By Manan Mishra.
Manan Mishra is 3rd-year B.A., LL.B. (Hons.) student at the National University of Study and Research in Law (NUSRL), Ranchi.
A report dated November 3, 2025, has seen a quantitative reality, which over the years has been developing a trend: the ever-increasing number of cases involving resource-related disputes between investors and governments stands at a 10-year high. This analysis suggests that the global energy transition is creating an unavoidable and inescapable ISDS liability for governments since they are being subjected to arbitration for both- the phasing out of the traditional energy sources, and the control of the new ones as well.
Keywords:
ISDS surge, energy-transition disputes, resource nationalism, critical-minerals arbitration, FET standard stress.
This empirical explosion is indeed paradoxical since it has occurred at a time when there was an overwhelming political and academic resistance. While the states and the academicians are arguing for reforms, the investors have accelerated its use, the number of known ISDS cases has more than doubled in the last ten years rising from under 600 at the end of 2013 to more than 1300 at the end of 2023. Institutional data confirms the resource focus. In 2024, the majority of new cases were related to the energy and extractives sectors, with over half of them being linked to the extraction and supply of energy, including 13 new fossil fuel cases and 6 in critical minerals. This trend was followed in 2025, with 43% of new disputes being in the oil, gas, and mining sector. The 2025 increase was primarily constituted by Latin America (11 disputes) and Africa (10 disputes) which are the exact places where the wealthiest and hottest reserves of both traditional hydrocarbons and the “new oil” of the 21st century, lithium, cobalt, and copper are located.
The Petitioners sought the impleadment of the Developer, arguing that its participation was necessary as it controlled maintenance operations. The Court allowed the impleadment, reasoning that the Developer derived direct financial benefit through revenue sharing, exercised pervasive control, and that the agreements were inextricably connected.
Critically, the Developer was neither a party to the Petitioners’ maintenance agreements nor any other agreement containing an arbitration clause. The Court appears to have majorly relied on the two aforementioned doctrines to justify impleading the non-signatory developer. In doing so, the Court cited the Supreme Court’s observations in ONGC v. Discovery Enterprises (“ONGC”), where it noted that non-signatories may be bound either on “consensual theories…and non-consensual theories (e.g. estoppel, alter ego).” This application, however, warrants closer examination.
The use of ISDS by ‘old energy’ investors is the most significant driver of the dispute surge in 2025. The fossil fuel companies have been the claimants in arbitration most often, accounting for almost 20% of all ISDS cases known to date. The UNCTAD (2024) revealing the addition of 13 new fossil fuel cases and DLA Piper (2025) indicating of 17 new ones in oil and gas have confirmed that this issue is not going away but is rather a persistent and structural feature of the ISDS landscape. The old energy investors are using the retrogression of investment treaties, most of which were signed in the 1990s, to secure their carbon-intensive assets, which, in turn, leads to a conflict with the states’ climate obligations of the 21st century.
One side of the legal spectrum is represented by the states, which, in pursuance of the Paris Agreement, are required to abandon the use of fossil fuels. The climate issue got more attention with the landmark ruling by the International Court of Justice (ICJ) in July 2025 Advisory Opinion, which confirmed that States are obliged to take actions according to their commitments not to harm the climate. At the same time, these countries are bound by thousands of treaties to provide “fair and equitable treatment” to the foreign fossil fuel companies’ existing investments. This scenario has resulted in the states being caught “between a rock and a hard place,” since the very actions they are required to take under the Paris Agreement are the ones that trigger billions of dollars worth ISDS claims.
The regulatory chill that resulted from such legal risks has become a major concern among academicians and politicians alike. The possibility of an ISDS claim, which could lead to awards of more than $600 million on average in fossil fuel cases, is a strong factor that discourages governments to impose ambitious climate measures. James Shaw, New Zealand’s former Climate Minister, stated that the ISDS litigation risk was a topic of cabinet-level discussions and “frequently talking about the risk that we would end up in litigation” ultimately led to the softening of the environmental regulations. The legal framework is most effectively used through the Energy Charter Treaty (ECT). Over the past few years, many European countries have declared their exit from the ECT on climate goals basis but they are still stuck with the “sunset clause“. The clause allows the investors to file cases for 20 years even after a state has withdrawn, which makes it possible for the “zombie” claims, that question important energy transition policies, to exist.
The second, and more novel driver of the increase in disputes in 2025 is the contest of powers and economies over the critical minerals. Minerals like lithium, cobalt, copper, and uranium that were previously insignificant have suddenly gained a huge and strategic value and have become the subject of a new wave of “resource nationalism” characterized by host governments taking over the resources through taxes and royalties. However, this is not the archetypal 1970s expropriation; the host states are claiming sovereignty in a more sophisticated manner by means of a wide range of policy and legal instruments and at the same time getting a greater share of the economic pie. The “new resource nationalism” comprises new mining laws, massive royalty increases, export restrictions, and nationalization of specific minerals deemed “strategic” (e.g., Mexico’s lithium nationalization in 2022).
