The issue of resource nationalism: risk engineering and dispute management in the oil and gas industry

Resource nationalism has historically proved to be a cyclical phenomenon, and it is not new. In various geopolitical contexts and situations, it has tended to assert the nation-state’s sovereign authority over the upstream (and often even downstream) activities of international oil companies (“IOCs”) in the petroleum industry. The specter of resource nationalism has often appeared with resource scarcity (whether manipulated or not) and the consequent increasing energy prices in the world market. World politics could often be the driver behind it. The events of the 1970s leading to the demand for a New International Economic Order (“NIEO”) by the developing world and of the recent past in Latin America and Russia divesting IOCs of their properties in those countries are the grim reminders of resource nationalism. Such a phenomenon is certainly a big risk factor for IOCs, and it leads to disputes between IOCs and their host states. There are ways and means—legal and extra-legal—by virtue of which such risks may be tackled. The purpose of this article is to discuss these so that IOCs find them as useful tools for the purpose of protecting their interests in this vulnerable situation. The article first discusses the meaning of resource nationalism; it then proceeds to examine the role of the rule of law in the event of resource nationalism. This is followed by an appraisal of the risk management toolbox, i.e., the legal and extra-legal means of risk and dispute management. The article then concludes with some remarks. This article is written from the perspective of IOCs or foreign investors and will be concerned with the means that could be at their disposal. It will not deal with treaty aspects, the control of which lies immediately beyond their remit and is in a different sphere, as these are interstate matters, although these may bear on the relationship between the host state and IOCs.