Legacy players embracing green energy: The Middle East’s strategic shift
At COP 28, more than 100 countries pledged to triple global renewable energy capacity by 2030.
As we approach COP 30, at the heart of the global energy transition, Middle East national oil companies (NOCs) and legacy energy giants are rapidly diversifying into renewables. NOCs are no longer treating renewables as a peripheral experiment. This shift is driven by ambitious regional visions – such as Saudi Vision 2030 and the UAE’s ambition for clean energy by 2050 – growing investor pressure, and the imperative of energy security.
The region is witnessing a surge in solar independent power projects, significant investments in lithium for battery value chains, and active participation in green hydrogen and carbon capture, utilisation, and storage initiatives. Omani, Emirati, and Kuwaiti NOCs are at the forefront, investing in solar, wind, and even geothermal projects, while also exploring biofuels and green hydrogen production. Saudi Arabia has also announced green hydrogen projects.
These opportunities do not simply require new technology; they demand an overhaul of the legal and contractual architecture that has underpinned the region’s oil and gas success for decades. Conventional power oil companies are now entering into complex, cross-border commercial arrangements with international partners, often operating in unfamiliar legal systems and regulatory regimes. The legal landscape is evolving as rapidly as the technology itself, demanding a new level of sophistication in risk management and dispute resolution.
This article explores the principal contractual, regulatory, and dispute-management risks that Middle East fossil fuel giants must navigate, and offers practical recommendations for in-house counsel charged with steering the transition.
New contractual risks: Renewables vs. fossil fuels
The transition to renewables introduces a host of novel contractual risks that differ markedly from those in the fossil fuel sector:
- Technology risk: The rapid evolution of energy storage, solar, and green hydrogen technologies brings uncertainty around performance guarantees and long-term reliability. Many projects rely on first-of-its-kind technology, with limited operational track records, increasing the risk of design and workmanship defects.
Solar modules, utility-scale batteries, and electrolyser stacks evolve faster than conventional upstream equipment, making performance guarantees moving targets, while “bankable” specification definitions can grow obsolete midway through construction.
Contracts must therefore marry outcome-based obligations (e.g., availability or round-trip-efficiency thresholds) with realistic defect-remedy regimes, tiered liquidated-damages caps, and flexible upgrade clauses.
- Joint ventures with global green tech firms: Legacy energy companies are increasingly entering joint ventures with international cleantech providers. IP ownership, tech-transfer restrictions, interface risk, and exit strategies top the agenda. Oil majors often seek decade-long payback profiles, whereas cleantech partners look for earlier monetisation. Misaligned horizons can derail ventures unless governance and deadlock clauses are watertight.
Arbitration clauses that preserve confidentiality and permit appointment of sector-specialist arbitrators are increasingly used to balance these asymmetries. The differing commercial expectations – long-term investment horizons for oil majors versus shorter cycles for tech firms – can be fertile ground for disputes.
- Offtake agreements and power purchase agreements (PPAs): Unlike traditional crude sales, renewable offtake agreements are more intricate, involving regulatory dependencies, indexation mechanisms, and stringent delivery obligations. The regulatory environment is often in flux, with government incentives and tariffs subject to change, further complicating contractual risk allocation.
Revenue under PPAs is exposed to curtailment, grid-connection delays, and changing tariff regimes. Indexation to inflation or merchant-power prices creates long-term volatility absent in crude sales.
Parties must ensure force-majeure and change-in-law provisions anticipate subsidy withdrawal, carbon-pricing rules, and evolving grid codes.
- ESG-linked financing: Financing related to environmental, social, and governance (ESG) criteria, whether in the form of “green” or sustainability-linked loans and bonds, forms part of the necessary mechanisms facilitating energy transition. The rise of ESG-linked financing structures introduces new legal obligations, often with default clauses tied to ESG-related key performance indicators. Failure to meet climate covenants can trigger cross-defaults and accelerate disputes.
