Azerbaijan is one of the countries that has relatively benefited from the recent tensions in the Middle East, but this advantage is mainly due to prices, not volume.
“Elchi” reports that the Netherlands’ largest financial group, ING Group, has released information on this matter.
It was stated that as an exporting country, every $10/barrel increase in oil prices boosts Azerbaijan’s annual exports by approximately $3 billion (4% of GDP) and brings an additional $1.5–2.0 billion in revenue to the budget.
“Against this backdrop, we no longer foresee risks of a negative current account balance or a breach of the manat’s exchange rate peg in 2026–2027,” ING noted.
According to analysts, direct neighborhood with Iran could increase defense and security expenditures in Azerbaijan. However, the country’s fiscal position remains strong. “In 2025, the consolidated budget surplus reached 2.6% of GDP, while sovereign savings exceeded 100% of GDP,” the report highlighted.
At the same time, inflation risks remain high. Approximately 46% of Azerbaijan’s imports originate from developed markets affected by Middle East tensions, making the economy vulnerable to import inflation. A 10% increase in global food prices could raise inflation by approximately 1.5 percentage points. For this reason, it is noted that there is no further room for monetary policy easing.
According to the report, economic growth weakened from 4.2% in 2024 to 1.4% in 2025, with this decline exceeding expectations. Both fuel and non-fuel sectors, including transport and industry, remained under pressure. The non-fuel sector showed weak dynamics, while production in the fuel sector was volatile. Consumption-oriented sectors, however, remained relatively resilient, partially offsetting the overall slowdown.
Although the weakening in 2025 was broad-based, the construction and trade sectors remained relatively strong. ING believes 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. In the fuel sector, however, significant growth potential is limited due to production capacity constraints.
At the same time, household consumption is becoming increasingly dependent on credit amid weak income growth. Although real incomes have increased, this growth does not fully support consumption. As a result, the volume of retail loans has reached 15% of GDP, and in real terms, the growth rate has fallen to a multi-year low of 5%.
“Outside the fuel sector, there are signs of some improvement in business sentiment. The fuel sector – with the exception of short-term growth in recent months – continues to negatively impact industrial growth. Alongside this, the stabilization of corporate credit growth and the relatively high level of the industrial confidence index indicate a potential recovery in investment activity in non-fuel sectors,” the report stated.