International Commercial Arbitration in the Middle East

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Written by: Nicole O’Donnell

Arbitration has long been used in the Middle East as a key method to dispute resolution. “In the Pre-Islamic Arab Community, self-help tended to be the most relied upon form of dispute resolution.”[1] If self-help mechanisms failed, a “hakam (an arbitrator)” was appointed, and “the parties [would] then put up a meaningful form of security . . . to ensure compliance with the hakam’s decision.”[2] There are three cases that are said to have substantially impacted modern arbitration practice in the Middle East due to decisions that were unfavorable to state governments,[3] referred to as the “Libyan Nationalization Cases.”[4]

The Libyan Nationalization cases all involved agreements between companies (specifically, LIAMCO, an American company; British Petroleum, a British company; and Texaco, an American company) and the Libyan government “for the exploration and production of petroleum.”[5] When the Libyan government was overthrown by Colonel el Qadhafi, “LIAMCO [as well as the other companies] w[ere] subjected to gradual measures restricting rights granted in the Concession Agreements, ultimately resulting in complete nationalization of all of [each company’s] physical assets and concession rights in Libya.”[6] Despite the identical factual circumstances of each case, each one was decided according to different procedural laws, causing confusion. In the BP case, the arbitrator held for “damages in cases of unlawful expropriation;” in the Texaco case, the arbitrator ordered that “Libya resume performance under the concession agreement;” and in the LIAMCO case, LIAMCO was awarded “equitable compensation on the basis of lost profits.”[7] As a result of the varying outcomes, “Arab countries became suspicious that international arbitration would not provide them a fair means of resolving their disputes.”[8] For example, Saudi Arabia forbids state entities from agreeing to arbitration without government consent.[9] That being said, however, the “global trend towards international arbitration” has resulted in increased acceptance of international arbitration in the Middle East.[10] This increased acceptance is demonstrated by the growing number of arbitration centers and arbitrations taking place in the region, particularly in Dubai.[11] Additionally, 2015 “saw Iraq’s noteworthy ratification of the ICSID Convention,” and 2016 “saw the inauguration of Saudi Arabia’s first international arbitration institution.”[12]

These arbitration-friendly advances are a reflection of “Middle Eastern governments’ recognition that a modern approach to dispute resolution is an essential element for attracting investors to the region . . . which is increasingly more pressing in light of falling oil prices.”[13] By showing a willingness to actively participate in the arbitration process and adhere to the NY Convention, States in the Middle East also encourage foreign investments, as “[t]he basis for arbitral jurisdiction in cases against Middle Eastern countries has most often been an investment treaty.”[14]

Currently, “[a]pproximately 18 percent of the just over 3,500 investment treaties currently in existence involve Middle Eastern countries” making the region vital in the international arbitration and investment world.[15] Turkey has faced the highest number of investment claims in the region (accounting for nine out of the total 29 claims). Increased capital investments as a result of upcoming international events such as the 2022 World Cup in Qatar and the 2020 Dubai World Expo “evidence the magnitude of the construction industry in the Middle East”[16] and may result in more investment arbitrations taking place there. Thus, the arbitration framework in these nations is critical to the diversification of economies in the Middle East.



[1] Arthur J. Gemmel, Commercial Arbitration in the Islamic Middle East, 5 Santa Clara Journal of International Law 169, 173 (2006).

[2] Id.

[3] Id.

[4] Id.

[5] British Institute of International and Comparative Law, Case Summary: Libyan American Oil Co. (LIAMCO) v. The Libyan Arab Republic (U.S. v. Libya), (last updated in 2008).

[6] Id.

[7] supra note 1 at 178-79.

[8] Mayer Brown International LLP, Arbitration in the Middle East, at 1, (last updated December 2012).

[9] Id.

[10] Id.

[11] Id.

[12] Emma Lindsay and Claire Morel de Westgaver, International Investment Arbitration in the Middle East: Year in Review 2016, Bryan Cave LLP (February 1st 2017) , at 1,

[13] Id.

[14] Id. at 2.

[15] Id.

[16] Nasser Ali Khasawneh et. al, Construction Arbitration in the Middle East, Global Arbitration Review, Apr. 20, 2016, at 1.