Djibouti has ordered the nationalization of the Doraleh Container Terminal, a vital port facility, after a long spat with leading global operator Dubai Ports World.
The terminal is an essential facility for supplies to neighboring landlocked Ethiopia. The Djibouti government had a two-thirds stake in the venture but claimed that the terminal had come under the de facto control of DP World.
"The Republic of Djibouti following a presidential decree dated September 9, has decided to nationalize with immediate effect the shares," a statement said Monday.
The decision was taken "to protect the fundamental interests of the nation and the legitimate interests of its partners," it added.
It said the government would name a new set of company officials.
The terminal was run by DP World since 2006. But in late February Djibouti cancelled the contract saying its national sovereignty was being compromised.
Dubai says the move is illegal and has lodged a case at the London Court of International Arbitration.
It also says an injunction issued by a British court means that Djibouti cannot name new directors without the approval of DP World.
Djibouti has accused the Gulf state of waging a judicial and media "guerrilla" war.
In 2014, Djibouti accused DP World of bribing a port official to obtain a 50-year concession.
DP World, which operates 78 ports in more than 40 nations, has increased its interest in the Horn of Africa and nearby with contracts to manage ports in Yemen and the breakaway Somaliland.
Djibouti has a geostrategic location near Bab el-Mandeb, an entryway to the Red Sea for ships from Asia and oil tankers from Arab Gulf countries heading to Europe.
The terminal also caused a dispute between Dubai and China. The emirate threatened in July to take legal action against China for building an international free trade zone in Djibouti on the disputed terminal.
The first phase of Africa's biggest free trade was launched by Djibouti in cooperation with China.
China, which has the only foreign military base near the Red Sea terminal, is developing and financing the free trade zone as it considers Djibouti an important part of its $1 trillion "Belt and Road" global investment initiative.
Djibouti in 2017 unveiled three new ports and a railway linking it to landlocked Ethiopia, as part of its bid to become a global trade and logistics hub.
The trade zone, which is connected to Djibouti's main ports, aims to diversify the economy, create new jobs and lure foreign investment through tax-free incentives and full logistical support.
The free trade zone is being run by Djibouti, the majority shareholder, along with three Chinese companies.