How Our Interpretation of Nafi al-Sabil Shaped Policy
The jurisprudential doctrine of *Nafi al-Sabil (“denial of dominance”) has served as the foundation for several provisions of the Iranian Constitution, including Articles 43 and 44.
Among these, Article 44 is particularly significant, as it effectively delineates the boundaries between public-sector and private-sector economic activity—an issue of critical importance today, when states are in fierce competition to generate wealth and improve the welfare of their citizens.
The principle of Nafi al-Sabil* is derived from verse 141 of Surah al-Nisa:*“And never will God grant the disbelievers a way (of domination) over the believers.”
Traditionally, this doctrine has been understood as one of the strategic pillars for safeguarding the political and economic independence of an Islamic state.
However, concepts such as “independence”—in all their dimensions—are undergoing a paradigm shift. In older interpretations, independence was defined primarily through the lens of non-dependency on others. In modern frameworks, independence is increasingly understood in terms of a state’s enhanced capacity to influence others, rather than mere insulation from external actors.
Below is a brief review of how regulatory developments—shaped by this doctrinal foundation—have influenced capital entry into the Iranian oil and gas sector:
Act I: The Constitutional Barrier
For decades, key industries—particularly oil and gas—have been in urgent need of capital investment. Yet Article 44, interpreted restrictively, acted as a barrier, leading to significant lost opportunities. Eventually, in the late 2000s, the Law on the Implementation of the General Policies of Article 44 was enacted, partially removing state monopolies over certain economic activities.
Nonetheless, the National Iranian Oil Company (NIOC), along with exploration and production of oil and gas resources, remained exclusively in the public domain (Items 4 and 5 of Group Three under Article 2 of the implementing law). Thus, despite reform, the core upstream activities remained closed to private participation.
Act II: The Ordinary Law—A Self-Imposed Constraint
Moving beyond the Constitution, one encounters the Foreign Investment Promotion and Protection Act (FIPPA) of 2001. Although progressive on its face, it also embeds a form of self-sanctioning:
foreign investment cannot exceed 25% in any economic sector or 35% in any sub-sector, beyond which the Investment Promotion Organization is barred from issuing approval.
Article 3(b) of FIPPA authorizes forms of partnership such as civil partnership, buy-back contracts, and BOT structures, applicable across both public and private sectors.
These mechanisms offer glimpses of a more dynamic and business-friendly environment—yet they remain limited by sectoral caps that restrict transformative investment.
Act III: The Final Scene—The Budget Regulation Gap
A further inconsistency emerges in the Executive By-Law of Clause (a) of Note 4 of the Single Article of the 2023 Budget Act. When it comes to utilizing the PPP instruments recognized by FIPPA (Act II), NIOC is once again absent.
Note 4 provides:
Implementation of projects belonging to entities in Group 3 of Article 2 of the implementing law of Article 44 (the same group that includes NIOC) shall be permitted only when ownership does not transfer to the private party*, and only with the proposal of the Ministry of Economic Affairs and approval of the Cabinet.
Yet in Appendix 1 of the Budget (projects eligible for private participation), *the listed projects relate solely to the Ministry of Energy, with no reference to oil and gas projects. Consequently, such petroleum projects fall outside* the scope of the by-law and cannot utilize its PPP mechanisms.
Among these, Article 44 is particularly significant, as it effectively delineates the boundaries between public-sector and private-sector economic activity—an issue of critical importance today, when states are in fierce competition to generate wealth and improve the welfare of their citizens.
The principle of Nafi al-Sabil* is derived from verse 141 of Surah al-Nisa:*“And never will God grant the disbelievers a way (of domination) over the believers.”
Traditionally, this doctrine has been understood as one of the strategic pillars for safeguarding the political and economic independence of an Islamic state.
However, concepts such as “independence”—in all their dimensions—are undergoing a paradigm shift. In older interpretations, independence was defined primarily through the lens of non-dependency on others. In modern frameworks, independence is increasingly understood in terms of a state’s enhanced capacity to influence others, rather than mere insulation from external actors.
Below is a brief review of how regulatory developments—shaped by this doctrinal foundation—have influenced capital entry into the Iranian oil and gas sector:
Act I: The Constitutional BarrierFor decades, key industries—particularly oil and gas—have been in urgent need of capital investment. Yet Article 44, interpreted restrictively, acted as a barrier, leading to significant lost opportunities. Eventually, in the late 2000s, the Law on the Implementation of the General Policies of Article 44 was enacted, partially removing state monopolies over certain economic activities.
Nonetheless, the National Iranian Oil Company (NIOC), along with exploration and production of oil and gas resources, remained exclusively in the public domain (Items 4 and 5 of Group Three under Article 2 of the implementing law). Thus, despite reform, the core upstream activities remained closed to private participation.
Act II: The Ordinary Law—A Self-Imposed ConstraintMoving beyond the Constitution, one encounters the Foreign Investment Promotion and Protection Act (FIPPA) of 2001. Although progressive on its face, it also embeds a form of self-sanctioning:
foreign investment cannot exceed 25% in any economic sector or 35% in any sub-sector, beyond which the Investment Promotion Organization is barred from issuing approval.
Article 3(b) of FIPPA authorizes forms of partnership such as civil partnership, buy-back contracts, and BOT structures, applicable across both public and private sectors.
These mechanisms offer glimpses of a more dynamic and business-friendly environment—yet they remain limited by sectoral caps that restrict transformative investment.
Act III: The Final Scene—The Budget Regulation GapA further inconsistency emerges in the Executive By-Law of Clause (a) of Note 4 of the Single Article of the 2023 Budget Act. When it comes to utilizing the PPP instruments recognized by FIPPA (Act II), NIOC is once again absent.
Note 4 provides:
Implementation of projects belonging to entities in Group 3 of Article 2 of the implementing law of Article 44 (the same group that includes NIOC) shall be permitted only when ownership does not transfer to the private party*, and only with the proposal of the Ministry of Economic Affairs and approval of the Cabinet.
Yet in Appendix 1 of the Budget (projects eligible for private participation), *the listed projects relate solely to the Ministry of Energy, with no reference to oil and gas projects. Consequently, such petroleum projects fall outside* the scope of the by-law and cannot utilize its PPP mechanisms.
ConclusionAs the foregoing demonstrates, the role of law as an enabler—or conversely, as an obstacle—is decisive in shaping opportunities for capital entry into the oil and gas sector.
The cumulative impact of constitutional interpretation, statutory caps, and budgetary exclusions shows how a particular reading of Nafi al-Sabil* has, in practice, influenced investment policy in Iran’s most strategic industry.
Leave a Reply