Interaction between the superconductor and ferromagnet in MgB2/Fe wires results in either a plateau or a peak effect in the field dependence of transport critical current, Ic(H). This is in addition to magnetic shielding of external field. Current theoretical models cannot account for the observed peak effect in Ic(H). This paper shows that the theoretical explanation of the peak effect should be sought in terms of interaction between superconductor and magnetic domain structure, obtained after re-magnetization of the iron sheath by the self-field of the current. There is a minimum value of critical current, below which the re-magnetization of the iron sheath and peak effect in Ic(H) are not observed.