The research presented here challenges the contemporary view that the international investment regime has a “chilling effect” on host government policies. That critique errs in assuming that the effects of the modern bilateral investment treaties on decision-making within host governments have been uniform across states and economic sectors The main argument presented here is that in developing countries that depend on the oil and gas sectors, the international investment regime rarely deters host government rent-seeking behavior that can harm foreign investors.

In petro-dependent developing nations that have weak institutional capacity the survival of the government becomes tied to its ability to capture the industry’s extraordinary profits. The governments in Bolivia, Venezuela, Nigeria, Kazakhstan, and Ecuador, to name a few, no longer rely on ordinary sources of tax revenue; rather, they tend to get trapped in a “rent dependency curse” in which the governments derive an overwhelming portion of their budgets from natural resource revenues. Their institutional stability depends on their ability to capture the rents, which consequently affects foreign investors’ rights.

The decisions of investment tribunals in investor-state disputes have not changed the metro dependent governments’ propensity to choose rent-seeking policies. This phenomenon can be traced to the attitude of investment tribunals toward remedies. In an effort to maintain their reputation, tribunals have been timid in ordering performance remedies — such as ordering a state in violation of its treaty obligation to halt its offending behavior — and instead have relied heavily on compensatory damages. This results in a paradox: in petro-dependent states, host governments violate treaty provisions and capture oil and gas rents for their benefit, and simply use these rent proceeds to pay pecuniary remedies when ordered by international tribunals.