Azerbaijan is one of the countries that has somewhat benefited from the recent tension in the Middle East, but this advantage is formed mainly due to prices rather than volume.
This was stated by the ING Group, the largest financial group in the Netherlands.
It was reported that as an exporting country, every 10 USD/barrel increase in oil prices raises Azerbaijan's annual exports by about 3 billion USD (4% of GDP) and brings an additional 1.5–2.0 billion USD revenue to the budget.
"Against this background, we no longer see risks of a negative current account balance or a disruption of the manat’s exchange rate parity in 2026–2027," ING noted.
According to analysts, direct neighborhood with Iran may increase defense and security expenditures in Azerbaijan. Nevertheless, the country’s fiscal position remains strong. "In 2025, the consolidated budget surplus amounted to 2.6% of GDP, and sovereign savings surpassed 100% of GDP," the report emphasized.
At the same time, inflation risks remain high. Approximately 46% of Azerbaijan’s imports come from developed markets affected by the Middle East tension, which makes the economy vulnerable to import inflation. A 10% increase in global food prices could raise inflation by about 1.5 percentage points. For this reason, it is stated that there is no additional room for further monetary policy easing.
According to the report, economic growth weakened from 4.2% in 2024 to 1.4% in 2025, and this decline exceeded expectations. Both fuel and non-fuel sectors, including transportation and industrial areas, remained under pressure. The non-fuel sector showed weak dynamics, while production in the fuel sector was volatile. Consumption-oriented sectors remained relatively resilient, partially compensating for the overall slowdown.
Although the weakening in 2025 was broad-based, the construction and trade sectors remained relatively strong. ING estimates that if fiscal policy does not tighten and trade relations with the US, EU, and China develop, GDP growth could return to the 2–3% range in 2026–2027. However, due to production capacity constraints, there is limited substantial growth potential in the fuel sector.
Simultaneously, household consumption increasingly relies on credit amid weak income growth. Although real incomes rose, this increase does not fully support consumption. As a result, the volume of retail loans reached 15% of GDP, and in real terms, the growth rate dropped to 5%, falling to a multi-year low.
"Apart from the fuel sector, certain signs of improvement in business sentiment are observed. The fuel sector – except for short-term growth in recent months – continues to negatively impact industrial growth. Meanwhile, the stabilization of corporate credit growth and the relatively high level of the industrial confidence index indicate that investment activity in the non-fuel sectors could recover," the report stated./APA