Authors: Charles Michel* and Thomas Charnotet**
| Jurisdiction: | Topics: |
Introduction
Every generation believes its crisis is unprecedented. Ours may, in fact, have a claim to that title. The world is more multipolar than at any point since 1945, yet multilateralism has rarely been so fragile. Old powers are under strain, new powers are asserting themselves, and the global balance is being redrawn in real time. Instead of coordination, we increasingly see coercion. Instead of solidarity, we see suspicion. And in too many places, the law of force is displacing the force of law.
This is not a passing period of instability. It is a structural rupture. The post-Cold War architecture: built on globalization, free trade, investment treaties and a rules-based order, is unravelling. Yet nothing has yet emerged to replace it. Until a new order emerges, uncertainty fills the gap. The consequences are felt everywhere: by states, businesses and citizens alike.
Where then, do companies and investors turn when diplomacy stalls, when courts are suspected of bias, and when trust between nations has all but evaporated? Increasingly, the answer is arbitration.
A Structural Shift, Not a Passing Storm
Several forces are reshaping the geopolitical landscape with direct consequences for commercial and investment relations.
The rivalry between China and the United States has become the defining axis of global affairs, playing out through tariffs, technology restrictions, control of critical raw materials, and competing claims over supply chains. The number of armed conflicts has reached its highest level since the Second World War, according to the Global Peace Index, with dozens of states drawn into conflicts beyond their own borders. Competition has also spread to new arenas: space, data, artificial intelligence, undersea cables… where the rules of engagement remain largely unwritten. Middle powers, unwilling to align automatically with either bloc, are asserting their own interests. And the institutions built to preserve peace, from the UN Security Council to the World Trade Organization’s appellate body, are increasingly paralyzed.
None of this is abstract for business. Sanctions regimes multiply overnight. Governments renationalize energy assets or rewrite subsidy regimes in the name of sovereignty. Supply chains are weaponized. Contracts signed in one political climate are performed, if at all, in another. Predictability: the most valuable asset in international commerce, is in short supply.
It is in this context that arbitration has become more than a technical dispute-resolution mechanism. It has become an instrument of stability.
Why Arbitration Fits This Moment
Arbitration rests on a deceptively simple idea: even when parties do not trust each other, they can agree to trust a process. Even when they disagree on the facts, they can agree on who will decide them. And even when the political relationship between two states has broken down, a legal channel can remain open.
The Iran-United States Claims Tribunal, established in 1981 in the aftermath of the hostage crisis, remains the clearest demonstration of this principle: two governments without diplomatic relations have nonetheless resolved thousands of claims through law rather than force. More recently, the South China Sea Arbitration between the Philippines and China (PCA Case N° 2013-19, Award of 12 July 2016), brought in front of the Permanent Court of Arbitration under the UN Convention on the Law of the Sea, showed that even a state which refuses to participate in proceedings cannot ignore their legal consequences, even if, as critics rightly note, enforcement of the award has remained largely symbolic.
Arbitration offers three features that diplomacy alone cannot:
- A binding outcome, rather than a negotiated compromise that may or may not hold
- The ability of parties to choose arbitrators with relevant expertise, rather than accept whichever court happens to have jurisdiction
- A mechanism to compartmentalize the legal dispute so that it does not automatically escalate into a diplomatic crisis. An investor able to seek redress through arbitration, rather than through its home government, is an investor who does not need its embassy to retaliate on its That, in itself, is a quiet contribution to international peace.
Arbitration at the Frontline of Resource and Energy Competition
Some of the clearest illustrations of how geopolitics now shapes arbitration come from disputes over natural resources and the energy transition.
In AsiaPhos Limited and Norwest Chemicals Pte Ltd v. People’s Republic of China (ICSID Case No. ADM/21/1, Award of 16 February 2023), two Singaporean claimants challenged China’s closure of phosphate mines that had been reclassified as a nature reserve. China defended the measure on environmental grounds; the claimants argued it was, in substance, a strategic assertion of control over critical minerals. The tribunal ultimately declined jurisdiction over the merits, finding that the underlying treaty’s restrictive arbitration clause limited its authority to disputes over the quantum of compensation rather than the legality of the measure itself, an important reminder that even where arbitration is available in principle, the scope of state consent can be narrowly drawn, and often decisively so.
