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Oil companies assess political risk through ongoing, project-specific due diligence—not a single country score. They screen national and local conditions, then test the petroleum laws, fiscal terms, contracts, government and commercial counterparties, security arrangements, stakeholders and potential impacts that apply to the actual project. The assessment is revisited as the project advances because the company’s exposure changes between exploration and production.
What political risk means for an oil project
Political risk is broader than the chance that a government will change. It can include unpredictable policy or regulation, weak contract enforcement, corruption, conflict, security threats, local opposition and adverse effects on communities and rights-holders. These issues can affect whether a project can operate, whether its agreements remain workable, and whether the company and its partners can meet legal and human-rights responsibilities.
The stakes are sector-wide: an OECD oil and gas due-diligence case study reported in 2026 that oil and gas accounts for nearly one third of the world’s total energy supply, attributing the figure to EIA data. That is context for the sector’s economic reach, not a measure of political risk.
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Public guidance describes relevant due-diligence factors; it does not establish one scorecard, set of weights or investment cutoff used by all companies. Firms’ specific models and risk tolerances are not disclosed in the sources discussed here.
How the assessment is built
A practical assessment moves from broad screening to tests of the particular project and its relationships. The stages below describe a useful analytical sequence, not a universal corporate formula.
- Screen the political and governance context. Examine national, regional and local institutions and how they work in practice. Relevant factors include the independence of courts and civil society, the strength of democratic institutions and trade unions, public perceptions of corruption, tolerance for criticism, administrative decision-making, party competition and resource-nationalist policy. In oil-producing areas, consider regional expectations, separatism or secessionism where relevant. OECD extractive-sector stakeholder guidance identifies these as context to understand before and during engagement.
- Test the petroleum law, fiscal regime and project rights. Identify the laws and regulations governing petroleum activity, the agencies responsible for administering and enforcing them, the fiscal terms and the process used to award exploration and production rights. Establish whether the project uses a concession, production-sharing contract, service contract or another arrangement, and assess the stability and enforceability of its license and agreements. EITI disclosure requirements treat the legal and fiscal framework, contract and license types, agency roles and allocation procedures as key information for understanding extractive-sector governance.
- Map the state’s roles and the people behind the counterparties. A government can act as regulator, licensor and revenue recipient, while also participating commercially through a state-owned enterprise or joint venture. Identify the relevant entities, beneficial owners, politically exposed persons and intermediaries where appropriate. Examine corruption exposure in licensing, contracting, revenue management and state-owned enterprises. OECD identifies discretionary decisions, weak governance, revolving doors, campaign contributions and opaque beneficial ownership as sector corruption drivers.
- Assess conflict, security and potential harm. Consider how instability could affect the project and whether the operation, its partners or its supply relationships could contribute to harm. In conflict-affected areas, armed groups may seize production or distribution infrastructure and use proceeds to finance their operations. Companies near conflict zones or sourcing through intermediaries in those markets may face heightened risks involving armed-group financing, humanitarian law and sanctions. Community disputes over resource access and security arrangements can also threaten people and operations.
- Understand local stakeholders and subnational politics. Identify affected communities and other rights-holders, local authorities, workers, civil society and relevant groups. Determine which levels of government have authority and capacity; assess local expectations, perceptions and the scope for meaningful engagement. National-level indicators alone cannot capture local political and social conditions that may shape acceptance of a project or its operational risk.
- Revisit the assessment as the project changes. Update the analysis when the project moves from exploration toward production, when agreements or counterparties change, or when political, security or stakeholder conditions shift. The relevant question is not just whether a risk exists, but how the company’s exposure and ability to respond have changed.
Why production can change the risk picture
Exploration and production create different exposures. As investment becomes fixed in facilities and infrastructure, a company may have more to lose from disruption. Production can make a project’s effects more visible to nearby communities, increasing the importance of local expectations and opposition. It can also change the government’s incentives: after a company begins earning returns, the host government may seek to renegotiate a license.
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A World Bank discussion of extractive-industry project stages puts the point directly: “Security, political and regulatory risks all increase at the production stage.” The discussion is useful for explaining this mechanism, not for judging a country’s current conditions. It also notes that majors considering very large, long-lived investments look for well-crafted petroleum laws, reasonable prospects of political stability and manageable security risks.
What public information can—and cannot—show
Public disclosures help build an evidence base, but they do not replace project-specific checks. The EITI guide states: “Due diligence is a process by which companies identify and manage actual or potential adverse impacts linked to their operations, sourcing decisions or business relationships.”
- EITI country reports and disclosures can provide information on laws and institutions, contracts and licenses, beneficial ownership, exploration and production, exports, revenue management, environmental and social impacts, and government and company payments.
- EITI validation scorecards and reports assess adherence to the EITI Standard, identify disclosure gaps and make recommendations for governance improvement. They are inputs to an assessment, not a complete political-risk rating. Participation or reporting does not prove that corruption or political risk is low.
- OECD guidance can structure analysis of governance context, stakeholder engagement, corruption and adverse impacts. It identifies relevant questions; it does not prescribe a universal company checklist or scoring method.
- Project-level documents and verification are needed to test whether disclosed rules and agreements are implemented and enforced, who the real counterparties and owners are, how security is provided, and how exposure changes over the project lifecycle.
Public frameworks establish useful categories of inquiry, but they do not disclose a standardized company-wide probability, loss estimate or quantitative political-risk score for this decision.
How to compare two countries or projects
A country-to-country comparison can obscure material differences between projects in the same country. Compare the specific rights, counterparties, location and lifecycle exposure rather than relying on a permanent “high-risk country” label. The criteria below are analytical comparison axes drawn from OECD, EITI and World Bank guidance; they are not a published weighting system.
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| Comparison axis | Questions to ask |
|---|---|
| Law, fiscal terms and contracts | Are the applicable rules and fiscal terms clear? Are licenses and agreements enforceable in practice, and was the award process transparent? |
| Institutions and corruption controls | How do decision-making and enforcement work? Are ownership and intermediaries transparent, and where are discretionary decisions or corruption exposures concentrated? |
| Stability, conflict and security | What political or security pressures exist at the project location, including subnational conflict? How are security arrangements provided and governed? |
| Government and commercial counterparties | Which state agencies and state-owned enterprises are involved, in what roles, and who ultimately owns or controls the private partners and intermediaries? |
| Stakeholders and impacts | Which communities and rights-holders may be affected? What are their expectations, and what potential adverse impacts or sources of opposition need to be managed? |
| Lifecycle and mitigation capacity | How might exposure shift from exploration to production, and can the company and its partners prevent, address or mitigate the identified risks? |
What a risk assessment does not establish
A favorable country indicator, disclosure record or formal contract is not proof that a project is safe from political disruption or adverse impacts. Conversely, a country-level warning does not by itself determine the risk of every project there. Conditions change, and local circumstances, counterparties, contract implementation and project stage matter. A sound assessment therefore combines public information with verification of the project’s actual rules, relationships and operating context—and updates its conclusions as those facts change.
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