Long term contracts in the upstream oil and gas industry, of any sort, create a significant contact matrix scheme to specify duties and rights, and to allocate and reallocate specific risks between State and International Oil Companies (IOCs) as Concessionaires, among Concessionaires, Concessionaires and sub-contractors, Concessionaires and financial institutions, along suppliers and buyers. Considering the long term period of those agreements, the rise in the number of subsequent disputes becomes obvious, which then mainly need to be settled by Adjudication, Court Litigation, and more preferably International Arbitration. Considering the treble role of the Government (owner of petroleum responsible for contracting or licensing, responsible for the taxation of the petroleum, and responsible for the regulation of the contractual relationship between the State-IOC), the arisen disputes between State and IOC have a unique character.
Evaluating the most prominent conflict avoidance technical tools in Petroleum Contracts/Agreements (primarily Concession or PSA), including the stabilization of the contractual relationship, the re-adaption through renegotiation, and the internationalization of the dispute, it could be argued that the role of stabilization clauses in the Petroleum Agreement is not to practically prohibit a unilateral change of the Contract by the State, but to legitimately ensure appropriate compensation to the Contractor, thus internationalization of the Petroleum Agreement is crucial for its effectiveness.
It has been proved from “classical” petroleum arbitral awards that stabilization clauses “failed to provide investors with the level of security they expected to gain from having them in their contracts”[i], although significantly stabilization clauses could be more effective by internationalizing the dispute, stipulating lex arbitri outside the host state, and by securing Investment Treaty Protection (Bilateral Investment Treaty (BIT), Multilateral Investment Treaty (MIT), and ideally Energy Charter Treaty (ECT)).
Comparatively with stabilization clauses, the philosophy behind renegotiation is the appreciation of the continuance of the contractual relationship, thus the contractual relationship has a greater importance rather than the formal contract document itself. Allegedly, stabilization and contract adaption-renegotiation clauses may co-exist in the Petroleum Agreement as their objective is different, thus may contribute on the transactional stability, since the industry is constantly volatile in changes. [ii]
Considering the unique nature of the petroleum contract, significant changes in the assumptions underlying the original contract may arise, and such fundamental changes may drastically affect both or one party’s original expectations of profit/return from the operation and, in particular, the way the benefits from the project (“financial equilibrium”) have been divided between the parties”.
Undoubtedly, the state-investor relationship is based on trust; the Petroleum Contract determines the rights and the duties of the parties, and contract compliance strengthens legitimate expectations that their contractual arrangement will not be breached. When trust is absent, reputation is at risk of serious damage; states which breach their agreements repeatedly are “blacklisted” by discouraged risk-averse investors, as due to the competitive business environment of the upstream oil and gas industry, IOCs are becoming extremely vulnerable[iii]. Practically, petroleum agreement parties settling their disputes by International Arbitration or Court Litigation, they formally admit that they failed to manage efficiently their disputes, and moreover they destroy their business relationship through the antagonistic and antagonizing procedure of litigation/arbitration.[iv]
On the other hand, International Investment Agreements (BITs, MITs, and ECT) provided to IOCs and in general to oil, gas and energy investors an international arbitral jurisdiction enhancing their bargaining power.
Finally, even if the Petroleum Contract is well-drafted, with stabilization and/or renegotiation/equilibrium clauses, IIAs strengthens even more the protection; changed circumstances may affect significantly the bargaining power of the parties, as the rise and fall of resource nationalism that has been proved as a cyclical phenomenon[v]. Considering further that the significant role of the IOCs in the industry is seriously undermined due to significantly increased competition by National Oil Companies (NOCs) which made substantial progress and invested in wealth creation by have been classified as Global NOCs (GNOCs)[vi] , it is crucial for their competitiveness to substantially improve and strengthen their contractual and non-contractual relations with the host states, and strategically manage and settle arising disputes, evaluating appropriately their legal tools, developing a multi-faceted dispute management strategy, in order to avoid International Arbitration.  The multi-faced dispute resolution management shall include dispute resolution planning (development of renegotiation strategy, inclusion of a carefully-drafted Multi-Tier Dispute Resolution clause), and the effective management of political and social risks.

[i] Bishop, R. Doak. International Arbitration of Petroleum Disputes: The Development of a” lex Petrolea”. University of Dundee, Centre for Energy, Petroleum and Mineral Law and Policy (1997).
[ii] Qurashi, Zeyad A. “Renegotiation of international petroleum agreements.” J. Int’l Arb. 22 (2005); Salacuse, Jeswald W. “Renegotiating existing agreements: How to deal with “life struggling against form”.” Negotiation Journal 17.4 (2001); Berger, Klaus Peter. “Renegotiation and Adaption of International Investment Contracts: The Role of Contract Drafters and Arbitrators.” Vand. J. Transnat’l L. 36 (2003).
[iii] Wälde W. Thomas “Law, Contract and Reputation in International Business: What Works.” Bus. L. Int’l (2002).
[iv] Wälde W. Thomas “Efficient management of transnational disputes: Mutual gain by mediation or joint loss in litigation.” Arbitration international 22.2 (2006).
[v] See Stevens, Paul. “National oil companies and international oil companies in the Middle East: Under the shadow of government and the resource nationalism cycle.” Journal of World Energy Law & Business 1.1 (2008); Joffé, George, et al. “Expropriation of oil and gas investments: Historical, legal and economic perspectives in a new age of resource nationalism.” Journal of World Energy Law & Business 2.1 (2009); Maniruzzaman, Munir. “The issue of resource nationalism: risk engineering and dispute management in the oil and gas industry.” Tex. J. Oil Gas & Energy L. 5 (2009); Buchanan, F. Robert, and Syed Tariq Anwar. “Resource nationalism and the changing business model for global oil.” J. World Investment & Trade 10 (2009): 241; Jasimuddin, Sajjad, and Munir Maniruzzaman. “Reshaping international oil companies’ response mechanism to deal with the spectre of resource nationalism.” British Academy of Management Conference (2012); Vivoda, Vlado. “Resource nationalism, bargaining and international oil companies: challenges and change in the new millennium.” New Political Economy 14.4 (2009)
[vi] Respectively classified as GNOCs Petrobras, Equinor (former Statoil), CNPC/PetroChina, Sinopec, CNOOC. See further the analysis by Bagheri, Seyed Kamran, and Alberto Di Minin. “The changing competitive landscape of the global upstream petroleum industry.” The Journal of World Energy Law & Business 8.1 (2015).