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The 25-year comprehensive cooperation agreement between Iran and China has created a new framework for expanding economic, energy, infrastructural, transportation, and foreign investment collaborations. Given that a significant portion of these cooperative initiatives are based on foreign direct investment and the implementation of large-scale projects, establishing effective mechanisms to guarantee investors’ rights and to resolve disputes is of critical importance.
This article examines the legal frameworks governing investment arbitration, contractual guarantees, legal risks, and models for dispute resolution between states and investors.
Position of the 25-Year Iran–China Agreement in Investment Cooperation
The long-term 25-year agreement, known as the Comprehensive Cooperation Plan, constitutes a strategic and foundational document regulating economic, energy, financial, technological, and infrastructural relations between Iran and China. Unlike conventional bilateral treaties, this agreement is structural and long-term in nature rather than a temporary or project-based contract; therefore, it defines and organizes the trajectory of the two countries’ economic cooperation for the coming decades.
At the core of this agreement lies extensive and long-term Chinese investment in Iran—projects that have the potential to transform the country’s production capacity, exports, transportation systems, and strategic infrastructure. China, in recent years, has become the largest international investor in developing countries and, through implementing large-scale projects under the “Belt and Road Initiative,” has gained vast experience in managing energy, transport, telecommunications, and digital infrastructure projects. This experience provides Iran with an opportunity to meet its strategic needs in energy, transport, and emerging technologies through joint partnerships with Chinese investors.
The envisaged investments span a broad range of strategic sectors. The energy industry, including upstream and downstream petrochemical operations, occupies a central position. The development of oil and gas fields, modernization of refineries, and investment in the petrochemical industry are core elements that can significantly contribute to Iran’s economic growth. Transportation and transit infrastructure also hold particular importance, as upgraded railways, ports, and road networks can consolidate Iran’s role as a critical hub within China’s trade corridors. Additionally, information technology, telecommunications networks, smart cities, and data services represent crucial domains in China’s strategic plans. Long-term economic development projects such as industrial zones, renewable energy facilities, and investment partnerships in BOT or joint venture formats further broaden the agreement’s potential scope.
Within such an expansive and long-term framework, establishing a stable legal environment is vital. Investment in projects with extended horizons will succeed only if their legal and economic risks are carefully managed. Chinese investors in Iran face challenges stemming from potential changes in domestic laws, economic volatility, delays in project execution, sanctions-related difficulties, and conflict between the two countries’ legal systems. Therefore, sustainable investment requires both reliable safeguards for investor rights and clearly defined dispute resolution mechanisms.
In strategic projects, mere “political memoranda of understanding” or “cooperation declarations” are insufficient; it is necessary for each implementing contract under the agreement to explicitly determine the governing law, the competent dispute resolution forum, the applicable arbitration institution, and the procedural rules governing arbitration. In projects involving Iranian governmental or quasi-governmental entities, the enforceability of government or state-owned enterprises’ obligations must also be expressly guaranteed. International practice demonstrates that in China’s similar cooperation models with other states, international arbitration has consistently served as a key instrument for managing disputes and building mutual trust.
The Role of Investment Arbitration in Iran–China Relations
The expansion of economic cooperation within the framework of the 25-year agreement has elevated investment arbitration to a central issue in the legal relations between Iran and China. Although both countries have a long history of economic interaction, their respective approaches to investment arbitration, dispute resolution, and investor protection standards derive from distinct legal traditions. China, as one of the world’s most active countries in concluding bilateral investment treaties (BITs), has adopted a modern, investor-oriented approach, whereas Iran, despite its extensive experience in commercial arbitration, remains more cautious toward investor–state arbitration. Understanding these differences is essential for drafting project contracts under the framework of the 25-year plan.
Over the past three decades, China has executed more than 130 BITs, evolving from a conservative model into a comprehensive and investor-protective framework. China’s new generation of treaties clearly articulate standards of fair and equitable treatment, transparency, and non-discrimination, while protecting investors against both direct and indirect expropriation. These treaties emphasize prompt and adequate compensation in cases of nationalization—an especially critical point for long-term investments. Chinese BITs typically guarantee the free transfer of capital, profits, and contractual revenues, thereby reducing investors’ currency and banking risks. A core feature of these treaties is permitting disputes between investors and host states to be referred to international arbitration—commonly under ICSID, UNCITRAL, ad hoc arbitration, or CIETAC rules. Through its active role in ICSID and Belt and Road projects, China has embraced arbitration as a means of building confidence and reducing investment risks.
