The prolongation of the conflict around Iran may strengthen the European Union’s efforts to diversify its energy imports, which could lead to increased European investment in Azerbaijan’s energy infrastructure and hydrocarbon sector, APA-Economics reports, citing the UK-based analytical center Oxford Economics.
It is noted that the short-term impact of the conflict around Iran in the Middle East on countries of the former Soviet space will be limited and mixed. According to analysts’ assessments, this impact will be significantly weaker compared to Russia’s war against Ukraine in 2022.
At the same time, the rise in oil and gas prices may lead to an increase in export and budget revenues of hydrocarbon-exporting countries — Azerbaijan, Russia, and Kazakhstan.
Analysts say that the short-term impact of additional oil revenues on economic growth may be limited. This is due to the implementation of fiscal rules that envisage directing additional funds obtained from hydrocarbon revenues to sovereign funds.
The report emphasizes that Azerbaijan’s sovereign fund, the State Oil Fund (SOFAZ), is large compared to the size of the economy and reaches a level close to approximately 100% of GDP. At the same time, Azerbaijan’s fiscal rules limit the amount of oil revenues that can be used in the state budget each year and envisage directing additional revenues to the Oil Fund. Compliance with this fiscal framework keeps the short-term impact of additional oil revenues on the economy at a minimal level.
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