Disputes in the petroleum industry are practically unavoidable. This is due to the growing number of foreign investments in the petroleum industry, especially in the first stage of the petroleum industry – upstream phase. Countries rich with hydrocarbon resources are aware of the tremendous importance of petroleum industry for their economy but do now possess the appropriate technical knowledge and experiences. Consequently, countries seek for foreign investors, which invest in their countries with their modern technology and experiences.
For this reason, exploration and production of hydrocarbons is mainly carried out by international oil companies, which are specialized in demanding petroleum projects. But a petroleum investment project is far from simply being carried out. The State, as the owner of hydrocarbon resources, grants participation rights to international oil companies, but it can also revoke them. The State, as the contracting party in energy sector, negotiates the terms and performs the investment contract, but it can also breach them. State as the legislator, controls the legal and financial framework in which the contract takes shape, but it can also have the power to change oil policy and the terms of the investment contract.
Due to its impartiality and flexibility, arbitration is the most common means of dispute settlement in the petroleum industry. Various international treaties offer an extensive protection for foreign investment and the possibility to settle their disputes with host state at International Centre for the Settlements of Investment Disputes, forum specifically specialized for investment disputes.