The Gulf War and the spectre of unemployment What can Azerbaijan expect?

Geopolitical confrontation, escalating trade wars, and increasingly adverse climatic conditions in recent years have contributed to a slowdown in global production and trade, leading to weaker employment growth worldwide. For example, the International Labour Organisation (ILO) — a United Nations agency — revised its global employment outlook downward by seven million jobs last year.

The situation deteriorated further in 2026. Amid the ongoing war in the Persian Gulf and rising prices for hydrocarbons, the International Monetary Fund (IMF) is now warning of heightened risks of a global recession, while the World Bank anticipates a prolonged shortage of job opportunities across developing economies.

Azerbaijan is not immune to these pressures. However, the specific structure of its national economy, along with ongoing state-backed development projects, may help to partially cushion the domestic labour market from the worst of these external shocks.

According to estimates by experts at the ILO, the post-pandemic wave of crises — including escalating conflicts in the Middle East, Asia, and Africa, as well as the four-year Russia–Ukraine war — has severely disrupted the stability of value chains, logistics networks, raw material transit routes, and related systems. The 2022 energy crisis also affected even advanced European economies, where production has continued to decline and labour markets remain under pressure.

Renewed tariff wars between the United States, China, and the European Union last year further strained global trade flows, indirectly weighing on employment worldwide. These negative trends have persisted into 2026. According to the ILO’s January forecasts, the global average unemployment rate is projected to reach 4.9% this year, affecting approximately 186 million people.

Additional major risks to global trade and industry — and, by extension, employment — stem from the ongoing conflict in the Persian Gulf and the blockade of the Strait of Hormuz.

“[...]  the impact of the war is substantial, global, and highly asymmetric, disproportionately affecting energy importers, in particular low-income countries. The shock has led to higher oil, gas and fertilizer prices, triggering concerns about food security and job losses as well,” reads a joint statement following a recent meeting of the heads of the International Monetary Fund (IMF), the World Bank Group (WBG), and the International Energy Agency (IEA).

IMF experts believe that fuel and fertiliser prices may remain elevated for a prolonged period even after the restoration of regular shipping through the strait, due to extensive damage to port infrastructure and fuel facilities in Gulf countries. The IMF also stressed that, under a worst-case scenario, repeated shocks in the energy market could slow global economic growth from the current 3.1% to 2%.

It is clear that a slowdown in global GDP will inevitably affect labour markets, and this impact will be felt already this year. Addressing the risks associated with the Middle East war, World Bank President Ajay Banga recently stated in an interview with Reuters that a looming crisis could also result in a shortage of jobs over the next decade for 800 million people, primarily in developing countries.

How does the situation in Azerbaijan look in this context, and can a global recession and a downturn in the labour market affect employment levels in the country?

In response to this question, it should first be noted that the structure of the national economy is such that the non-oil sector — where the overwhelming majority of the country’s population is employed — is largely oriented towards the domestic market. The share of non-resource industries in exports is relatively small, and Azerbaijani companies’ participation in the global division of labour is limited. This, to some extent, acts as a buffer, preventing sharp fluctuations in employment.

Despite a decline in oil production in recent years, Azerbaijan’s fuel and energy sector is becoming a beneficiary of rising global prices amid the Gulf War, and therefore, mass layoffs in this segment are also unlikely.

Are there risks for the domestic transport sector? This is also unlikely, as given the current global geopolitical situation, logistical demand along the Middle Corridor routes is expected to continue increasing, with growing investment and stable employment projected in the transport sector.

In the event that global recessionary processes intensify and aviation fuel prices continue to rise in 2026, a certain reduction in inbound tourism to Azerbaijan may become possible.

The share of tourism in Azerbaijan’s GDP reached 5.3% in 2025 for the first time, and, according to the Chairman of the State Tourism Agency, Fuad Naghiyev, despite regional crises in recent years, the domestic tourism sector has continued to develop with positive dynamics. Over the past five years, 58,000 new jobs have been created in accommodation and food services, including 21,000 in 2025 alone.

However, whether it will be possible to maintain this high pace of employment growth in the tourism sector remains uncertain. Much will depend on inbound tourism performance during the May–September 2026 period.

Another factor that helps maintain relative stability in the domestic labour market is the active support of the private sector within public–private partnership programmes, as well as the formation of new agro-industrial production clusters funded by the state budget.

In particular, eight industrial parks and four industrial quarters are currently operating in the country, while work is ongoing to establish the Nakhchivan Industrial Park and a new Western Industrial Park in Ganja city and the Shamkir district. As of 2025, around 7 billion manats ($4.1 billion) have been invested in these industrial zones, creating approximately 11,000 permanent jobs.

The success of these efforts is supported by several objective indicators. Thus, between 2019 and 2024, non-oil industrial production in the country increased by a factor of 1.9, and the non-resource sector has become a driving force of the labour market. From January 2019 to November 2025, an average of around 200 new jobs were created daily in the private sector.

In turn, over the same period, the number of active taxpayers in the country doubled, reaching more than 859,300 as of January 1 this year. Overall, at the beginning of this year, there were 1,674,984 taxpayers in the country, which is 4.9% higher compared to the previous year.

This growth is significant because 86.8% of all taxpayers in the country are individuals — mainly small businesses and individual entrepreneurs who form the core base of the labour market.

Positive dynamics in the labour market are also indirectly reflected in other indicators. Thus, by the end of 2025, the number of employment contracts concluded between employees and employers had approached 1.9 million, with around 54.2% of the total contracts accounted for by the private non-oil sector.

Efforts by the State Employment Agency under the Ministry of Labour and Social Protection of the Population also contribute to reducing unemployment. The agency has been actively implementing self-employment programmes for the past 10 years, aimed at facilitating the employment of citizens.

By the end of 2026, it is expected that more than 110,000 people in Azerbaijan will have benefited from the self-employment programme through access to financing, equipment, and other means of production.

Moreover, in recent years, the growth dynamics of the non-oil sector have been significantly supported by large-scale projects aimed at revitalising the Karabakh and East Zangezur economic regions. Over the past five years, around 23 billion manats ($13.5 billion) in budget investment has been directed to these areas, stimulating domestic construction, transport, architectural services, and producers of building materials, among other sectors.

This large-scale construction drive has led to a substantial increase in employment across the country. Today, around 40,000 workers, engineers, and specialists are engaged in these regions.

Against this backdrop, Azerbaijan’s unemployment rate has remained broadly stable. At the end of last year, the State Statistics Committee estimated it at 5.2%. In this regard, the country’s labour market situation has improved in recent years and remains comparable with regional benchmarks.

This trend is also reflected in recent IMF forecasts, which project a gradual decline in unemployment in Azerbaijan from 5.4% in 2024 to 5.3% in 2025, with the rate expected to remain unchanged in 2026.