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Azerbaijan: Falling Economy, Rising Karabakh War Risk

Azerbaijan is a major energy exporter. It is also one of the most oil-dependent economies in Eurasia and has been hit hard by lower oil prices. If the current fiscal trends persist, regional stability is likely to come under growing threat.

The country’s 2015 budget, which envisaged a high level of spending on infrastructure projects, was drawn up under the assumption that the average oil price would be $90 per barrel. Now the oil price is hovering around $60 per barrel and previously envisioned levels of state spending do not seem sustainable, at least in the near term. As a result, the government must confront austerity.

Initially, the government insisted that the planned level of expenditure could be maintained despite the reduced oil revenue. However, oil and gas exports are simply too important for Azerbaijan: they account for 95 percent of the country’s exports and more than 70 percent of revenue. Budget cuts, then, seem unavoidable in the near future.

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Youri Smakouz, Associate Director, The Risk Advisory Group

Azerbaijan: Falling Economy, Rising Karabakh War Risk

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