Moody’s: US tariff hikes may benefit Azerbaijan’s transit sector

The international rating agency Moody's has projected that the latest wave of US tariff hikes could open up new opportunities for Azerbaijan, especially in the transit sector.

The new US tariffs may also have limited direct consequences for Central Asia and the South Caucasus, but they carry indirect risks for the region’s financial and corporate sectors, Caliber.Az reports via local media.

Moody’s highlights that trade with the US constitutes only a small portion of regional exports, and most goods are not affected by the recent tariffs. Analysts explained that this mitigates direct exposure. However, they cautioned that an intensifying trade war between the world’s largest economies could challenge the region through three main channels: disruptions in foreign trade, macroeconomic pressures, and instability in financial markets.

Among the potential effects are falling oil and commodity prices, increased currency volatility, investment outflows, rising inflation, and tighter credit conditions—all of which could strain corporate activity, diminish bank asset quality, and erode profitability. Yet, the shifting global trade environment may offer a silver lining. Moody's noted that firms affected by US tariffs might seek alternative markets, including Central Asia and the South Caucasus. This, they suggested, could improve access to competitively priced equipment and materials, while also boosting the region's profile as a potential logistics and production hub. Azerbaijan and Kazakhstan—key transit countries along the Asia-Europe rail corridor—stand to benefit most. Moody’s believes enhanced transit routes could attract investment and stimulate demand for banking services in high-growth sectors. Still, risks remain. 

Global trade uncertainty and increased oil output under the OPEC+ agreement could pressure oil prices, which hovered around $65 for Brent and $62 for WTI as of mid-April. Moody’s forecasts sustained volatility in 2025, with stockpiles likely to rise unless output is curbed. The report stated that persistently low oil prices were particularly sensitive for Azerbaijan and Kazakhstan. While banks may not directly lend to major state energy firms, a slowdown in the sector would ripple through small and medium enterprises and the broader retail economy. Nevertheless, both countries have made progress in economic diversification and building fiscal reserves, enabling them to better withstand external shocks—like the 2020 oil price collapse. 

Moody’s also warns of currency risks. Depreciating local currencies could stress highly dollarized banking systems. Although exporters benefit from a weaker currency, non-exporters with foreign-denominated loans face higher debt servicing costs and growing risk of defaults. In Kazakhstan, non-exporting firms have already scaled back foreign currency borrowing to reduce mismatches between revenues and liabilities. Exporters—especially in energy—remain more insulated thanks to dollar revenues. However, rising inflation, increased borrowing costs, and dollar-linked expenses could offset some of those gains. 

Despite these concerns, Moody’s concludes that the banking systems in Azerbaijan, Kazakhstan, and Uzbekistan are more resilient today. Regulatory tightening following the 2014–2015 currency crises and the pandemic helped reduce dollarization and exposure to external risks. The report stated that banks had built shock-absorbing buffers. It also noted that state-owned companies, supported by strong financial positions and government backing, were well equipped to manage the current global challenges.

By Naila Huseynova