Is the Energy Charter Treaty Greece’s New Trireme?

[Danilo Ruggero Di Bella is a lawyer at Bottega Di Bella.]

This analysis outlines how Greece could raise a claim under the Energy Charter Treaty (ECT) against Turkey, following the latter’s trespass on Greek continental shelf. The analysis starts off reporting the recent developments in the Aegean Sea concerning the escalation of the conflict between the two countries. Then it argues why the ECT may play a role in solving this dispute and how it could be applied to leverage Turkey’s consent to arbitrate contained therein. Finally, it discusses what kind of claim could be articulated by Greece to stop Turkey’s encroachment beyond its maritime zones as well as the advantages of acting within an international procedural framework.

Factual background

This August, Turkey has sent a government-owned seismic survey vessel (the “Oruc Reis”) to waters between Crete and Cyprus, within Greece’s outer continental shelf. The deployment of the Oruc Reis has re-sparked regional tensions, particularly because the seismic survey vessel is operating in formation with a heavy Turkish navy escort of five surface combatants.

Last year, to back up its claims over the eastern Mediterranean, Turkey signed a controversial maritime boundaries agreement with Libya’s internationally recognized government and without Greece’s participation. This maritime demarcation agreement was highly detrimental to Greece and Cyprus and was denounced by all neighboring countries, including Egypt. The demarcation appears to lack any legal basis and is contrary to international law, notably because an international treaty cannot create obligations for third States, as per Article 34 of the 1969 Vienna Convention on the Laws of Treaties (VCLT).

At the beginning of this August, in an attempt to nullify the contentious Turkey-Libya maritime agreement, Greece has signed an agreement with Egypt designating an exclusive economic zone in the eastern Mediterranean between the two countries. Upon the signature of the Greece-Egypt agreement, Turkey immediately broke off negotiations on maritime boundaries with Greece, declared the Greek-Egyptian agreement “non-existent”, and started conducting a seismic survey campaign in the disputed area containing promising oil and gas reserves. Thus, Turkey’s search for oil and gas deposits in the eastern Mediterranean is encroaching on waters where Greece, Cyprus and also Egypt claim exclusive rights.

The Role for the ECT: its scope and extra-territorial application

 The Energy Charter Treaty (ECT) is a multilateral international agreement that provides a legal framework for cross-border energy cooperation. It promotes energy security throughout more open and competitive energy markets, while upholding the principle of States sovereignty over energy resources. The ECT applies to all aspects of commercial energy activities including trade, transit, investments protection and energy efficiency. This international instrument is legally binding and includes dispute resolution mechanisms for differences which fall within its scope of application and arise between a foreign investor and a host-State (Article 26) as well as between Contracting States (Article 27). Turkey and Greece are both Contracting Parties to the ECT.

Arguably, the current dispute between Turkey and Greece is not merely a boundary conflict, it is also and, probably chiefly, an energy dispute fueled by conflicting interests over oil and gas deposits. This becomes apparent by the fact that Turkish warships are escorting a seismic vessel prospecting for oil and gas in the contentious area. Accordingly, this energy-focused dispute between Turkey and Greece falls fair and square within the scope of application of the ECT.

Turkey’s acts of deploying its navy and a seismic vessel on Greece’s continental shelf may be in breach of several international obligations contained in Part III of the ECT. By destabilizing the legal and business environment for potential foreign investors in the energy sector in such an aggressive manner, Turkey is namely breaching Article 10 of the ECT providing for the fair and equitable treatment standard (FET standard). In the unfolding dispute at hand, the conduct of the Turkish navy can directly be attributable to Turkey under Article 5 of the Articles on State Responsibility, which ascribes the conducts of entities exercising public powers (like the navy) to the State.

As the breaches of the ECT – that are directly attributable to Turkey – have been actually occurring beyond Turkey’s territorial borders, doubts may arise in relation to the territorial application of the ECT to Turkey for its internationally unlawful and transboundary acts in Greece’s waters. However, international tribunals – constituted under the UNCITRAL Arbitration Rules – in several investment arbitrations resulted from Crimea annexation by Russia have already upheld the extra-territorial application of international investment agreements. This stance has been further confirmed by the domestic courts of Switzerland and the Netherlands enforcing those arbitral awards. Hence, the ECT – fundamentally, a multilateral investment agreement – may also have an extra-territorial application.

Hence, Greece may rely on Turkey’s unconditional consent to arbitrate given by virtue of Article 27 of the ECT, launch a State-to-State investment arbitration to be conducted under the UNCITRAL Arbitration Rules, and argue that Turkey’s acts of deploying its navy and a seismic vessel on Greece’s continental shelf are not in conformity with its international obligations contained in Part III of the ECT (primarily Article 10).

What type of claim under Article 27 of the ECT?

No Greek private or governmental investors in the offshore oil and gas sector in Turkey’s waters seems to have been directly harmed as a result of the Turkey’s unlawful and transboundary actions in question, nor has any Greek (private or state-owned) investors in the offshore oil and gas sector in Greece’s waters been affected yet by Turkey’s actions, so how could Greece file an investment claim against Turkey under the ECT? Further, Greece’s current offshore oil and gas concessions appear to be mostly located in the Ionian Sea and off south Crete island, hence, in areas far from the incursion of the Turkish seismic and warship vessels. Accordingly, Greece could not lodge a diplomatic protection claim to safeguard its nationals hindered by Turkey’s unlawful actions, nor a direct investment claim to protect the interests of a particular State-owned energy company.

