CAR 2022 – Research Paper by Adam Powell

Foreign Direct Investment (“FDI”) is important for the development of economies, particularly in developing nations. Foreign investors are particularly attracted to the Middle East and North Africa (MENA) due to its significant hydrocarbon resources. Risks for investors in the extractive industries can be high due to the nature of exploration and development of such projects, with an added risk to foreign investors of both direct and indirect (creeping) expropriation by the Host Country (HC), or by war, conflict or other forms of ‘above ground risk’.

The enforcement of international institutional arbitration awards on behalf of International Oil Companies (“IOCs”) may be hindered in developing nations due to objections by the State, or contracting State companies, including for reason of public policy and/or sovereign immunity. Therefore, foreign investors should seek to take advantage of Host State guarantees under Bilateral or International Investment Treaties (“IITs”) entered into by the project’s HC and other States to promote FDI by way of investment protection.

IITs provide for substantive and procedural guarantees for nationals of the contracting States in relation to defined investments. Procedural guarantees can include an option for access to arbitration at the International Centre for Dispute Settlement of Investment Disputes (“ICSID”) and such awards are directly enforceable against a contracting State without review. Accordingly, it is crucial for IOCs to ensure that such procedural option is available under the relevant IIT and Most Favourable Nations (MFN) provisions, which are provisions within IITs which seek to equalise rights between states and foreign investors, may import such rights from other IITs in certain circumstances.

This paper will analyse the position of extractive industry investors from the United Kingdom (“UK”), the Netherlands and Singapore with regards to seeking to use best procedural guarantees, to protect FDI, under BITs and IITs in HCs such as the United Arab Emirates (“UAE”), Iraq, Iran, Saudi Arabia, Syria and Qatar.). This paper will demonstrate some of the difficulties for such investors to gain access to directly enforceable arbitration against the HCs. It will also demonstrate the importance of, but difficulty using, and relying upon, MFN clauses for access to arbitration.