Azerbaijan’s Economy in 2025: Slowing Growth, Inflationary Pressure, and Geopolitical Tensions with Russia

Azerbaijan’s service economy is having a moment. In January-February 2026 the value of paid services sold to households rose by 8.9% in real terms, to 2.53bn manats.

The escalation of military tensions around Iran has driven a sharp rise in global oil prices, potentially bringing significant benefits to Azerbaijan’s energy-dependent economy while at the same time highlighting the country’s continuing reliance on hydrocarbon revenues.

When Azerbaijan’s Economic Council convened on February 27 under the chairmanship of Prime Minister Ali Asadov, the agenda went beyond a routine macroeconomic review. At the center of discussions was the draft “Socio-Economic Development Strategy of the Republic of Azerbaijan for 2027–2030,” currently under active preparation and consultation.

Azerbaijan’s drive to modernise one of the South Caucasus’s oldest vehicle fleets is entering a more uncertain phase. After several years of tax incentives that fuelled a surge in hybrid imports, the government is withdrawing key exemptions — a move that risks slowing the transition from ageing internal combustion engines to cleaner models.