Costain chief executive Stuart Doughty confirmed that this was the reason for the firm's change of heart. He said: "Nobody wants to be in Iraq because of the level of security needed. Until the place is secure, we will not be going."
Doughty added that Costain was still in talks with US contractor Kellogg Brown & Root, a subsidiary of Halliburton, about working on future subcontracts. Stephen Prenderghast, managing director of Costain's international business, was in Iraq this week for talks with representatives of the US company.
Doughty said it was unlikely that much work in Iraq would start until some time next year, by which time security should have improved.
The firm also said work on the Channel Tunnel Rail Link was back on track after a delay earlier this year, caused by a 10 m hole that appeared at Stratford, east London.
Doughty made his comments after Wednesday's announcement of Costain's interim results.
Pre-tax profit for the six months to 30 June was £6.1m, an increase of £1.4m on this period last year. Turnover rose 17% to £296.4m.
Chairman David Jeffries said the business was now heading in the right direction after heavy losses of more than £600m during the 1990s. He said: "The recovery phase is complete. Our strong forward order book will stand us in good stead for the second half and we are confident of a good result for the full year."
The firm's order book stands at £820m – 85% of the contracts are tied up with partnering and framework deals. Earnings per share rose 15% to 1.5p.