Challenges of Arbitration in Commercial Disputes Arising from Foreign Investment and the National Sovereignty of States

Abstract

Given the vital role of foreign investment in the economic development of states, providing legal guarantees to protect investors has become a fundamental necessity. In this context, international arbitration—recognized as the primary mechanism for resolving investment disputes—has, through the expansion of arbitral jurisdiction and the obligation of states to enforce arbitral awards, created serious challenges for the principle of national sovereignty. The purpose of this study is to examine the legal, economic, and political dimensions of the conflict between investment arbitration and national sovereignty and to propose solutions for establishing a balance between these two principles. The research method is descriptive-analytical and includes documentary analysis, a review of recent statistical reports such as UNCTAD 2024 data, and an examination of landmark international arbitration cases as well as Iran’s domestic regulations. The findings indicate that limitations on the jurisdiction of domestic courts, the weakening of legislative independence, and financial pressures resulting from arbitral awards have placed states in a difficult position. Nevertheless, comparative analyses show that achieving a balance between investor protection and the preservation of state autonomy is possible. The study concludes by emphasizing the necessity of revising investment treaties and incorporating essential public-policy exceptions in order to ensure both investment security and national sovereignty.