The link between Islamic law and hydrocarbon agreements

Abstract

With a number of hydrocarbon‐rich nations partly or wholly basing their laws and regulations on Islam, the link between Islamic law and hydrocarbon resources has become evident. Islamic laws are based primarily on the Qurʾan, the Sunna and Hadith. The Qurʾan is considered to be the words of God revealed to us through the Prophet (peace be upon him). The Sunna is the record of the actions of the Prophet (PBUH) and the Hadith are his sayings, which he based entirely on the teachings of almighty Allah. These sources must be thoroughly understood because they cannot be contradicted in the creation of agreements. This article sets out to make clear the connection between Islamic law and hydrocarbon concessions, and provides a brief summary of the religion and its bearing on hydrocarbon resources. The paper examines the Iranian Buy Back Agreement and confirms its conformity with Islamic law.

Keywords:

• Islamic law
• Shariʿa
• mineral
• hydrocarbons
• iqṭāʿ
• riba
• buy back
• Iran
• oil
• gas

Notes

¹Because of the growing importance of gas, the use of the term “hydrocarbons” in this article will encompass oil and/or gas companies. IHC refers to companies involved in either or both industries.

²The term “Seven Sisters” was originally applied to five American, one British and one Anglo‐Dutch company who had become major powers in the oil industry before the twenties (Anthony Sampson, The Seven Sisters: The Great Oil Companies and the World they Shaped (Bantam Books, New York 1975) 71).

³Carola Hoyos, ‘The New Seven Sisters: Oil and Gas Giants Dwarf Western rivals’ Financial Times (11 March 2007).

⁴Walied El‐Malik, Mineral Investment under the Shariʿa Law (Graham and Trotman, London 1993) 3.

⁵Muhammad S. Karim, Oil, Islamism, and International Petroleum Industry Legal, Economic, Political and Cultural Issues (LLM dissertation, University of Dundee 2001) 9.

⁶Ibid. 11.

⁷Mike Bunter, ‘Sovereignty over Minerals and Petroleum in the Islamic (Shariah) Law and the Question of Ownership’ (2006) 4(1) Oil, Gas and Energy Law Intelligence 1, 10.

⁸Hassan Sayed Amin, Commercial Arbitration in Islamic and Iranian Law (Vahid Publications, Tehran 1988) 39.

⁹Karim, op. cit. 11.

¹⁰Bunter, op. cit. 7.

¹¹Ibid.

¹²Brian Russell et al. eds., An Introduction to Business Law in the Middle East (Oyez, London 1975) 3.

¹³Amin, op. cit. 61.

¹⁴Ibid.

¹⁵Some might argue that there are four denominations, and would include Sufis and Kharijites. However, the Kharijites are extinct and Sufis are either Shiʿa or Sunni oriented. Furthermore, they are very small in numbers compared with the Sunnis and Shiʿa, so they are ignored for the purposes of this article.

¹⁶As mentioned before, ijtihād is the process whereby rules are derived from interpretations made of the Qurʾan, Sunna, Hadith and rulings of past scholars.

¹⁷The Supreme Leader is the highest ranking religious figure in the country and, since the country is wholly governed by Islam, this makes him the highest ranking political leader. See David Smock, Applying Islamic Principles in the Twenty‐First Century (Special Report 150, United States Institute of Peace, Washington 2005) 3.

¹⁸Mike Bunter, ‘The Iranian Buy Back Agreement’ (2005) 3(1) Oil, Gas and Energy Law Intelligence 1, 2.

¹⁹Zakāt is a mandatory tax levied on an entity's wealth and its goal is to redistribute wealth in society.

²⁰El‐Malik, op. cit. 4.

²¹Walied El‐Malik, ‘State Ownership of Minerals under Islamic Law’ (1997) 14(3) Journal of Energy and Natural Resources Law 313.

²²Muhammad Muslehuddin, Economics and Islam (Islamic Publications, Karachi 1974) 97.

²³Ibid. 98.

²⁴Oystein Noreng. Oil and Islam: Social and Economic Issues (John Wiley & Sons Ltd, London, 1997), 309.

²⁵El‐Malik, Mineral Investment, 69.

²⁶Ibid. 68.

²⁷Ibid. 69.

²⁸Ibid. 28.

²⁹Ibid. 25.

³⁰Ibid. 98.

³¹Ibid. 19.

³²Ibid. 89.

³³Ibid. 91

³⁴Ibid., 90.

³⁵Ibid.

³⁶ Bayʿ bi‐al‐wafāʾ is the Islamic banking system's version of the Western mortgage agreement.

³⁷Karim, op. cit. 11

³⁸Ibid.

³⁹Noreng, op. cit. 32.

⁴⁰Ibid. 69.

⁴¹Ibid.

⁴²Mike Bunter, Petroleum Contracts in Islamic Law: the Concession (Equity) and Contractor (Production Sharing) Agreements (2005) 3(3) Oil, Gas and Energy Law Intelligence 1, 16.

⁴³Bunter, ‘Iranian Buy Back Agreement’, 2.

⁴⁴Derek Brower, ‘Explorers in Defiant Mood’ Petroleum Economist (10 March 1999).

⁴⁵Ibid.

⁴⁷LIBOR is the interest rate banks offer to lend each other unsecured funds at.

⁴⁶Bunter, ‘Iranian Buy Back Agreement’, 3.

⁴⁸Karim, op. cit. 23.

⁴⁹Bunter, ‘Iranian Buy Back Agreement’, 3.

⁵⁰Ibid. 4.

⁵¹El‐Malik, Mineral Investment, 91

⁵²Bunter, ‘Petroleum Contracts’, 3.

⁵³Sampson, op.cit. 70.

⁵⁴Cited in El‐Malik, Mineral Investment, 80.