Somalia has signed a historic offshore oil deal with the Republic of Türkiye, which is expected to significantly boost its economy while strengthening government authority and international alliances. This agreement, established through a Production Sharing Agreement (PSA), represents the country’s first deep-sea oil exploration contract to be fully managed under its own legal framework and regulatory control. The Agreement aligns with Somalia’s Model Production Sharing Agreement (PSA), framing hydrocarbons as an instrument for promoting stability and nation-building. Central to the arrangement is the Model PSA, established under the 2020 Petroleum Law which upholds national sovereignty, promotes fiscal transparency, and outlines investor responsibilities. Somali officials have confirmed that Türkiye fully embraced this framework, setting a precedent for legitimate and sovereign resource development in fragile states.

Türkiye–Somalia Agreement Fully Mirrors the Model PSA

The provision in the Türkiye agreement was verified by Somali government and the Somalia Petroleum Authority (SPA) and ensured that it reflected the Model PSA which is a key condition for legal compliance and public legitimacy. The PSA was specifically designed to attract reputable investors while safeguarding national interests. In support, a senior SPA official said, “This agreement is entirely Somali in law, ownership, and oversight. Türkiye accepted our model and not the other way around.” The deal includes work programs, fiscal terms, employment obligations and environmental controls. Somalia retains full ownership of its petroleum resources with Türkiye only earning a share if it finds and produces oil.

Officials confirm that the Türkiye–Somalia agreement includes the following binding provisions:

• Clause 10: Cost Recovery Capped at 90% – Ensures Türkiye can only recover up to 90% of annual petroleum revenue for expenses which protects early Somali income.
• Schedule 7: Sliding Scale Profit Oil – Starts high for the investor, but transitions Somalia to majority share as the field becomes profitable.
• Clause 42: Corporate Tax at 30% – Provides direct fiscal returns to the state on contractor profits.
• Clauses 27–30: Local Content Mandates – Türkiye must hire Somali workers, provide training, use Somali goods and services, and fund a Local Communities Fund and Training Fund.
• The agreement also includes obligations for environmental protection, health and safety, data sharing and decommissioning which guarantees responsible development.

High Security Risk Drives Investment Terms

Operating in Somalia’s challenging security landscape significantly raises both the costs and risks associated with oil exploration. Factors such as the activity of non-state armed groups, the threat of piracy in offshore areas, and weak government security structures all add to the uncertainty of operations. Türkiye’s investment is proceeding without sovereign guarantees or coverage from third-party insurers. The cost of security escorts, vessel protection, private site defence, and regional logistics in conflict-prone zones can add tens of millions to project budgets. In support, energy consultant at Horn of Africa said, “Investors in conflict zones face warzone premiums. These are not just commercial decisions but geopolitical commitments. That justifies strong early incentives.” In such environments, a high share of early profit oil is standard practice, not as a gift, but as essential compensation for operating where most companies won’t. For instance, Liberia – Firestone Rubber Concession (1926 & Renegotiated 2005) deal saw Liberia receive minimal revenue while Firestone profited heavily from rubber exports. However, in the long run, the deal led to infrastructure development (roads, schools, clinics) and remains one of Liberia’s largest employers even after renegotiations improved Liberia’s share.

Why Türkiye Receives Up to 90% of Early Profit Oil

Under the agreement, Türkiye is eligible to receive up to 90% of the profit oil and gas during the initial production stages. This is not a fixed share, but a temporary, performance-based allocation that reflects the exceptional risk Türkiye assumes:

• 100% of financial costs including seismic data, exploration, deepwater drilling, offshore logistics—are borne by Türkiye.
• No guarantees or political risk insurance are provided by Somalia.
• The exploration blocks are offshore, underexplored, and capital-intensive.
• Türkiye must also develop infrastructure and security support in a region lacking both.

These terms align with global standards typically applied in high-risk, frontier exploration areas. In exchange, Somalia benefits from immediate royalties ranging between 5% and 15%, a 30% corporate tax on profits, and an increasing share of profit oil once the initial investment costs have been recovered. In support, energy analyst from Somalia said, “The 90% figure reflects risk, not favouritism. Türkiye only earns that if it succeeds, and Somalia’s share automatically increases with time and volume.”

