The Impact of Pandemics on Oil Contract Disputes

Abstract

This study aims to elucidate the effects of force majeure on oil contracts and the ensuing disputes that have impacted the production, export, and import of oil. Consequently, this has led to breaches of obligations and rights among the parties involved. Our research is anchored by a case study of force majeure represented by the COVID-19 pandemic. We examine certain provisions within national legislations and oil contract clauses that reference the concept and conditions of force majeure. This is to demonstrate the resultant effect of contract suspension before entering the negotiation phase due to force majeure, thus avoiding contract termination as indicated by national laws, to sustain the contract’s objectives. This negotiation process is detailed in numerous contracts and international arbitration decisions. Subsequently, we will elucidate the impact if parties fail to reach an agreement through negotiation, leading to arbitration—a method ubiquitous in oil contracts for dispute resolution. Moreover, we will discuss the pandemic's effect on arbitration, transitioning from in-person to virtual arbitration, thereby transcending spatial and temporal boundaries in resolving disputes. Hence, we adopt the descriptive and analytical methodology to depict the doctrinal and legal debate concerning force majeure and its impact on oil contracts. Our analysis includes contractual and legal texts specific to Iraq and several Middle Eastern countries regarding the application of force majeure and its impact on contracts. We also employ a comparative approach regarding legal texts on force majeure and dispute resolution methods through negotiation and arbitration in Iraq and some Middle Eastern countries. The goal is to establish clear foundations to avoid future dispute resolution complications and strive for specialized legislation and agreements related to arbitration during such crises. Additionally, we aim to draft contracts emphasizing negotiation and arbitration to protect the public interest from similar future crises and keep pace with the advancements in national legislation of developed and neighboring oil-producing countries. Thus, we have divided this study into two sections: the first addresses the impact of the COVID-19 crisis on oil contracts, and the second explores its effect on resolving oil contract disputes.