Who and How Informs President of Azerbaijan on Country`s Oil Revenues

Azerbaijani President Ilham Aliyev during his visit to Salyan (a town 136 km from Baku) said the country's oil revenues declined, and it needs export goods for currency inflows.

‘The oil revenues of Azerbaijan have decreased. This is reality. The oil prices have dropped by 3-4 times, respectively, so our foreign exchange earnings have also decreased by 3-4 times,’ Aliyev's press service quoted him.

According to him, Azerbaijan is able to withstand the current crisis.

‘If you pay attention to the situation of the oil-producing countries, you can see that the best position among them is occupied by Azerbaijan. However, along with this, we need to export goods, which would provide the country with inflow of foreign currency,’ said Aliyev.

It is worth noting that the economic advisers to President Aliyev do not properly inform the President about the state in the oil markets. The fact is that oil prices are not stable in the markets; they change not only every day, but even every minute, when deals are made on shipments. Therefore, when it comes to prices, the average value is usually compared to quotations for a year, quarter or month. For example, following the results of 2014 the average export price of Azeri oil, according to the Republic of Azerbaijan Oil Fund, was $ 104.3 per barrel, one year later, the figure was $ 54.31. That is, in the last year the Azeri oil price fell by 47.9%.

And how much have foreign exchange earnings from oil fallen in reality? If we take the country's foreign exchange income as "profit oil and gas", which come to the Oil Fund of Azerbaijan, in 2014, this article revenues amounted to $ 15 billion 715.9 million. At the end of 2015 the revenues decreased by 54%, amounting to $ 7 billion 229.1 million.

In H1 of 2016, the BTC FOB Ceyhan oil average export price decreased by 30% compared with January-June last year.

Recall that the peak period of oil revenues in Azerbaijan was recorded in 2011, when the total income of the Oil Fund reached $ 19.9 billion, and the net sale of oil brought $ 19.4 billion, while the average export price of Azeri oil was $ 111.1 per barrel.

But it is unclear why the government did not think then that after the peak period the oil revenues would decline, because, since the third quarter of 2010 decline in the production began in the framework of the contract Azeri-Chirag-Guneshli. In 2011 the fall reached 6 million tons. Moreover, everyone knew that the production decline is inevitable, and Azerbaijan will never be able to recover these amounts. And it meant reducing the country's income. However, from 2011 until the end of 2015 the government in fact did not take any measures for rational use of budgetary funds: budget expenditures increased every year and grand international events were arranged. And no one in the government had the courage to warn the President that only in three or four years, Azerbaijan's crude oil production would fall by 20%, while world oil prices always change every 4-5 years, and it was likely that they would also fall to $ 65-70 per barrel, and when these two factors coincided, the country could survive the tsunami effect. Indeed, in early 2012 the key players in the government knew that in a few years they would have huge spending in the framework of the project Shahdeniz-2 and the Southern Gas Corridor. And the financial unit of the government, knowing the true state of the International Bank of Azerbaijan (last week the country's Ministry of Finance informed the public that $ 5 billion was illegally taken outside the country by the former head of the International Bank J. Hajiyev in 2009-2014 and irrecoverable loans of up to $ 3 billion were issued - Ed.), kept silent and did not inform the head of state of the approaching tsunami. As a result, now the country negotiates on attraction of loans for energy projects, currency shortages have appeared in the country's financial market, etc.  -12A-