Some 200 Iraqi political figures and members of foreign embassies have fled the Green Zone in Baghdad fearing that it may be invaded by hundreds of thousands of protesters enraged by the corruption and incompetence of the Iraqi government.

The demonstrators are followers of the radical Shia cleric Muqtada al-Sadr, who once fought the US occupation and has re-emerged over the past month as the one leader who can tap into popular rage against a kleptocratic elite that many Iraqis see as having ruined their country. Furious crowds outside the Green Zone, which has become a symbol of the isolation and luxurious lifestyle of the Iraqi leadership, have been shouting: “Let’s get rid of them, they are all thieves.”

“I don’t think the security forces would fire on the demonstrators if they broke into the Green Zone,” said a former Iraqi minister earlier this week. He believes that the protesters would probably target the mansions in which live leaders of the Dawa Party, the Shia party which dominates the government.

Marchers a week ago were confronted by serried ranks of riot police in white helmets defending checkpoints immediately outside the walls of the Green Zone, but the police stood aside and did not resist when protesters pushed forward.

The sense of crisis in Baghdad increased on Thursday when the Oil Minister, Adel Abdul-Mahdi, said he was transferring authority over the oil industry, on which Iraq is wholly dependent, to his deputy, citing “the anxiety and chaos” caused by the political situation. There have been street protests against government corruption in the past, but the current ones are far larger than before and are actively supported by a much wider part of the population who fear the state will not be able to pay their salaries. A Sadrist leader, who did not want his name published, told The Independent: “Muqtada al-Sadr could have overthrown the government a month ago if he had wanted to, but instead he is demanding that [the Prime Minister Haider] al-Abadi, dismiss his cabinet and appoint technocrats as ministers in order to stamp out corruption.”

Mr Sadr gave the government a 45-day deadline to introduce radical change which expires at the end of this month.

Mr Sadr, always a powerful force within the Shia community and with a bloc of 34 MPs in parliament, is presenting himself as a non-sectarian populist leader with a well-organised movement behind him. At his first mass rally in Tahrir Square in Baghdad on 26 February, he told the vast crowd: “This demonstration is the voice of the displaced people and the oppressed Sunnis. Abadi must carry out grassroots reform. Raise your voice and shout so the corrupt get scared of you.”

Although Mr Sadr could certainly get his followers to invade the Green Zone if he wanted to, he probably prefers not to carry out this threat for the moment, fearing that an invasion of an enclave full of palaces, wealthy houses and government offices could lead to mass looting, as notoriously occurred when Saddam Hussein fell in 2003. Instead he has set up three camps which are staging sit-ins at three gates into the Green Zone where 3,000 protesters, with identity cards issued by the Sadrist movement, are encamped.

Critics of the Sadrist movement say that it has itself had ministers in the government who are as crooked as the others. Corrupt officials in the banking system protect themselves by making fraudulent loans to people and parties that might prosecute them. There are also doubts about how far technocrats, however honest and professionally capable, would be able to have an impact on an administrative machine that is so dysfunctional and controlled by a mafia with wide networks of power and influence.

By one estimate, there are 25,000 Dawa Party members that run the government and have accumulated great wealth in the past decade. “Property prices in central Baghdad are as high as in London because there is so much dirty money looking for an investment,” said an Iraqi economist in Baghdad who wanted to remain anonymous.

The crisis is reaching a peak now because Iraq is rapidly running out of money due to the continuing low price of oil, even if this is slightly up on a month ago. Ministers say the problem is that salaries and pensions alone cost the government $4bn a month and oil revenues are only $2bn, so available financial reserves will run out later this year, though exactly when is disputed.

Almost all project and investment spending has been halted, but the Iraqi government still has to pay for seven million people through salaries or other benefits, with 660,000 working for the interior ministry alone. Many salaries, such as those of “ghost soldiers” who do not exist, are diverted to army officers or defence ministry officials.

Many jobs require little or no work and are part of a patronage-client system common to oil states, in which oil revenues stunt or eliminate all other forms of economic activity. “I am not sure you can say that Iraq has a private sector which is not dependent on the state,” said the Iraqi economist, noting that even the tomatoes in Baghdad markets are grown in Iran.

Mr Sadr’s blend of religion, economic populism and Iraqi nationalism is particularly appealing to Iraqis at a moment when oil revenues are far below what is necessary, despite oil production of 4.5 million barrels a day.