Azerbaijan Faces Economic Challenge as Gas and Oil Revenues Plummet

Despite an increase in gas exports during the first five months of this year compared to the same period last year, Azerbaijan has seen a significant decline in income from its gas exports. The State Customs Committee reported that from January to May, Azerbaijan exported 3.45 billion cubic meters of natural gas valued at $9.91 billion. However, the price per 1,000 cubic meters of gas fell sharply from $614 to $348, leading to this income drop.

Oil revenues from the Azeri, Chirag, and Gunashli fields also declined, compounding the economic challenge. This downturn raises critical questions about the future of Azerbaijan's economy and the potential impact on social projects.

Mazahir Efendiyev, a member of the Milli Majlis Committee on Economic Policy, Industry, and Entrepreneurship, highlighted the crucial role of oil and gas in Azerbaijan's economy. “We see that the challenges of the Fourth Industrial Revolution in the world already cover the transition from natural traditional resources to alternative ones,” Efendiyev told Turan.

Efendiyev acknowledged the volatility of global oil and gas prices: “If a year and a half ago the price of gas was more than $2,000, today this price is much lower. And this undoubtedly affects the revenues of the state budget.” Despite this, he emphasized that the Azerbaijani government is taking steps to “whitewash” the economy and mitigate adverse effects by increasing revenues from the non-oil sector. This, he noted, serves as a form of compensation for the losses from oil and gas revenues.

Economist Natig Jafarli offered a more critical perspective on the situation. Speaking to RFE, Jafarli pointed out that Azerbaijan's economy has long been dependent on oil and gas revenues. “The government has not been able to switch to an alternative economic model over the years. Dependence on oil is not a new issue,” he said. Since the early 2000s, large inflows of oil money have entrenched this dependency, with gas, oil, and oil products consistently accounting for about 90 percent of foreign trade revenues.

Jafarli noted a troubling decline in oil production, with May’s output falling below 500,000 barrels for the first time since the early 2000s. This decline in both production and prices suggests a significant reduction in future oil revenues.

Despite these concerns, Jafarli remarked that there is no immediate crisis. “The State Oil Fund and the Central Bank have sufficient reserves for three years of budget formation. Additionally, Azerbaijan’s external debt is low relative to GDP, the best among CIS countries.” However, he cautioned that the key issue is the sustainability of this trend. “If the government has lost 20 years, will it be able to create new production areas in three years? Frankly, it is very difficult to believe in it.”

Jafarli called for urgent measures to address these challenges. “The country's economy should be sufficiently liberalized, it is necessary to create a free competitive environment and strive for the development of other areas,” he said.

Efendiyev echoed the need for careful management of the state budget, emphasizing the importance of balancing revenues and expenditures and ensuring that the expenditure part of the budget is supported by income from the non-oil sector.

As Azerbaijan grapples with declining oil and gas revenues, the calls for diversification and economic reform grow louder. The country stands at a critical juncture, facing the dual challenges of adapting to global economic shifts and ensuring sustainable growth for the future.