National Security is Not a Blank Cheque: Recent Practice Curtailed Unfettered Sanctioning Power

The increasing use of restrictive measures, commonly referred to as “sanctions”, has become a predominant mechanism for states advancing national security and foreign policy objectives. This geopolitical reality increasingly intersects with international investment law, leading to a noticeable rise in the number of investment arbitration proceedings related to sanctions.

Essential Security Interests in IIAs and the Police Powers Narrative

States often seek to protect essential security interests (see discussion on the Blog here), encompassing national security, environmental, climate, and human rights concerns, by including essential security exception clauses into international investment agreements (IIAs). As noted by Dr. Accaoui Lorfing, such clauses are increasingly common in newer-generation IIAs. However, while the imposition of sanctions is typically framed as an exercise of police powers, the resulting restrictions on foreign investors’ rights frequently trigger investment arbitration claims. Consequently, tribunals face the core challenge of balancing a state’s broad sovereign right to safeguard its essential security interests against its binding treaty obligations owed to foreign investors. 

Rise in Sanctions-Related ISDS Claims

Recent disputes demonstrate why this issue is no longer peripheral. The European Trade Justice Coalition estimates that publicly known ISDS claims and threats linked to sanctions already total approximately USD 62 billion. For example, OJSC Belaruskali has launched an UNCITRAL arbitration against Lithuania administered by the Permanent Court of Arbitration, concerning restrictions on potash transit and related services, reportedly valued at around USD 12 billion. Recently, the Bank of Russia announced it has filed a damages claim against Euroclear in the Moscow Arbitrazh Court. The claim relates to the immobilisation of Russian assets and the EU’s potential use of them. Concurrently, legal observers have also flagged the Belgian–Russian BIT as a potential pathway for investment‑treaty arbitration over related measures.

As many of these cases remain pending, arbitral practice concerning sanctions as a national security measure continues to evolve. Nevertheless, existing jurisprudence, particularly the recently published Qatar Pharma award, provides critical guidance on the boundaries within which national security can legitimately justify measures infringing upon foreign investors’ rights.

European Court of Human Rights Standards

A parallel message is emerging outside investment law. In October 2025, the European Court of Human Rights ("ECtHR") in M.S.L., TOV v. Ukraine, held that an asset freeze imposed under Ukraine’s sanctions regime violated the right to property and the right to an effective remedy. The Court acknowledged that national security threats can justify urgent action but stressed the necessity of individualised reasoning and meaningful judicial review.

Together, Qatar Pharma and M.S.L., TOV support a pragmatic baseline for sanctions-related cases: national security is a powerful justification, but not a blank cheque. International law affords states a wide margin to identify threats and design general measures, while still demanding a demonstrable nexus to the stated security objective, case-specific reasoning, and a credible route to challenge the measure. 

Qatar Pharma: Deference to Security Policy, Not to Every Individual Restriction

The dispute in Qatar Pharma arose from the 2017 embargo adopted by Saudi Arabia against Qatar. The claimant, a Qatari pharmaceutical producer with warehousing and distribution operations in Saudi Arabia, alleged that the embargo and, critically, the refusal to grant an investor-specific authorisation to continue importing and supplying medical products, destroyed its investment. Saudi Arabia defended the measures as a necessary response to national security threats, including allegations that Qatar supported terrorism.

The tribunal acknowledged that states possess substantial regulatory latitude in matters of national security. However, it refused to treat the mere invocation of security as determinative. Instead, it examined whether the specific act in question (the denial of the authorisation) could reasonably be connected to the stated security objective and whether the state’s conduct adhered to the principles of good faith, reasonableness, and proportionality. Here, the tribunal’s reliance on good faith is rooted in general international law governing treaty performance and interpretation, as codified in the Vienna Convention on the Law of Treaties. Its reference to “reasonableness/non-arbitrariness” and “proportionality” is best understood not as independent treaty standards, but as operational expressions of these good faith obligations. Where the applicable IIA contains no express essential security exception, such principles of general international law gain heightened significance when a state invokes national security to justify measures targeting specific investors.

On the public record, the tribunal’s critique centred on an evidentiary gap between the asserted rationale and the investor’s profile and activities. Put simply, the tribunal distinguished between (i) the sovereign prerogative to adopt a general embargo, and (ii) the legality of refusing a tailored permission where the practical effect was to shut down a specific investment. Where the state could not substantiate a link between the investor’s activities and the alleged terrorism-related threat, the denial of authorisation was deemed disproportionate.

The Qatar Pharma award holds profound significance for future sanctions-related disputes, as it places the burden on the state to demonstrate a rational and proportionate nexus between the specific restrictive measure applied to the investor and the overarching national security threat invoked. Thus, the award suggests that tribunals will likely subject the application of sanctions to a targeted, effects-based review to ensure that measures affecting investors are neither arbitrary nor excessive.

M.S.L., TOV: Broad Security Laws Do Not Remove the Duty to Give Reasons and Provide Remedies

In M.S.L., TOV, the ECtHR examined sanctions imposed on a Ukrainian company between 2015 and 2018 under Ukraine’s Sanctions Act, adopted against the background of severe security threats since 2014. The measures, which included an asset freeze and other restrictions, severely impeded the company’s operations. The applicant argued that the measures were not properly reasoned and that domestic courts did not provide effective review, relying instead on untested allegations.

The ECtHR accepted that sanctions legislation may be drafted broadly during periods of acute threat. However, it emphasised that broad statutory language does not relieve authorities of the duty to provide convincing reasons for each measure, nor does it justify a system where the affected party cannot meaningfully contest the interference with the property. The Court’s findings underscore the relevance of individualised reasoning and effective remedies, even within a national security context.

Conclusion

Although arising from different regimes, the two decisions converge on requirements that translate directly into investment treaty analysis.

First, tribunals are likely to distinguish the legitimacy of a sanctions policy at the macro level and the legality of its application at the micro level. A state may credibly argue that a designation regime or embargo serves national security, but where the investor-specific application lacks a demonstrated nexus to that purpose, or where the state cannot explain why a less restrictive measure was not feasible, the defence weakens under standards such as fair and equitable treatment and protection against indirect expropriation.

Second, individualised reasoning is not a mere formality. Measures that merely recite statutory labels (“terrorism” or “national security”) without investor-specific factual grounding will bolster arguments of arbitrariness and disproportionality.

Third, the availability of effective review remains crucial. In investment arbitration, the quality of domestic processes can shape a tribunal’s evaluation of due process, good faith, and mitigation. M.S.L., TOV reinforces that sanctions regimes, even when designed as swift executive tools, must preserve a credible avenue for challenge; otherwise, a measure risks appearing less like a calibrated security response and more like an unaccountable deprivation. 

Future investment tribunals adjudicating sanctions-related claims are likely to be guided by these principles, shifting the analysis from simplistic deference to a state’s security assertions toward a rigorous assessment of the reasonableness, proportionality, and procedural fairness of the specific restrictive measure applied to the claimant. This principled scrutiny ensures that while states can retain the ability to protect their essential security interests, they must do so in a manner that respects their treaty obligations and the rule of law.