This challenging government policy is also a reason for the resurgence of ISDS claims. Latin America, which has 11 new resource disputes, is leading the way with Colombia having four cases currently open, which have been mainly caused by President Gustavo Petro’s initiative to take care of the environment that has entailed complete bans on oil extraction and the creation of temporary nature reserves over existing mining permits. The Bacanora Lithium arbitration was set off directly by Mexico’s Mining Law amendments in 2022 that characterized lithium as a government monopoly. One of the most significant “mega-dispute” cases is in Panama. The dispute between First Quantum Minerals and Panama involves the Cobre Panama copper mine worth $10 billion. The issue arose from a Supreme Court ruling in late 2023, which unanimously ruled that the mine’s operating contract for 20 years was unconstitutional after public protests about the environmental issues and the national sovereignty had been taking place for weeks. Africa is the following hotspot with 10 disputes in 2025. In Niger, the state’s revocation of a permit for a major uranium project led to the Orano v. Niger arbitration, in which an ICSID tribunal issued a significant September 2025 order telling Niger not to sell, transfer, or otherwise dispose of the withheld uranium.
The situation concerning both “old” fossil fuels and “new” critical minerals as a result of the dual surge of disputes is nothing less than the traditional investment protection standards being put to unbearable and fundamentally contradictory stress. The Fair and Equitable Treatment (FET) standard, an ‘absolute’ and ‘non-contingent’ standard, is the most prominent and heavily litigated norm in international investment law.
The crux of the legal conflict has always been the investor’s wish for a stable regulatory environment versus the state’s indefeasible, sovereign “right to regulate” for the public good. It is a conflict that is now far from being just a hypothetical academic debate; it has become the principal issue in the 2025 wave of resource arbitrations and has caused what can only be termed as a “doctrinal whipsaw” for the FET standard. In “Stress Test 1,” fossil fuel investors are leading the way, and their argument is that by previously permitting fossil fuel investments, the states have created “legitimate expectations” of stability. They claim that such new climate measures, like coal phase-outs, violate these expectations and thus constitute a breach of the FET standard. In this scenario, FET is utilized to punish the states for their regulatory actions. At the same time, in “Stress Test 2,” investors in critical minerals assert that their licenses provided “legitimate expectations” of safety. They argue that state “resource nationalism” measures like the cancellation of licenses or, in some instances, the failure to clear protest blockades, violate these expectations and thereby infringe the FET standard. Here, investors exploit FET to penalize the states for their lack of regulation (that is, for not wielding state power to safeguard the investment). The state is thus exposed to liability for both action and inaction.
This scenario uncovers the fact that the “right to regulate,” despite being recognized by a great number of modern treaties as well as by legal scholars, is nothing more than an illusion in the absence of a “right to regulate affordably.” The chilling effect is not a result of the lack of the right to regulate, rather it stems from the potentially high cost that it might take to exercise the right. The presence of the nebulous notion of “legitimate expectations” ties the whole system now. Was an investor in 1995 legitimately expecting that the host country’s climate policy was going to stay the same for 30 years? Was an investor in 2018 justified in thinking that a country was never going to use its sovereign right to reclassify a strategic mineral? The wave of arbitrations in 2025 is a gigantic, investor-backed gamble that tribunals will keep interpreting “expectations” widely, thus providing the investment with more protection than the state’s right to govern.
The significant increase in resource-related arbitrations in 2025 is a clear sign that the international investment law regime, created in the late 20th century, is no longer adequate for the current needs of the international community. The regime was established for a period when the threat of a global climate crisis and a new struggle for the essential minerals needed to solve it were not anticipated. Nowadays, such disputes reveal a deep-rooted system imbalance in which the investors are virtually immune to all kinds of risks, including changes in policies and democratic judicial processes, while the host countries and their taxpayers have to cover the whole cost.
While the old system is slowly giving way under the pressure, it is the “new generation” treaties that are slowly but surely being recognized as the ones paving the way for a more balanced future. One such treaty that falls under the above category is the DRC-Rwanda BIT (2021), which is still not operational but has already started the reform process in the right direction. This new model comes with three major innovations. First, it acknowledges the state’s “right to regulate” for public welfare purposes, such as environmental protection and public health, in an explicit manner (Article 23). Second and most importantly, it shifts investor responsibilities from “soft” Corporate Social Responsibility principles to “hard” legal duties. Under this treaty, the investors are obliged to carry out Environmental and Social Impact Assessments, set up environmental management systems, safeguard human rights and comply with the basic International Labour Organization (ILO) standards (Articles 15-18). Third, it has special provisions for CSR (Article 14) where it is stated that the primary economic goal of an investment should not contradict the social and economic development goals of the host country, and it also adds clear anti-corruption rules (Article 12).
This paradigm shift, which is also echoed in more extensive undertakings such as the AfCFTA Protocol on Investment, strives to establish a new balance by connecting an investor’s right to protection with the fulfillment of its obligations. It would drastically change the legal relationship. The only drawback is that the reform may be “too little, too late” for the current crisis. The current disputes are all being handled by the courts based on the thousands of old, unfair treaties from the 1990s and the “zombie” Energy Charter Treaty. The legal and financial damage from the old system will, therefore, continue for decades, even as new models are being built.
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