs, described by witnesses as Westerners, returned fire, and the witnesses said the vehicles are the kind used by Western security firms.

A spokesman for the U.S. Embassy in Baghdad confirmed a State Department convoy was in the area.

"We have revoked Blackwater's license to operate in Iraq. As of now they are not allowed to operate anywhere in the Republic of Iraq," Interior Ministry spokesman Brig. Gen. Abdul Kareem Khalaf said Monday. "The investigation is ongoing, and all those responsible for Sunday's killing will be referred to Iraqi justice."

It's a move clearly meant to boost popular support for Prime Minister Nouri al-Maliki, but it's not clear what exactly are the ramifications of the license revocation, or how that will affect Blackwater's security contract with the State Department.

Is there even a license to revoke? Buzz on the contractor street is that it isn't clear how this development will affect Blackwater. Allegedly, Blackwater doesn't have a "license" to revoke, and its contracts with the State Department and CIA may not be immediately affected. This could play out in an interesting (albeit depressing) powerplay between the al-Maliki, Iraq's Ministry of Interior, and the U.S. Government.