However, Greece may well submit a claim for declaratory relief seeking an international ad hoc tribunal’s declaration that Turkey’s actions are in contravention of Part III of the ECT. This way Greece does not need to identify particular investors that have been already harmed by Turkey’s actions. It would suffice to argue, instead, that Turkey’s measures are not in compliance with the ECT and, accordingly, may potentially affect Greece’s investors in the offshore energy sector. By seeking a declaratory relief to this effect, Greece may challenge Turkey’s actions and have an UNCITRAL tribunal order the cease of such actions violating the ECT-based obligations.

Greece may follow the steps of Mexico that in 2000 filed a State-to-State investment arbitration against the United States under the NAFTA in the Matter of Cross-Border Trucking Services. Mexico sought a declaratory relief to the effect that the United States had violated its obligations under NAFTA by keeping in place a moratorium on processing applications by Mexican-owned trucking firms. Mexico had not brought the case on behalf of specifically named investors, so the United States requested Mexico to identify the specific Mexican nationals operating in the trucking-related sector in the United States that had been hit by the moratorium. Nevertheless, the tribunal found that the moratorium was per se inconsistent with the NAFTA obligations, even if Mexico could not identify any particular Mexican national affected by the moratorium itself.

The advantages of a State-to-State investment arbitration under the ECT

In the past, Greece already tried once to institute international proceedings against Turkey to solve the issue of delimiting their respective maritime boundaries on the Aegean Sea continental shelf by resorting to the International Court of Justice (ICJ). However, Turkey objected to the jurisdiction of the ICJ, as it had not consented to submit the dispute to it. Therefore, in its 1978 Judgment, the ICJ found that had no competence to entertain the case submitted by Greece. Now, that the dispute between the two States has assume a distinct energy-focused character and that both States have already given their unconditional consent to solve their differences on energy matters before an UNCITRAL tribunal, the ECT represents an avenue to solve the resurfaced conflict before a competent international tribunal mandated to hear energy-related disputes.

A further advantage of an investment arbitration under the ECT is that Greece may request to the tribunal to order provisional measures to the effect that, pending the proceedings, Turkey may not engage in exploration or research with respect to the disputed area. Such provisional measures – if abided by Turkey – would make the joint naval manoeuvres currently carried out by France, Italy and Greece in the eastern Mediterranean superfluous. After all, naval joint exercises – economically more expensive than an international arbitration – have already proven to be not that effective in preventing Turkish seismic vessels from conducting exploration in Cyprus’ EEZ.

Moreover, Greece may request that each failure to comply with such provisional measures be subject to the payment of a pre-established pecuniary penalty, whose amount should be conspicuous enough to deter the disregard thereof (viz. in the hundreds of millions of euros). An additional and more specific advantage of an investment arbitration conducted under the UNCITRAL Arbitration Rules is that these provisional measures carrying monetary penalties may be adopted by the tribunal in the form of an interim award (pursuant to Article 26 of the UNCITRAL Arbitration Rules). This means that should Turkey not abide by such provisional measures contained in an interim award, Greece may enforce that interim award against Turkey worldwide (or at least in any of the 165 contracting countries to the 1958 New York Convention) and collect the monetary penalties every time Turkey disregard the provisional measures ordered by the tribunal.  

Another – maybe not readily apparent – advantage, yet not to be overlooked, is that by filing an ECT-based investment arbitration against Turkey, Greece may be shielded from its international responsibility towards foreign energy companies investing in Greek waters. Indeed, in case Turkey will interfere with the offshore operations of some of the foreign energy companies in Greece, some of these foreign investors may, in turn, advance a “full protection and security” claim against Greece for having failed to take any measure aimed at ensuring their legal protection. Hence, Greece may find itself in the paradoxical situation of having to pay compensation for the damages caused by Turkey’s incursions. Instead, by undertaking an international legal action against Turkey before an UNCITRAL tribunal, Greece can show that it has complied with its international obligation contained in many of its Bilateral Investment Treaties (BITs) of guaranteeing full protection and security to foreign investments in its territory as well as that it intends to act peacefully within an international legal framework in conformity with international law.

Conclusion

As a consequence of Turkey’s deployment of its seismic and warship vessels on Greece’s continental shelf, Greece may file a State-to-State investment arbitration against Turkey under the ECT pursuant to its Article 27, in light of the intrinsic energy crux of the dispute. Greece may seek a declaratory relief so that an UNCITRAL tribunal may determine that Turkey’s actions are inconsistent with its international obligations contained in Part III of the ECT (namely, the obligation to provide for a stable legal and business environment for potential foreign investors in the energy sector, as per Article 10 of the ECT). Accordingly, this international tribunal may order Turkey to cease such actions declared unlawful. In such arbitration, Greece may rely on the “Crimea” arbitral awards to avail itself of the extra-territorial application of international investment agreements and on the “Mexico vs USA” precedent in order to wield a declaratory claim in a State-to-State investment arbitration. Further, pending the arbitration, Greece may request the tribunal to issue provisional measures in the form of enforceable interim awards with pecuniary penalties to deter further Turkey’s incursions.