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Freshfields Risk & Compliance

| 6 minutes read

Increased investment protection: The ratification of the Iraq-UAE BIT


Iraq has historically proven to be a challenging market for investors. Investment protection treaties such as bilateral investment treaties ('BITs') aim to mitigate risks by protecting investments made by foreign investors from one contracting state in the territory of the other contracting state.

Almost two years after the Iraq and the United Arab Emirates ('UAE') BIT was signed in October 2021, both states have ratified the treaty and all that is left now is for the instruments of ratification to be exchanged through diplomatic means by both the UAE and Iraq.[1] The investment protections under the BIT will be available to investors 30 days from the date on which this occurs.

Although Iraq signed its first BIT with Kuwait in 1964, it has been a relative latecomer to investment arbitration, ratifying the Convention on the Settlement of Investment Disputes between States and Nationals of Other States ('ICSID') in 2015, and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 2021. Excluding the Iraq-UAE BIT, it is a party to only five BITs currently in force,[2] and a further four signed but not in force.[3] In contrast, the UAE has signed over 100 BITs, with 73 in force, evidencing its commitment to establishing an investor-friendly environment.

In this blog post, we will consider the scope of protections under the Iraq-UAE BIT and practical considerations for businesses seeking protection under it when it formally enters into force.

Scope of application

Under the Iraq-UAE BIT, a claimant must demonstrate that it is a qualifying ‘investor’ holding a qualifying ‘investment’ within the terms of the BIT to benefit from its protections. The scope of protections granted to investors and their investments is wide as the definitions of ‘investment’ and ‘investor’, be it ‘natural’ or ‘legal’ persons, are broad.[4]

Importantly, protections under the BIT will not be available to investors:

  • if the main purpose of acquiring the nationality of the respective contracting state is to obtain benefits under the BIT that would otherwise not be available to them; or
  • if the investor structures their investments through intermediary countries that do not have diplomatic relations with the host state and do not have tangible commercial activities in the host state.[5]

The first of these limitations potentially restricts the structuring of investments through empty shell special purpose vehicles solely to obtain the benefits of the BIT, rather than for other legitimate purposes. Nevertheless, it should be possible to address this requirement by suitably documenting the reasons for structuring an investment in a certain way. Moreover, this prohibition appears to be structured as a denial of benefits clause, requiring notification for it to be relied upon.

When it comes to ‘investment’, the Iraq-UAE BIT provides protection to a non-exhaustive list of assets that must benefit the national economy of the host state. This list includes tangibles, rights, and financial instruments in the form of loans, bonds, and shares.[6] While business concessions and guarantees by legislation (or by contract) are protected investments, those relating to natural resources in the case of the UAE, or investments in the fields of oil and gas extraction and production in the case of Iraq, are specifically excluded from protection under the BIT.[7] Oil and gas extraction and production comprise a considerable portion of foreign investment in Iraq, and so this exclusion is noteworthy and demonstrates a desire to maintain full sovereignty over these industries. A similar exclusion appears in several UAE BITs, with the Israel-UAE BIT excluding the exploration and exploitation of natural resources (with natural resources specifically stated as not including renewable energy)[8], whilst the Hungary-UAE BIT excludes concessions to search for, extract, cultivate, or exploit natural resources from the definition of investment.[9]

The exclusions in respect of natural resources and oil and gas extraction are positioned within the list of investments under ‘business concessions and guarantees established by Law, Contract, or any other license granted in accordance with the Law’.[10] This begs the question whether other forms of investments in the extractive oil and gas industries (eg a shareholding in a company involved in that business) are not in fact intended to be excluded.

Substantive protections available under the BIT

The Iraq-UAE BIT contains the usual protections that investors would expect from an investment protection treaty, including:

  • fair and equitable treatment and full protection and security;[11]
  • most-favoured-nation treatment, although the BIT expressly states that it does not apply to investment dispute settlement mechanisms specified in other international investment agreements and also does not cover ‘procedural’ rights;[12]
  • protection against expropriation, nationalisation, or measures having equivalent effect without prompt, adequate, and fair compensation;[13] and
  • free transfer of profits and returns, subject to a right of curtailment if the host state needs to protect its balance of payments or whenever it deems it necessary to impose measures against free transfers.[14]

In line with newer generation BITs, the Iraq-UAE BIT also contains the traditional security provision with an added condition that any contracting party can take necessary measures to protect the environment against pollution.[15] As both states are major energy producing and exporting countries, it remains to be seen how this provision will be invoked as a defence in any prospective disputes.

