Legal Analysis of the Arbitration Clause in International Oil Contracts with Emphasis on the Iranian Legal System

Abstract

International oil contracts, as one of the most significant instruments for the exploitation of hydrocarbon resources, play a fundamental role in the economies of oil- and gas-rich countries, particularly Iran. Due to the transnational nature of these contracts and the involvement of foreign parties, the determination of dispute settlement mechanisms is of paramount importance, and the arbitration clause has emerged as the most common mechanism for resolving disputes in this field. Nevertheless, the enforcement of such clauses within the Iranian legal system faces several challenges rooted in specific interpretations of national sovereignty over natural resources, the expansive interpretation of the concept of public policy, and the lack of harmony between domestic regulations and international standards. The objective of this study is to analyze the legal nature of the arbitration clause in international oil contracts and to examine the obstacles to its enforcement under Iranian law. The principal research question is: What is the legal nature of the arbitration clause in international oil contracts with emphasis on the Iranian legal system, and why does its enforcement face challenges despite existing legal capacities? The findings indicate that although Iranian laws, particularly the International Commercial Arbitration Act, possess the capacity to recognize and enforce arbitral awards in oil disputes, a restrictive interpretation of public policy, political sensitivities associated with natural resources, and the absence of a coherent judicial practice have reduced legal predictability. The conclusion of this article demonstrates that through the reform of certain legislative and judicial approaches, a narrower interpretation of public policy, and greater convergence with international standards, Iran’s position within the international arbitration system can be strengthened and the legal security of investment in the oil sector can be enhanced. This study employs a descriptive-analytical method and relies on library-based sources as well as the examination of arbitral and judicial practices to analyze the subject matter.