Energy Contracts being long term contracts require that any change in law or circumstances of the host state shall not affect the commercial deal or status quo between the contracting parties. When a foreign legal entity enters into a contract with a state-owned entity, it invests substantial amount of money and resources. The state may unilaterally change its law to the detriment of the foreign party thereby jeopardizing the financial interest and legitimate business expectations of the foreign investing party. Foreign investors, therefore, always aim for stable contractual relationship for the investment on the basis of legal regime in effect at the time the investment was made. For the promotion and protection of foreign investment in the negotiation of modern energy contracts, stabilization clauses figure prominently as contractual mechanisms. This article will examine purpose, types, validity and enforceability of stabilization clauses and its relationship with applicable law.