Earlier this week, oil prices in global markets dropped to as low as $30 per barrel, even if only technically, before partially stabilizing. Vusal Qasimli, Executive Director of the Center for Analysis and Communication of Economic Reforms (CAERC), commented to “Report” on the potential effects of this decline on the Azerbaijani economy.

He stated that the direct impact of lower oil prices on the state budget is minimal. The projected maximum transfer from the State Oil Fund to the state budget is 11.35 billion AZN, which can be provided without issue. This year’s transfer from the State Oil Fund accounts for only 15% of the fund’s total reserves. Even without considering future fund revenues, there is a seven-year window to execute this transfer. Including future earnings, the State Oil Fund will serve the Azerbaijani people for decades.

In addition to the state budget, the budgets of the State Social Protection Fund and the Unemployment Insurance Fund remain sustainable. In the first two months of this year, tax authorities collected 180 million AZN and customs authorities 70 million AZN above projections. This demonstrates that previous reforms, the reduction of the shadow economy, improvements in tax and customs administration, and the development of the non-oil sector are yielding results.

According to forecasts, 56.1% of the state budget revenues this year will come from the non-oil sector. Aside from the transfer from the State Oil Fund, 2.18 billion AZN will come from oil sector revenues via tax authorities. SOCAR’s budget payments are projected at 1.45 billion AZN this year. Since SOCAR mainly supplies the domestic market, volatility in international oil prices will have limited impact on this projection. Profit taxes from Production Sharing Agreements are expected to yield 730 million AZN, which could be more affected by falling oil prices. The Azerbaijani government has already accounted for these risks.

If oil drops to $40 per barrel, state budget revenues could decrease by only 1.6% compared to forecasts: 1.3% directly from reduced oil and gas sector income, and 0.3% indirectly via effects on the non-oil and gas sector. While oil price declines could have a larger effect on the overall budget, the current operational account balance allows Azerbaijan to maintain stability at $40–45 per barrel.

Commercial banks’ total foreign assets are 7.1 billion AZN and foreign liabilities 1.6 billion AZN, giving net foreign assets of 5.2 billion AZN. This positive balance makes the banking sector more resilient to external shocks. Concerns often arise about increased dollarization in such situations, but Azerbaijan already has a high level: 55% of deposits are in dollars, up from 37% in early 2015 before devaluations. This indicates a 1.5-fold reduction in potential pressure from dollarization compared to five years ago. Full deposit insurance and a higher share of manat deposits also stabilize the market.

Foreign currency constitutes one-third of the credit portfolio, supporting calm behavior by the public and businesses. Currency sales in banks continue normally, and the manat exchange rate remains stable. There is no panic.

Today, in a 14-day deposit auction conducted by the Central Bank, demand reached 268 million AZN, with an average interest rate of 5.51%. The Central Bank also held a currency auction, with 323.2 million USD demanded and fully met, including participation from the State Oil Fund. All of this occurred despite oil prices temporarily falling to $30 per barrel.

The calm response of the public, businesses, and banks is commendable. Azerbaijan has effectively built immunity to lower oil prices. Overall, the government, businesses, and public in Azerbaijan are better prepared for low oil prices than in 2015 and compared to other resource-rich regional countries. Furthermore, prolonged low oil prices are not in the interest of major global players—Saudi Arabia, Russia, and the USA. The current situation is temporary, caused by reduced demand due to COVID-19 and increased supply competition. In all cases, the Azerbaijani government is prepared to calculate risks and take appropriate measures.