A parallel story is unfolding in the energy sector under the Energy Charter Treaty. In 9REN Holding S.à.r.l. v. Kingdom of Spain (ICSID Case No. ARB/15/15, Award of 31 May 2019), a tribunal ordered Spain to pay approximately €41.76 million plus interest after it retroactively cut subsidies for solar power producers, one of dozens of similar claims arising from Spain’s overhaul of its renewables regime. Spain’s attempt to have the award annulled was rejected by an ICSID ad hoc committee in 2022. These cases are not isolated: they are part of a broader wave of more than fifty arbitrations testing the boundary between a state’s sovereign right to change its energy policy and the legitimate expectations of the investors.
That boundary has itself become geopolitically and judicially contested. In Slovak Republic v. Achmea BV (CJEU Case C-284/16, 6 March 2018), the Court of Justice of the European Union ruled that arbitration clauses in intra-EU bilateral investment treaties were incompatible with EU law. The reasoning was later extended to the Energy Charter Treaty itself in Republic of Moldova v. Komstroy (CJEU Case C-741/19, 2 September 2021). The result has been a fragmentedinvestment-treaty landscape precisely at the moment when energy-transition disputes were multiplying. The European Union has since moved to withdraw from the Energy Charter Treaty, even as arbitral tribunals and national courts: including in the 9REN enforcement proceedings before the US and Australian courts have continued, in many instances, to uphold awards rendered under it.
When States Walk Away and Why Few Really Leave
A recurring theme of this new geopolitics is the temptation for states to exit the system altogether when arbitration produces outcomes they dislike. Bolivia denounced the ICSID Convention in 2007, Ecuador in 2009, Venezuela in 2012, and Honduras, following a wave of claims linked to the “Próspera ZEDE (Zone of Employment and Economic Development)” special economic zone gave notice of denunciation in February 2024, effective that August.
Yet the record of these withdrawals is instructive. Venezuela has faced dozens of arbitrations since its denunciation, brought under UNCITRAL rules and enforced, where necessary, through the New York Convention rather than the ICSID Convention itself. Ecuador, having left in 2009 partly over concerns about sovereignty following adverse awards, rejoined the Convention several years later, precisely to restore confidence to investors.
Exiting the system does not exempt a state from arbitration. Instead, it pushes claimants onto other procedural tracks, while depriving the state of some of the advantages of the ICSID system, including: self-contained review process andlimited grounds for annulment. In many cases, the cost of leaving is greater than the cost of staying.
The tension between sovereignty and investor protection is not confined to withdrawal. In Salini Costruttori S.p.A. and Italstrade S.p.A. v. Kingdom of Morocco (ICSID Case No. ARB/00/4), the tribunal observed that foreign investment contributes to the host state’s economic development, and that international arbitration helps ensure that the legal protections granted to investors remain meaningful, even when political relations deteriorate.
In the long-running Kuwaiti investor dispute Mohamed Abdulmohsen Al-Kharafi & Sons Co. v. Libya, an ad hoc tribunal seated in Cairo awarded the claimant some US$935 million following the cancellation of a tourism project after Libya’s 2011 revolution: one of the largest awards ever rendered against a state in these circumstances. The case’s aftermath, however, is a cautionary tale about the limits of the system. The award was provisionally enforced by French courts, yet later set aside by the Cairo Court of Appeal for what it described as a grossly excessive damages calculation, and the parties have continued to litigate its enforceability in France ever since. Arbitration can deliver legal continuity where political institutions have collapsed but it does not, by itself, guarantee that a debtor state will pay, or that every court along the enforcement chain will agree on what justice requires.
Sanctions, War Clauses and the New Frontline of Enforcement
Perhaps nowhere is the entanglement of geopolitics and arbitration more visible than in cases touching sanctions and armed conflict.