When any of these elements falter – cost overruns from polysilicon shortages, defective dynamic cables in floating wind, or retroactive tariff cuts – arbitration is emerging as the dispute forum of choice. Neutrality vis-à-vis state-owned counterparties, the enforceability of awards throughout the GCC, and the ability to appoint engineering-literate tribunals has made it the preferred pathway for risk-conscious investors. Its confidentiality, enforceability across borders, and the ability to appoint arbitrators with technical expertise make arbitration particularly well-suited to the complex, international nature of renewable energy projects.
Shifting governance structures and intra-group disputes
Many NOCs have carved out discrete renewables subsidiaries or established dedicated clean energy arms. With this, new governance challenges emerge. Intra-group disputes may arise over resource allocation, intellectual property usage, and investment prioritisation. The involvement of Chinese or European partners in joint ventures adds a further layer of complexity, often resulting in multijurisdictional disputes.
This trend generates issues resulting from:
- Resource allocation tensions when legacy hydrocarbon assets compete with new-energy divisions for capital expenditure.
- IP use and branding conflicts as group entities seek to leverage established trademarks for emerging-technology ventures.
- Multijurisdictional complexity if different affiliates sign back-to-back contracts governed by divergent laws.
Tiered dispute-resolution mechanisms (amicable negotiations, executive escalation, mediation, then arbitration) aligned across corporate instruments – shareholders’ agreements, technology-licence deals, and EPC contracts – help to manage friction without endangering project finance schedules.
To address these risks, companies are increasingly adopting ring-fenced dispute resolution frameworks. Incorporating tiered arbitration clauses, escalation procedures, and bespoke governing law provisions is essential to manage disputes within hybrid corporate structures and across multiple legal systems. For example, carve-outs for expedited emergency arbitrator relief are critical where construction delays risk subsidy deadlines or grid-connection slots.
International investment and treaty claims
Middle Eastern energy companies are not only investing domestically but are also expanding abroad – developing wind farms in Egypt, solar parks in Morocco, and hydrogen projects in Europe. These outbound investments expose them to foreign regulatory risks, including the potential for adverse government action, changes in incentive regimes, and expropriation.
Investor-state dispute settlement mechanisms, often available under bilateral investment treaties, provide a critical safeguard. Legal teams must structure international investments to make sure the investor is able to take advantage of any applicable investment protections, including recourse to international arbitration, ensuring that disputes with host states can be resolved efficiently and impartially.
Recommendations to manage risk
Some of the ways you can manage risk are:
- Stress-test dispute resolution clauses: For all green energy ventures, carefully select the seat, arbitral rules, and governing law of arbitration. Ensure consistency across the contractual matrix, choosing arrangements that balance neutrality with enforceability in key asset jurisdictions. For example, harmonise governing-law choices across EPC, O&M, financing, and offtake contracts to avoid anti-suit skirmishes.
- Investment protection checklist: When structuring the investment, consider whether there are applicable investment treaties and the protections which they afford. Where there are no applicable investment treaties between the investor’s home state and the host state, or foreign investment laws, consider whether it may be possible to enter into a bespoke and individually negotiated international investment agreement with the host state.
- Deploy early case assessment tools: Implement robust risk assessment protocols at the contract negotiation stage to identify and mitigate potential disputes before they escalate. For example, deploy contract-management software linked to real-time project KPIs. Flag deviations that might trigger liquidated damages exposure, ESG covenant breaches, or change-order disputes.
- Collaborate on scenario analysis: Work closely with commercial teams to model the impact of regulatory disruptions, such as the withdrawal of feed-in tariffs or the imposition of ESG-linked penalties.
The shift from oil wells to solar farms and hydrogen hubs marks the most significant strategic pivot for Middle East fossil-fuel giants in a generation. The energy transition is not simply a matter of swapping oil rigs for solar panels. It is a wholesale transformation of business models, risk profiles, and legal strategies. For these companies, success in the renewables era will depend as much on legal innovation and dispute readiness as on technological prowess. By integrating arbitration-ready frameworks, monitoring regulatory volatility, and tailoring governance for new-energy ventures, legacy players can safeguard returns – and accelerate the region’s journey toward a low-carbon future.
In-depth 2025-238
