Oil and geopolitics: Azerbaijan in Fitch’s spotlight Khazar Akhundov’s assessment

The ongoing conflict in the Persian Gulf and the continued blockade of the Strait of Hormuz are acting as a catalyst for a global energy crisis. Due to critical dependence on hydrocarbon supplies from the Middle East, the most severe impact of this negative trend is being felt in European countries, Indochina, and many Asia-Pacific states. At the same time, experts from the international rating agency Fitch Ratings believe that, as a beneficiary of rising oil and gas prices, Azerbaijan will improve its economic growth indicators in 2026.

The geopolitical confrontation and armed conflicts that have intensified in various regions of the world in recent years have aggravated many long-standing economic problems. The global economy, already under pressure from trade and tariff wars, is moving toward clustering and fragmentation into regional structures, with disruptions in production chains and an accelerating inflationary spiral—all of which negatively affect commodity markets, primarily impacting developing countries.

A continuation of this negative trend has been the war in the Persian Gulf, which has led to the destruction of oil and gas infrastructure and the blockade of the Strait of Hormuz. As a result, oil and gas prices have been rising for two consecutive months, and this trend continues due to the lack of progress in resolving the Middle East conflict.

Thus, on April 28, the price of June Brent crude oil futures on the London ICE Futures exchange rose again, reaching $109.52 per barrel.

The situation on the gas front is no better due to the halt in liquefied natural gas supplies from Qatar, whose facilities and infrastructure were damaged in attacks by Iranian drones and missiles.

This crisis is being felt most acutely in the European Union, where gas storage levels after the winter heating season have fallen to critically low levels, and refilling underground gas storage facilities (UGS) has become highly problematic. According to data from Gas Infrastructure Europe, as of April 27, 2026, prices at the Dutch TTF gas hub stood at €44.57 per MWh, which is one and a half times higher than before the start of the Middle East conflict.

Gas prices continue to show an upward trend, and in this context, analysts at S&P Global, in a new report, have lowered their eurozone economic growth forecast from 1.2% to 1% and raised their inflation forecast from 1.8% to 2.4%.

In the current circumstances, the beneficiaries of the global energy crisis remain countries that possess their own reserves of fossil fuels and whose export geography is not linked to the Persian Gulf region. These include countries in North and South America, Africa, as well as post-Soviet states, including Azerbaijan.

For nearly a quarter of a century, by extracting resources mainly from offshore fields,Azerbaijan has been a key element of Europe’s energy security, ensuring reliable and uninterrupted international energy transit.

At the same time, the profitability of domestic oil exports increased significantly in March–April this year, despite the decline in production at mature, depleted fields observed in recent years. By comparison, the price of one barrel of Azerbaijani Azeri Light crude oil on April 28 stood at $113.85, which is almost one and a half times higher than the figures recorded in January this year.

With the rise in oil and gas prices, the country is receiving additional revenues: the state budget of Azerbaijan for 2026 is based on an average oil price of $65 per barrel, while the “excess” income is being sterilised and reserved in the State Oil Fund of the Republic of Azerbaijan (SOFAZ).

Moreover, Azerbaijan independently meets all domestic needs in oil, petroleum products and natural gas, and due to its energy self-sufficiency is largely insulated from the impact of high global energy prices.

At the same time, the Gulf conflict undoubtedly carries certain inflationary risks, as expensive oil, gas and fuel increase production costs in industrialised countries, which may translate into imported inflation affecting industrial and food products.

Nevertheless, the country’s substantial foreign exchange reserves, low level of public debt, and stable monetary indicators make it possible to mitigate these risks, safeguarding the economic and financial security of the domestic economic system.

Observed against the backdrop of the Middle East conflict, the rise in oil and gas prices will have a positive impact on Azerbaijan’s external and public finances, and may contribute to an acceleration of economic growth in 2026, strengthening the country’s twin surplus, according to a recent report published the international rating agency Fitch Ratings. 

Analysts at the agency forecast that the country’s economic growth rates will accelerate again this year. According to the agency’s baseline scenario, the current account surplus will remain at 4.5% of GDP, while the consolidated budget surplus will reach 2.1% of GDP, despite a possible decline in the return on SOFAZ assets.

