Long-term energy contracts face mounting risks at Istanbul Arbitration Days

Arbitration specialists gathered in Istanbul on Friday for the third day of Istanbul Arbitration Days warned that geopolitical instability and volatile commodity markets are placing unprecedented strain on long-term energy contracts, forcing practitioners to reassess risk allocation mechanisms across the sector.

Speaking at a panel titled "Across the Energy Sector: Disputes, Contracts and the Issues that Matter," participants examined challenges spanning sanctions exposure, investment protection, decommissioning obligations and damages calculation methods. The discussions highlighted how contractual assumptions drafted during stable market conditions have become flashpoints for litigation as commodity prices fluctuate and regulatory frameworks shift.

Contract drafting amid market volatility

Timothy Smyth, a partner at Boies Schiller Flexner LLP, cited the dispute surrounding Chevron's acquisition of Hess as evidence that precise contractual wording can determine the outcome of major transactions. The case centered on ExxonMobil's assertion that the deal triggered pre-emption rights under a joint operating agreement covering Hess's stake in Guyana's Stabroek Block. "The important thing to note here, I think, for practitioners and for participants in the energy sector is a lesson on contract drafting," Smyth said, emphasizing that change-of-control provisions must account for various corporate transaction structures.

Smyth added that price-review mechanisms have become essential in long-term gas agreements as geopolitical shocks reshape energy markets, noting that modern contracts should explicitly allow for price reopening to reflect dramatic shifts. Murat Erbilen, senior partner at Lexist, pointed to recent LNG disputes showing how tribunals examine risk allocation mechanisms rather than simply revising uneconomical agreements. Erbilen identified decommissioning as a growing long-term liability for oil and gas assets, where obligations may emerge decades after signing. "The lesson is simple: decommissioning should be treated as a core part of the project's risk allocation from day one," he said.

Investment protection and dispute preparedness

Paul Hinks, CEO of Symbion, addressed systemic risks facing energy investors across Africa, where disputes frequently involve state utilities and government entities. He argued that bilateral investment treaties and access to investor-state arbitration can provide critical leverage beyond contractual rights when local enforcement proves difficult. Hinks urged companies to evaluate treaty protections during initial investment structuring rather than treating them as afterthoughts when conflicts arise.

Basar Sahin, general manager of ICM Consulting Ltd., cautioned that companies often initiate arbitration preparations only after disputes escalate, creating evidentiary gaps when contemporaneous records, contractual notices and technical data are missing. "When contracts lack strict notification enforcement, precise technical specifications and mandatory data transparency, informal workarounds replace real-time documentation," Sahin said. Erbilen noted that changes to the Energy Charter Treaty are prompting investors to seek alternative protections including bilateral treaties and political risk insurance. "The end of the ECT era in parts of Europe does not mean the end of investment protection for energy projects," he said.

The panel also examined complex damages calculation methodologies in energy arbitration. Smyth noted that tribunals weigh commercial realities including project operating history, comparable ventures and valuation dates when assessing lost profits, with the selected valuation date significantly affecting awards when commodity prices have moved sharply. Erbilen added that tribunals generally resist simply revising contracts because economics have changed, focusing instead on how parties allocated risks through their original agreements.