Somalia Energy Investment Legal Framework and Business Risks

The global energy sector will see investment exceeding USD 3.3 trillion in 2025, with significant focus on clean energy development. While no major foreign investment deals in Somalia’s energy sector have been reported in the past month, this global trend creates important implications for potential investors and legal practitioners working in our region.

Somalia’s energy sector remains largely unexplored despite intermittent interest from international oil and gas companies. The government continues efforts to attract foreign direct investment through updated legal frameworks and offshore licensing opportunities. However, security concerns and regulatory uncertainty still present significant challenges for foreign investors.

Legal Framework and Investment Requirements

The Ministry of Petroleum and Mineral Resources oversees all licensing activities under the Petroleum Law updated in 2020. This law governs exploration and production sharing agreements between the government and foreign investors. Contract stability remains the primary concern for international companies, requiring robust dispute resolution mechanisms and protection against expropriation.

Recent regulations emphasize local content requirements, mandating local employment and capacity building programs. This affects operational planning and cost structures for foreign firms. International companies must also comply with both Somali and international anti-corruption standards, requiring enhanced due diligence processes.

Joint ventures with local entities are often encouraged or required by law, impacting deal structuring and negotiation strategies. Arbitration clauses specifying international venues have become standard practice due to concerns about local judicial capacity.

Practical Business Implications

Companies like Shell and ExxonMobil maintain legacy interests but have not resumed active operations due to security and legal uncertainties. The World Bank and African Development Bank support energy infrastructure projects focusing on electrification and renewable energy, which may attract private sector co-investment.

Key considerations for potential investors include:

• Licensing compliance: Understanding Petroleum Law requirements and production sharing agreement terms creates entry barriers but provides negotiation leverage
• Security planning: Force majeure clauses and political risk insurance are essential for project viability and capital cost management
• Local partnerships: Mandatory local hiring and procurement requirements affect operational planning and partnership structures
• Regulatory monitoring: Frequent legal updates require ongoing compliance and increased legal advisory costs

The global shift toward renewable energy investment creates future opportunities in Somalia, especially as donor-backed infrastructure projects expand. Legal practitioners must closely monitor regulatory changes, ensure robust contractual protections, and develop comprehensive risk mitigation strategies for clients.

Based on forty years of legal practice in Somalia, I advise clients that while the energy sector presents significant opportunities, success requires careful legal preparation, strong local partnerships, and realistic assessment of operational challenges. The current investment climate favors companies with long-term commitment and comprehensive risk management strategies.

Sources

• https://iea.blob.core.windows.net/assets/904392c0-caa0-45c1-a53a-90a6eacd2bfe/WorldEnergyInvestment2025.pdf
• https://www.lloydsbanktrade.com/en/market-potential/uzbekistan/investment
• https://projects.worldbank.org/en/projects-operations/projects-home
• https://www.conference-board.org/publications/global-economic-forecast-update
• https://www.china-briefing.com/news/chinas-industrial-power-rates-category-electricity-usage-region-classification/