In addition, the 90% recovery costs are high and could even be more because includes exploration and drilling costs, infrastructure development, port and storage facilities, environmental impact management, security costs, regulatory and legal costs and even social and community investments. To allow the recovery of this investment, the investor is temporarily allowed to take up to 90% of the oil revenues but only until the original investment is paid back. This clause exists solely to ensure cost recovery. It is not permanent and not about profit ownership.

Strategic Diplomacy: More Than a Commercial Deal

Türkiye’s involvement in Somalia is built on a foundation of longstanding political ties and humanitarian assistance. From building key infrastructure like hospitals and roads to providing training for Somali security forces, Türkiye has established itself as a reliable and consistent ally. By embedding this energy deal within a broader intergovernmental framework, Somalia stands to benefit not just from economic investment, but also from enhanced security collaboration, strategic partnerships, and improved geopolitical positioning in both the Horn of Africa and the Red Sea region. This makes the PSA particularly distinctive as it’s more than a standard agreement with an oil company; it represents a comprehensive alliance with a committed sovereign partner.

The Payoff for Somalia

If large-scale commercial oil reserves are found, Somalia could benefit greatly, not just through taxes and royalties, but also by gaining full access to petroleum infrastructure and data, developing a skilled workforce through technology transfers, enhancing the capabilities of the SPA and relevant ministries, and reducing reliance on donor aid by increasing domestic revenue. Even if no oil is discovered, Somalia would still benefit by acquiring valuable data, building skills, and gaining regulatory experience without incurring any losses.

Dispute Resolution: Arbitration to Be Held in Türkiye – Is This Normal?

The PSA incorporates an official framework for resolving conflicts, offering options for both negotiation and international arbitration. If a dispute arises between Türkiye and the Somali state that cannot be resolved amicably:

• The matter proceeds to arbitration, as specified in the PSA.
• The seat of arbitration is designated as Türkiye, reflecting both parties’ consent and Türkiye’s willingness to be legally bound in its own jurisdiction.
• Arbitration proceedings will adhere to globally recognised legal frameworks such as those under UNCITRAL (United Nations) or ICC (International Chamber of Commerce).
• The governing law of the contract remains Somali law, ensuring sovereignty over the agreement terms.

This arrangement is normal and not uncommon in bilateral state-to-state or investor-state agreements, especially when the investor is a sovereign or state-backed entity. In fact:

1. Many PSAs in Africa, Asia, and Latin America include arbitration seats in the investor’s home country when the investor bears full upfront risk and no political risk insurance is available.
   1. Arbitration seats are often a negotiated trade-off: Somalia retains full legal ownership and enforcement under its law, while the investor gains procedural certainty in a familiar jurisdiction.
   1. The use of neutral rules (UNCITRAL/ICC) ensures that arbitration is not biased, even if the physical seat is in Türkiye.

In support, a somali legal advisor noted; “The seat of arbitration does not mean Turkish law applies. Somali law governs the deal as Türkiye hosts the venue. It’s a reflection of mutual trust.” Thus, the agreement preserves Somali sovereignty while giving Türkiye the legal liability needed for high-risk frontier investment.

Conclusion: A National Interest Deal, Governed by Law

The Türkiye–Somalia offshore PSA is a model of how fragile states can assert control, attract responsible partners and build for the future without surrendering sovereignty. It follows Somali law, respects Somali ownership and balances investor risk with national reward. As Somalia looks to build a peaceful, prosperous state, this agreement shows that natural resources, if governed well, can be a foundation for nationhood, not a cause of conflict. Somalia stands to gain from the transfer of technological expertise and investment. both countries must maintain transparency and adhere to international standards to avoid potential conflicts that could undermine the long-term benefits of the partnership. A good example that mirrors Somali-Turkey deal is Saudi Arabia deal with Standard Oil of California (later became part of Aramco). In this deal, the initial foreign share was 100% where the early agreements gave American companies full control and profits. However, over time, Saudi Arabia renegotiated its stake to 50/50 profit-sharing in 1950s, gradual nationalization between 1973–1980s and Saudi government owned 100% of Aramco in 1980s.

By Abdullahi M Hassan (Abdullahi Yabarow)

@ssiigaale1