Dispute resolution

The BIT provides for the resolution of disputes between investors and the state to be settled through either (i) the court of the host state, (ii) ICSID, or (iii) a special arbitral tribunal composed under the Rules of the United Nations Commission on International Trade Law.[16] This position is consistent with many BITs.

Investors are precluded from filing a suit against the host state where a final judicial or arbitral award is issued, thus subject to res judicata,[17] and ‘[t]he Plaintiff choice of the dispute settlement method shall be final.[18] This is a fork-in-the-road provision, limiting an investor to choosing only one of the agreed dispute resolution procedures. This may block access to international arbitration if the investment dispute in question has been brought before the local courts. Article 9(9) also imposes a limitation period of five years on claims, starting from the date of knowledge of the dispute subject matter (or when the investor ought to have known of the dispute).

Restructuring to benefit from the Iraq-UAE BIT

Investment in Iraq inherently carries significant risks and the potential access to investment treaty protections will be important to existing and potential future investors as well as to political risk insurers. One particular area of concern relates to heightened tensions between the Central Government of Iraq and the Kurdistan Region of Iraq, particularly as to the management and export of oil and gas from the Kurdistan Region. In this regard, the BIT may provide important protections to investors operating in the Kurdistan Region seeking recourse in relation to measures taken by the Kurdistan Regional Government or at a federal level. This is subject to the exclusions in relation to oil and gas extraction and production in Iraq mentioned above, albeit as noted, there is potential scope to work around those restrictions.

While it is always preferable to properly structure an investment at the outset, the protections apply to investments entered into either before or after entry into force of the BIT. It is thus possible to restructure investments in order to gain treaty protections. However, the BIT expressly states that it will not apply to investment disputes arising prior to its entry into force or to acts or facts arising before its entry into force.[19] This is consistent with the general principle under international law of non-retroactivity of treaties. Therefore, if an existing investment was not planned with investment protection in mind, it is possible (and advisable) to evaluate the strength of any protections available and, if necessary, consider appropriate restructuring options before any potential disputes may arise in the future.


The ratification of the Iraq-UAE BIT aims to encourage reciprocal foreign investment and enhance the investment protection landscape for Iraqi and UAE investors. Whilst the BIT is a step in the right direction, investors will need to carefully examine the protections granted and scope of application, in particular the exclusions, to maximise their chances of relying on the protections afforded. By understanding how to structure investments to benefit from available investment protection treaties, foreign investors can mitigate their risks and place themselves in the strongest possible position for a negotiated solution in the event of a dispute.


[1]         Article 16, Iraq-UAE BIT (2021).

[2]    France-Iraq BIT (2010); Japan-Iraq BIT (2012); Armenia-Iraq BIT (2012); Kuwait-Iraq BIT (2013); and the Belarus-Iraq BIT (2014), respectively.

[3]      Germany-Iraq BIT (2010); Jordan-Iraq BIT (2013); Iran-Iraq BIT (2015); and the Saudi Arabia-Iraq BIT (2019), respectively.

[4]         Article 1.

[5]         Article 13.

[6]         Article 1(1).

[7]         Article 1(1)(g).

[8]         Section A, Israel-UAE BIT (2020).

[9]         Article 1(1)(e) Hungary-UAE BIT (2021).

[10]       Article 1(1)(g).

[11]        Article 2(3).

[12]       Article 3(2)(c) and (3).

[13]       Article 5.

[14]       Article 6(4).

[15]       Article 10(6).

[16]       Article 9(2).

[17]       Article 9(8).

[18]       Article 9(6).

[19]    Articles 12(1) and 14, respectively. The BIT also contains a sunset clause providing that, upon its termination, investments remain under its protection until the end of the projects’ life as agreed upon in the respective contract. See Article 17(2).


disputes, energy and natural resources, foreign investment, global financial investors, governments and public sector, international arbitration, investment, middle east, trade, arbitration