International energy investments and unrecognized states: opportunities and risks for private actors

The recognition of an entity as a state is pivotal in international law. Whether it be that recognition grants statehood or merely confirms a state’s legal existence, it has important implications for the concerned entity and for the entire international community. This article analyses the impact of non-recognition on private energy companies holding investment interests in areas of disputed jurisdiction. A sovereignty dispute is, in itself, a source of tension between the concerned state entities. But this tension also extends to non-state actors operating in the disputed area. A series of risks arise for private interests, not only amid the dispute between the concerned entities but also after its potential settlement. The crucial question is what legal or commercial means can protect private interests from disturbance or discharge. In this article, these issues are discussed in the context of two case studies: the dispute between the Greek and Turkish communities of Cyprus, and that between Israel and Lebanon. A comparison between these cases brings to light a number of important considerations for companies operating or seeking to operate in areas with similar disputes. The article concludes that, although various legal mechanisms are available for the protection of private interests, their efficacy is uncertain. International law primarily protects the interests of states rather than non-state actors. Also, depending on the specifics of the dispute, the degree of recognition between the state entities and their participation to international treaties, the commercial value of resources, and the stage of operations, an area may be suitable or completely incompatible with the investment portfolio of a company. As a result, before expressing their interest in an area of uncertain jurisdiction, energy companies must do their due diligence and develop a risk mitigation strategy. Unfortunately, no risk mitigation mechanism is perfect in such complex situations. A company may eventually have to abandon an area if relations between the concerned state entities deteriorate