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The Treaty That Never Entered Into Force

  • Writer: Aişe Gül Akkoyun
    Aişe Gül Akkoyun
  • Sep 26, 2025
  • 4 min read

Updated: Aug 5

What ExxonMobil's claim over Sakhalin-1 reveals about arbitrating against Russia.

Background

ExxonMobil has retained Three Crowns for a multibillion-dollar arbitration against the Russian Federation concerning the loss of its interest in the Sakhalin-1 oil and gas project.

The sequence is well documented. Exxon held a 30 per cent stake and operated the project. In April 2022, following the invasion of Ukraine, the company took an impairment charge of approximately USD 4.6 billion on the asset. In August 2022 a presidential decree established a new Russian operating entity and provided for the transfer of participating interests to it. Exxon's interest was transferred without its agreement, and the company treats what followed as an expropriation rather than a negotiated exit. It has said it does not plan to re-enter the Russian market. The deadline for disposal of the stake has since been extended, most recently to 1 January 2027.

The dispute is among the largest currently in play in the energy sector. It is also an unusually clear illustration of a problem that receives less attention than it deserves: what happens when an investor with an enormous and well-evidenced loss has no investment treaty to invoke.

Russia's unusual treaty position

Most commentary assumes that a foreign investor expropriated by a State has a treaty route. For Russia, that assumption fails in three directions at once.

The United States and Russia signed a bilateral investment treaty in 1992. It never entered into force. There is therefore no US-Russia BIT to invoke, and an American parent company cannot rely on one.

Russia signed the ICSID Convention in 1992 but never ratified it. ICSID arbitration against Russia is unavailable regardless of the underlying instrument.

Russia applied the Energy Charter Treaty provisionally and then terminated that provisional application, effective in 2009. The Yukos proceedings turned in large part on whether provisional application nevertheless bound Russia for investments made earlier, and produced the largest damages award in the history of investment arbitration, approximately USD 50 billion across three related cases. Those awards have been litigated in national courts ever since, which is itself the point.

So the treaty layer that most investors take for granted is, for Russia, partly absent and partly contested.

What is left is the contract

What remains is the arbitration clause in the underlying project documentation. Sakhalin-1 operates under a production sharing agreement, and a PSA of that vintage will contain its own dispute resolution provision, typically ad hoc or institutional arbitration at a neutral seat.

That changes the character of the claim in ways worth being precise about. A contract claim is governed by the terms the parties actually agreed rather than by treaty standards such as fair and equitable treatment. Confidentiality is generally tighter. The claimant is the contracting entity rather than the ultimate parent. And the respondent may be a State entity rather than the State itself, which matters at enforcement.

The enforcement problem is the real problem

Winning is not the hard part in this category of dispute. Collecting is.

An award against Russia or a Russian State entity has to be enforced against assets located somewhere a court will cooperate. Sovereign immunity from execution protects assets used for governmental purposes. Sanctions regimes complicate both the proceedings and any eventual payment. And the Yukos experience demonstrates that a State willing to litigate every enforcement attempt can keep an award unpaid for well over a decade.

This is where the empirical picture diverges sharply from the doctrinal one. Success rates measured at the award stage tell you who was right. They tell you very little about who was paid.

What would be worth measuring

  • Instrument type: across post-2022 claims arising from Russian measures, what share rest on treaties, on contracts, and on domestic law?

  • Respondent identity: is the named respondent the State, a State entity, or a private successor operator?

  • Time to payment: for awards against States generally, what is the distribution of the interval between award and satisfaction, and how many are never satisfied?

  • Sanctions interaction: how often do sanctions regimes delay or block enforcement independently of immunity arguments?

The third of these is the least available and the most important. Institutional statistics record outcomes. They do not systematically record compliance, and the gap between the two is where the credibility of the system actually sits.

The open question

Investment arbitration is often defended on the ground that it depoliticises disputes: an investor takes a claim to a tribunal instead of asking its home government to intervene.

The Exxon situation inverts that. There is no treaty, the contract route is narrow, enforcement against a sanctioned State is close to theoretical, and the reported settlement discussions have involved governments on both sides. The dispute has been repoliticised, not because the system failed but because the system was never available.

Which raises a question the reform debate rarely addresses directly: what proportion of the world's most consequential investment disputes fall entirely outside the regime we spend our time analysing?

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