Iran, while not a party to the ICSID Convention, possesses an active domestic legal regime for arbitration. The country has signed over 60 bilateral investment agreements, many of which allow foreign investors to resort to international arbitration. Domestically, the Foreign Investment Promotion and Protection Act (FIPPA) authorizes parties to agree on international arbitration for dispute resolution and allows repatriation of profits and capital. In large-scale projects—particularly those in the energy, infrastructure, and transportation sectors—international arbitral institutions such as ICC, LCIA, TRAC, HKIAC, or SIAC are frequently designated as the forums of choice. Iran’s active record in commercial and project-based arbitration therefore provides a reliable legal foundation for application within the framework of the 25-year cooperation plan.
Investment Guarantees and Protections in Iran–China Joint Projects
Given the large-scale and capital-intensive nature of joint Iran–China projects under the long-term cooperation agreement, both parties require robust legal safeguards and guarantees. The success of such projects depends on effective protection mechanisms for Chinese investors in Iran, typically incorporated into the “project contract,” “finance agreement,” “investment agreement,” and their executive annexes.
Under Iran’s domestic investment laws, the government and governmental or semi-governmental entities acting as project employers are required to provide guarantees ensuring investor security. These include protection against expropriation or nationalization without compensation, assurance of profit and capital repatriation, and binding performance commitments by the Iranian side. In major projects, such undertakings are often supported or guaranteed by relevant ministries, state-owned enterprises, and state banks. Accordingly, a relatively reliable legal environment is available for Chinese investors, particularly in infrastructure and energy projects.
Conversely, Iranian investors participating in joint ventures within China benefit from China’s reformed investment regime. Through legal reforms and the establishment of free trade zones, China has created a system enabling foreign investors to enjoy national treatment, most-favored-nation treatment, and access to reputable domestic arbitration institutions such as CIETAC and SHIAC. In the context of strategic projects—especially those under the Belt and Road Initiative—the Chinese government occasionally provides policy-based guarantees, credit facilitation, or institutional backing for state-owned enterprises.
Insurance and risk coverage instruments further reinforce these protections. Chinese state insurers, notably Sinosure and China Exim Insurance, underwrite political, commercial, credit, and even payment default risks. Through such instruments, Iranian projects remain attractive and manageable for Chinese investors, notwithstanding sanctions or environmental volatility. Together, governmental guarantees, precise contractual frameworks, and insurance instruments form a multi-layered protection architecture for joint investments under the 25-year agreement.
Legal Risks of Investment under the 25-Year Agreement
Alongside wide-ranging economic opportunities, investments under the 25-year cooperation framework are subject to substantial legal and operational risks. If left unmitigated, these risks can lead to complex disputes and even project suspension. The foremost threat arises from international economic sanctions. Chinese investors in Iran inevitably face exposure to banking restrictions, transaction limitations, U.S. sanctions, and complications in payment channels. These constraints hinder project financing and elevate compliance risks for globally active Chinese entities, leading to increased financial costs and project delays.
Another major risk stems from possible amendments to Iran’s domestic regulations. Any change in tax, customs, land ownership, export, or private sector participation laws may affect the profitability of a project. Long-term investments require legal stability; sudden legislative alterations can disrupt the project’s economic equilibrium. Therefore, investment contracts often include “stabilization clauses” or “regulatory change compensation” provisions to mitigate such impact.
Moreover, Iran–China joint projects are exposed to the challenge of conflict of laws. Each project simultaneously falls under three sets of norms: Iranian law, Chinese law, and the law governing the contract. Determining the governing law and arbitral forum remains one of the most complex aspects of such contracts. Ambiguity in these matters can lead to conflicting interpretations—especially where a party is a sovereign or quasi-sovereign entity.
Operational risks further complicate project implementation. EPC and infrastructure contracts may face delays, technical disputes, quality issues, currency fluctuation effects, and payment disagreements. Though primarily operational, these problems frequently lead to arbitration or international claims due to their legal repercussions.
Overall, risk analysis of investments under the 25-year plan reveals that, despite significant economic potential, the absence of well-defined legal, insurance, and contractual mechanisms increases the likelihood of disputes and may diminish investment appeal. Effective arbitration frameworks, stabilization clauses, and risk coverage instruments are thus indispensable prerequisites for successful collaboration.