Ampal-American Israel Corporation v. Arab Republic of Egypt (ICSID Case No. ARB/12/11) arose after repeated attacks on a gas pipeline during Egypt’s 2011 unrest disrupted exports to Israel. The ICSID tribunal found Egypt liable for failing to provide full protection and security to the investment. The case illustrates how tribunals are increasingly asked tobalance a state’s security obligations against an investor’s legitimate expectations of stability. Many bilateral investment treaties attempt to strike that balance through so-called “war clauses,” which oblige host states to compensate investors for conflict-related damage, while also recognising national-security exceptions that allow states to act without automatically incurring liability.
Russia’s war against Ukraine has generated a fresh surge of commercial and investment claims, testing doctrines such as force majeure and changed circumstances (rebus sic stantibus) in disputes over gas supply, pricing and expropriation.
Sanctions regimes have complicated even the simplest cases. In proceedings before the English Commercial Court concerning EU sanctions against Iran’s Ministry of Defense, a creditor holding an otherwise enforceable arbitral award was unable to collect payment, not because the award was contested, but because the debtor entity was sanctioned. Receiving payment would itself have constituted a breach of sanctions. Enforcement, in other words, is no longer a purely legal question. It has become entangled with frozen assets, capital-market restrictions and credit-rating consequences that governments can deploy, or suffer, well beyond the arbitral award itself.
The Foundations Still Hold…For Now
Arbitration does not replace national courts. It complements them. In the end, every arbitral award relies on national courts for recognition and enforcement. The strength of international arbitration ultimately depends not only on arbitrators and institutions, but also on the confidence and support of domestic legal systems.
Despite these pressures, the architecture of international arbitration has proven remarkably resilient. The 1958 New York Convention binds more than 170 states to a single, simple promise: an award rendered in one country will be recognized and enforced in another. The ICSID Convention counts 158 member states. Together, these conventions form two pillars of international arbitration. Around them, a sophisticated and pragmatic body of practice has grown, a quiet form of multilateral cooperation that has survived even as louder multilateral institutions have faltered.
That resilience should not be mistaken for invulnerability. The proliferation of procedural challenges, and what some practitioners describe as the gradual “judicialisation” of international arbitration, risks undermining the very qualities: speed, flexibility, finality, that make it valuable in the first place.
Aggressive procedural tactics may serve a client’s short-term interest in a given case. However, they do less to serve the long-term interest of preserving a mechanism that has, on the whole, served international commerce well. Reform efforts such as France’s ongoing modernization of its arbitration law led by Professor Thomas Clay, and UNCITRAL’s work on a possible multilateral investment court, reflect a recognition that the system must evolve if it is to keep the confidence it currently enjoys.
Conclusion
Arbitration will not end wars. It will not resolve the great-power rivalries reshaping our world, nor can it substitute the diplomacy needed to rebuild trust between nations. It could not, by itself, reopen a blocked shipping strait or restore a broken alliance.
What it can do, and does, is preserve a space in which disputes are settled by reason rather than by power, in which a contract signed between adversaries still means something, and in which even a defeated party can walk away having been heard by a neutral decision-maker rather than simply overruled by the stronger side. In a period when trust and predictability are becoming increasingly scarce, the two currencies that make international commerce possible deserve to be protected rather than taken for granted.
Every arbitral award, however modest the sum in dispute, is a small act of confidence in the idea that disagreements need not end in coercion. Defending the institutions that embody it: the arbitrators, the rules, the conventions, and the courts that enforce their outcomes, is not a technical exercise reserved for specialists. It is, increasingly, a matter of preserving one of the last remaining bridges between law and peace.
* Charles Michel is Senior Counsel at Clay Arbitration and the former Prime Minister of Belgium (2014-2019) and President of the European Council (2019-2024). A lawyer by training and a former member of the Brussels Bar, he has returned to legal practice after a distinguished career in European and international diplomacy. Drawing on his experience at the highest levels of government, he advises on complex international disputes at the intersection of arbitration, diplomacy, and geopolitics.
**Thomas Charnotet is a J.D. Candidate at Columbia Law School. He previously earned two master’s degrees in civil law from Sorbonne University, Sciences Po Paris, and ETH Zurich. His research and practice focus on international litigation, drawing on experience gained across Paris, New York, and Singapore.