Fitch analysts expect economic growth to accelerate in 2026 after a sharp slowdown to 1.4% in 2025 (from 4.1% in 2024), which was linked to a 1.6% decline in hydrocarbon production.

The report also highlights the strategic importance of Azerbaijan’s location in the Caspian region, including the presence of a major Caspian Sea port (Alat Port), which serves as a key transit hub within the Middle Corridor.

It is noted that following the start of the war in Ukraine, the volume of overland freight transit through the country has more than doubled, reaching an average of 27% of services exports in 2022–2024, while its share in GDP rose to 2.3%.

In addition, Fitch points to a significant increase in non-oil budget revenues, which accounted for about half of total fiscal revenues in 2022–2025, or around 13% of GDP. The agency also highlights the growing contribution of the services sector—ICT and tourism—each adding 0.2 percentage points to economic growth in 2025.

According to the fiscal rule, the non-oil deficit is expected to decline to below 13% of non-oil GDP by 2029, compared to 20.4% in 2024. As noted in the report, achieving this target will require further growth in non-oil revenues and strengthening of the institutional framework, including enhanced oversight and the establishment of clear fiscal benchmarks.

These measures are considered critically important, as Fitch experts estimate that the share of the non-oil sector in the overall economy remains volatile and still largely dependent on energy prices.

To reduce this dependence, the government has identified diversification of the non-oil economy as a key strategic development objective. These reforms are already improving the efficiency of the non-resource sector, which has become the main driver of GDP growth.

The effectiveness of these efforts is supported by a number of objective indicators. For instance, between 2019 and 2024, non-oil industrial production in the country increased 1.9 times. In 2025, investments directed into the private non-oil and gas sector rose by 11.1%, foreign-sourced investments increased by 24%, while investment growth in the non-resource industry reached 26%.

However, given the intensifying negative trends in the global economy, Azerbaijan needs to significantly accelerate the transition from an energy-export model to deeper diversification of its domestic non-oil economy.

The country is expected to raise total non-oil exports to $5.3 billion by 2027. Within this strategic objective, non-oil exports are to increase 1.8 times, non-oil GDP by 1.3 times, and the share of the private sector in gross domestic product is to be raised to 88%.

Consistent implementation of reforms in the non-oil sector will ensure the sustainability of domestic economic growth and reduce its dependence on the commodity factor.

This is particularly important, as due to a decline in production in the country as well as lower global commodity prices in 2023 and 2025, Azerbaijan recorded a slowdown in GDP growth, which amounted to 1.1% and 1.4% respectively.

These processes also affected the weaker results of the first quarter of 2026. According to data from the State Statistics Committee, total GDP of Azerbaijan, slightly exceeding 29.703 billion manats (approximately $17.5 billion), declined by 0.3%. The situation is even more negative in the oil and gas sector, where GDP contracted by 1.2% over the reporting period.

At present, it is difficult to make assumptions about how the current year will unfold for the national economy. However, it is not excluded that the weak performance of the first quarter could be offset in the following months, taking into account the high dynamics of oil prices on global markets amid the ongoing conflict in the Gulf.

Such a scenario remains possible, and this is supported by data from the International Monetary Fund (IMF), which in its April “World Economic Outlook” confirmed Azerbaijan’s GDP growth forecast for 2026 at 2.2%, with a slight upward revision.

A similar assessment of the country’s economic dynamics for the current year is presented by other international financial institutions and rating agencies as well. Thus, S&P Global expects GDP growth at around 2% in 2026, while slightly higher forecasts are given by Fitch Ratings, Moody’s, and ING Group, at 2.5%. Meanwhile, the Asian Development Bank and the European Bank for Reconstruction and Development project growth at 2%.

Against the backdrop of relatively optimistic forecasts from global expert groups, the revised projections of the Azerbaijani government appear more conservative, according to which national economic growth in 2026 is expected to reach 1.7%. In this regard, it is hoped that the final results of the year will be closer to the estimates of international financial institutions.