Dispute Resolution Mechanisms under the 25-Year Framework
Given the complex nature of Iran–China joint projects—largely consisting of EPC, BOT, financing, energy, and infrastructure agreements—a precise, predictable, and efficient dispute resolution system is essential. Experience from China’s overseas projects demonstrates that international commercial arbitration remains the most reliable and efficient tool for resolving project-related disputes. Within Iran–China cooperation, arbitration institutions such as ICC, HKIAC, SIAC, CIETAC, and the Tehran Regional Arbitration Center (TRAC) are commonly employed, valued for their institutional neutrality, procedural transparency, and expertise in technically complex project disputes.
In projects involving foreign direct investment and governmental entities, investor–state dispute settlement (ISDS) mechanisms may also be envisaged. Although the 25-year plan does not constitute an investment treaty in the traditional sense, project-level contracts may incorporate UNCITRAL-based or ad hoc arbitration arrangements. Under Article 19 of Iran’s FIPPA, foreign investors may also refer disputes to international arbitration, providing a legitimate domestic legal basis for such mechanisms.
A key feature of major project dispute resolution structures is the inclusion of pre-arbitration stages. Typically, a mandatory negotiation period of 30 to 90 days is followed by mediation under reputable international centers. These steps reduce costs, prevent escalation, and enable continued project performance. In some cases, a “Joint Dispute Resolution Committee” is established to handle operational issues before initiating formal arbitration.
Ultimately, while international arbitration remains the core mechanism for dispute settlement, limited recourse to national courts in Iran or China may be required for enforcement or urgent matters. The role of domestic courts is thus complementary, serving to enhance the effectiveness of arbitral proceedings.
Comparison with China’s Investment Models in Other Countries
To design an optimal framework under the 25-year agreement, it is instructive to examine China’s experience in other Belt and Road countries such as Pakistan, Saudi Arabia, the UAE, Turkey, and several African states. In these jurisdictions, international arbitration—particularly through Asian institutions like HKIAC and SIAC—constitutes the primary mechanism for dispute resolution. Furthermore, China consistently insists on “stabilization clauses” to shield investments from sudden legislative changes in host countries. Mutual guarantees, banking assurances, governmental support, and the application of international legal frameworks are also characteristic of China’s model. These precedents provide valuable guidance for structuring project contracts under the Iran–China framework, emphasizing China’s preference for a legally predictable environment with impartial arbitration and multi-layered legal protection.
Proposed Optimal Arbitration Model for Iran–China Projects
Considering China’s extensive experience in cross-border projects and the specific legal challenges in Iran, a hybrid arbitration model is recommended for contracts under the 25-year cooperation framework. The selection of an appropriate arbitral institution plays a key role in fostering mutual trust. For projects implemented within Iran, combining TRAC with a neutral foreign institution can produce a balanced arrangement. For cross-border or externally executed projects, HKIAC or SIAC are typically recognized as reliable and neutral institutions, while CIETAC may be appropriate where the dominant operations are located in China.
The choice of governing law should likewise be made with care. Selecting a neutral legal system, such as English law or the UNIDROIT Principles of International Commercial Contracts, can help minimize conflicts of laws and enhance predictability. Alternatively, Iranian or Chinese law may be chosen, supplemented with stabilization or adaptation clauses. Stabilization provisions are indispensable for long-term projects, given the potential for regulatory changes in both countries. Mechanisms such as the Freezing Clause or Economic Balancing Clause may be used to maintain economic equilibrium in response to legislative modifications.
Furthermore, including negotiation and mediation stages prior to arbitration can expedite dispute resolution and reduce project disruption. Comparative evidence from similar international projects indicates that more than half of disputes are amicably resolved during these preliminary stages without the need for formal arbitration.
Conclusion
The 25-year Iran–China agreement provides an exceptional opportunity for large-scale and strategic investment cooperation. Nevertheless, the complexity of such collaboration demands a meticulously structured legal framework ensuring both investor protection and reliable dispute resolution. International arbitration, due to its neutrality, efficiency, and enforceability, represents the most effective mechanism for resolving project, financing, and investment-related disputes. Complementary contractual elements—such as stabilization clauses, bilateral guarantees, and pre-arbitration negotiation and mediation stages—further mitigate legal and operational risks.
Ultimately, the practical success of this long-term cooperation hinges upon the extent to which project contracts are designed in alignment with China’s international experience, modern investment law principles, and Iran’s economic and regulatory context. A coherent, effective, and internationally consistent arbitration system will constitute the cornerstone of this strategic partnership.
