Azerbaijan.US
Azerbaijan’s economy may face serious constraints in 2026 amid declining oil and gas revenues and a weakening foreign trade balance, economist Zohrab Ismail has warned.
Commenting on the outlook for next year, Ismail said that for the first time in recent years the government may be unable to increase state budget revenues or raise the minimum wage and minimum pensions. The core reason, he noted, remains the country’s structural dependence on hydrocarbons.
Oil production declining, revenues under pressure
According to the economist, Azerbaijan’s oil production peaked in 2010 and has been declining steadily ever since.
“In 2026, oil output could fall to around 50 percent of the 2010 level. This means a direct reduction in foreign currency inflows,” Ismail said.
While global oil prices differ from those of the early 2010s, the continued decline in physical production volumes is becoming increasingly painful for the budget, he added.
Trade balance nearing zero
Ismail also drew attention to Azerbaijan’s foreign trade dynamics. Data for January-October 2025 show exports slightly above $20 billion, while imports have reached nearly $19–20 billion.
“The gap between exports and imports is rapidly narrowing. It cannot be ruled out that imports will soon exceed exports, meaning more foreign currency will leave the country than enter it,” he said.
Such a scenario, Ismail warned, poses direct risks to the manat, as the trade balance remains one of the key pillars of currency stability.
Oil windfall without diversification
The economist recalled that Azerbaijan has received more than $200 billion in oil and gas revenues since the start of the oil boom, and over $250 billion including related inflows. However, he argued that these resources were not used to achieve deep economic diversification.
“Beyond oil and gas, Azerbaijan still mainly exports fruits and vegetables. Chemical products have been added in recent years, but they do not represent a fundamentally new export sector,” Ismail said.
As a result, the economy remains highly vulnerable to fluctuations in global oil markets and lacks a strong non-oil base to support sustainable growth.
Oil price risks and external factors
Ismail also pointed to downside risks for oil prices. Azerbaijan’s state budget for next year assumes an oil price of $65 per barrel, while market prices are already hovering near $60.
Among the factors that could further pressure prices, he cited the potential end of the Russia-Ukraine war, stabilization in the Middle East, and the possible return of Venezuelan oil to global markets in the event of political changes.
Pressure on reserves and echoes of 2015
With foreign currency inflows shrinking, Ismail said the government may be forced to rely more heavily on accumulated reserves or on the Central Bank’s resources to support the manat.
He recalled that in 2014-2015, despite much stronger exports and substantial reserves, Azerbaijan still experienced a double devaluation of its currency.
“At that time, exports exceeded imports by a wide margin, yet the manat could not be defended. Today’s situation looks far more vulnerable,” Ismail concluded.
