Will AI-95 Gasoline Become Cheaper in Azerbaijan?

The Baku refinery, named after Heydar Aliyev and operated by the State Oil Company of Azerbaijan (SOCAR), has recently begun producing diesel fuel that meets Euro-5 environmental standards. The refinery is set to start producing Euro-5 gasoline this month, following its modernization efforts aimed at increasing production capacity. Once fully operational in 2027, the refinery is expected to produce 2.2 million tons of motor gasoline, 2.9 million tons of diesel fuel, and 1 million tons of aircraft fuel annually.

The local production of AI-95 gasoline has sparked speculation that its selling price could decrease. Historically, price hikes for AI-95 gasoline in Azerbaijan were attributed to its importation. In 2023, Azerbaijan imported 86,000 tons of "AI-95 Premium" gasoline, a decrease of 13.5% from 2022. Unlike AI-92 gasoline, AI-95 prices are not state-regulated. In July 2022, the price of EU-95 in Azerbaijan rose from 1.6 to 2 manats.

Despite inquiries, SOCAR and other relevant official bodies have yet to provide a definitive answer regarding potential price reductions for AI-95 gasoline. However, Rufat Guliyev, a member of the Milli Majlis Committee on Economic Policy, Industry, and Entrepreneurship, told Turan that fuel prices in Azerbaijan that meet Euro-5 standards are influenced by European market prices. He noted that the production equipment for this type of gasoline is quite costly, with new installations estimated at $250 million.

Guliyev emphasized the importance of producing Euro-5 standard fuel, both for attracting foreign currency and for environmental benefits. He suggested that if SOCAR begins supplying this fuel to the local market, prices should stabilize. However, he pointed out that despite local oil and production, certain additional ingredients required for this fuel would likely need to be imported. Nevertheless, he believes that the local production of this fuel should lead to lower prices than current levels.

Regarding exports, Guliyev argued that Azerbaijan should prioritize meeting domestic demand before considering exports. With the country's large number of vehicles and new regulations that prohibit the import of cars over 15 years old, the demand for modern fuel types is expected to rise.

Economist Rashad Hasanov, in an interview with Radio Azadlig, highlighted that despite a decrease in oil prices, the price of AI-95 gasoline has not dropped over the past year and a half. He attributed this to the monopolistic position maintained in the market. Hasanov suggested that the start of local AI-95 gasoline production could alter the market dynamics. If production volumes meet domestic demand, AI-95 gasoline might become subject to price regulation by the Tariff Council.

Hasanov outlined two potential scenarios: one where the Tariff Council sets a price reflecting the current market rate, maintaining the product's status as a luxury item, and another where a more favorable price is determined, leveraging the benefits of local production for public relations or social reasons. However, he cautioned that it is challenging to predict which scenario will materialize.

As SOCAR begins the production of Euro-5 gasoline, the Azerbaijani market awaits clarity on whether this will lead to reduced prices for AI-95 gasoline, providing some relief to consumers amid fluctuating global oil markets.