Revisiting the Guarantee Mechanisms in Financing Upstream Oil and Gas Projects: Emphasis on Non-Governmental Guarantee Funds

Daneshi, Saeid; Kazemi Najafabadi, AbbAS

doi:10.22050/pbr.2025.525871.1395

Revisiting the Guarantee Mechanisms in Financing Upstream Oil and Gas Projects: Emphasis on Non-Governmental Guarantee Funds

Document Type : Original Article

Authors

Saeid Daneshi ¹

AbbAS Kazemi Najafabadi ²

¹ .Ph.D. Candidate in International Oil and Ga Contract Management, Faculty of Law and Political Science, Allameh Tabataba'i University, Tehran, Iran

² Associate Professor, Department of Private Law, Faculty of Law and Political Sciences, Allameh Tabataba'i University, Tehran, Iran

https://doi.org/10.22050/pbr.2025.525871.1395

Abstract

Financing upstream oil and gas projects in Iran—particularly for non-governmental companies—faces numerous obstacles, including the lack of effective guarantee mechanisms, absence of credible collaterals, limited access to sovereign guarantees, and the skepticism of financial institutions. This paper, adopting a descriptive-analytical approach and grounded in the study of existing legal and institutional frameworks, explores the legal capacities for designing and utilizing alternative instruments to traditional guarantees in the financing process of high-risk projects. Within this framework, and based on the “Production and Infrastructure Financing Act”, the executive bylaw on the establishment of non-governmental guarantee funds, and other upstream legal documents, the establishment of an institution titled the "Oil Guarantee Fund" is proposed as an innovative solution. This fund is designed to mitigate default risk, facilitate project credit assessment, and replace bank or property-based guarantees for companies active in the oil and gas value chain. Its legal structure is envisioned based on the model of non-governmental institutions and private joint-stock companies. The proposed model has been formulated through a legal analysis of the relevant documents and informed by the outcomes of expert panels comprising specialists in energy law, finance, and public policy. Findings of the study indicate that the establishment of such a fund, capable of issuing valid guarantees based on contractual commitments, provides a practical tool to strengthen institutional trust and facilitate investment in upstream oil and gas projects. The article also presents a conceptual and institutional framework for the fund and offers recommendations for its policy-level and legal implementation.

Highlights

· A comprehensive analysis of structural, institutional, and legal challenges affecting the financing of upstream oil and gas projects within Iran’s financial system

· Clarification of the role of smart guarantees in enhancing project finance standards and facilitating capital mobilization in the energy sector

· A comparative study of successful international experiences to design a context-specific and locally adaptable guarantee model for Iran

· Exploration of the untapped potential of recent legislation and strategic policy documents to replace traditional guarantees with flexible, institutional mechanisms

· Introduction of a conceptual framework for the establishment of a specialized institution—The Oil Guarantee Fund—with an independent legal structure and nongovernmental governance model

· Proposal of a governance framework, institutional architecture, and supervisory requirements aimed at mitigating default risk and enhancing credit reliability in high-risk energy projects

Keywords

Project Finance

Guarantee Fund

Upstream Oil and Gas

Funding Gap

Subjects

Oil and Gas Economics and Management

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