The Positive and Negative Effects of Rising Global Energy Prices on Azerbaijan’s Economy

Rising global oil and natural gas prices can create an additional source of revenue for energy-exporting countries. However, they can also increase costs in economies that depend on imports, transportation services and energy-intensive production. Since Azerbaijan is both an oil and gas exporter and a country that imports food, equipment, industrial goods and various services from international markets, the effects of this process vary across different sectors of the economy.

The International Monetary Fund’s (IMF) 2026 assessment of Azerbaijan’s economy also highlights this dual impact: higher hydrocarbon prices can improve the country’s fiscal and external trade indicators, but they may also intensify imported inflation and make economic diversification more challenging.

In this context, the key issue is not only how much energy prices rise, but also how the additional revenue is managed and through which channels higher prices affect other sectors.

1. Sectors That May Benefit

The Oil and Gas Sector and Export Revenues

Higher global oil and gas prices can increase Azerbaijan’s revenues from energy exports. This effect is particularly evident when production volumes and export contracts remain largely unchanged. Receiving a higher price for each barrel of oil or unit of gas exported can increase the country’s foreign-currency earnings.

According to information published by Azerbaijan’s Ministry of Energy on 15 October 2026, the country produced 19.9 million tonnes of oil and condensate and exported 15.5 million tonnes during January–September 2026. Over the same period, natural gas production totalled 37.9 billion cubic metres, while gas exports amounted to 18.4 billion cubic metres. These figures demonstrate the importance of energy exports to Azerbaijan’s economy.

Nevertheless, rising prices do not automatically mean higher production. If output declines, technical constraints emerge or export volumes fall, the positive effect of higher prices on additional revenue may be reduced.

The State Budget and the State Oil Fund

Higher energy prices can increase oil- and gas-related tax revenues and other receipts flowing into the state budget, as well as the revenues of the State Oil Fund of Azerbaijan. As a result, the government may have greater capacity to finance infrastructure projects, social programmes, education and healthcare expenditure.

State budget revenues for 2026 were projected at AZN 38.609 billion. According to the budget summary, oil and gas revenues were estimated at AZN 16.435 billion, while non-oil and gas revenues were projected at AZN 22.174 billion. These figures show that the energy sector accounts for a substantial share of budget revenues, while non-oil revenues are also highly significant.

If managed effectively, additional energy revenues can reduce the need for government borrowing, contribute to the accumulation of strategic foreign-exchange reserves and strengthen financial resilience against future economic risks.

Foreign Trade and Foreign-Exchange Reserves

Higher export prices for oil and gas increase the value of exports, provided other conditions remain unchanged. If import costs do not rise at the same pace, the country’s trade balance and current account surplus may improve.

The IMF notes that elevated hydrocarbon prices could have a positive effect on Azerbaijan’s current account balance in 2026. The Fund also indicates that additional revenues could contribute to the accumulation of reserves.

At the same time, if high energy prices make food, transportation and industrial imports more expensive, part of the additional export revenue may be absorbed by higher import costs.

Transport, Logistics and Construction

Additional revenue from energy exports can support public investment and infrastructure projects. This may generate additional orders for companies involved in the construction of roads, ports, railways, warehouses and industrial facilities.

However, this effect is not automatic. The government must allocate additional revenue to investment, projects must be implemented, and the private sector must be able to benefit from the resulting opportunities. Otherwise, higher oil prices will not necessarily lead to growth in the construction and logistics sectors.

2. Sectors That May Be Adversely Affected

Food Prices and Agriculture

Rising energy prices can increase fuel, fertiliser production and transportation costs in agriculture. Higher prices for imported fertilisers, agricultural machinery and spare parts increase farmers’ production costs. These additional costs may subsequently be passed on to consumers through higher selling prices.

Food inflation is particularly important for Azerbaijan. According to the IMF’s 2026 report, food products accounted for 43.2% of the country’s consumer basket at the end of 2024. Annual food inflation reached 8.2% in October 2025 and stood at 7.1% in January 2026. The Fund highlights the role of external factors, particularly price changes in Russia, in this inflation.

These figures do not, by themselves, prove that rising energy prices caused food prices to increase. However, higher energy and logistics costs could intensify existing external price pressures.

Industry and Manufacturing

In energy-intensive industries such as chemicals, metallurgy, construction materials and plastics, electricity, gas and fuel costs affect the cost of production.

Rising global energy prices can affect domestic businesses in two main ways:

· Prices for imported raw materials, equipment and intermediate goods may increase.

· Higher production costs in foreign markets may change the competitive environment for domestic manufacturers.

Since domestic energy tariffs in Azerbaijan do not necessarily change at the same time or in the same proportion as global market prices, costs for local businesses do not automatically increase at the same rate. Nevertheless, indirect effects may arise through import costs, transportation and supply chains.

Transport and Passenger Services

Higher fuel prices can increase operating costs for freight transport, taxis, buses, agricultural transportation and other transport services. This is particularly noticeable in the cost of goods transported over long distances.

When transportation costs rise, additional upward pressure is placed on the final prices of a wide range of goods, from food to construction materials. Government regulation or the stabilisation of domestic fuel prices may delay the transmission of these costs to consumers, but it does not eliminate the risk of higher prices for imported transport services and spare parts.

Household Purchasing Power

When prices rise faster than wages and pensions, people’s real incomes decline. Households can afford less food, clothing, transportation and other services with the same amount of money.

The IMF’s 2026 assessment projects that inflation in Azerbaijan could reach 6% by the end of the year. This is a forecast rather than a final outcome, and it takes into account the effect of high global commodity prices on food imports.

Higher revenues from energy exports may expand the government’s capacity to provide social support. However, if these additional revenues are not channelled to households in a way that protects their incomes, and prices continue to rise, lower-income families may face a greater increase in living costs.

3. Overall Impact Across Economic Sectors

Economic sector

Expected impact

Main reason

Oil and gas exports

Positive

Higher selling prices per unit of exports

State budget and State Oil Fund

Potentially positive

Increased oil and gas revenues

Foreign trade and foreign-exchange reserves

Potentially positive

Higher export earnings

Infrastructure and construction

Conditionally positive

Potential expansion of public investment

Agriculture

Negative pressure

Higher fuel, fertiliser and transportation costs

Industry and manufacturing

Mixed, often cost-related pressure

Higher energy, raw material and equipment costs

Transport and logistics

Negative pressure

Higher fuel and international transportation costs

Households and retail trade

Negative risk

Rising consumer prices and declining real incomes

4. How Can Azerbaijan Manage These Effects?

Several measures are particularly important for ensuring that the benefits of rising energy prices are passed on to other parts of the economy.

First, additional revenues must be managed prudently. Instead of directing all additional revenues towards current expenditure during periods of high oil prices, retaining part of them in the State Oil Fund can create a financial buffer against future price declines. The IMF also recommends preserving a significant share of additional energy revenues and managing budget expenditure cautiously.

Second, the non-oil sector must be developed. Investment should increase in agriculture, food processing, manufacturing, tourism, information technology and logistics. The objective should not be limited to generating revenue from oil exports; it should also include creating new production, employment and export opportunities within the country.

Third, food and production costs should be reduced. Improving the productivity of domestic producers, expanding storage and cold-chain infrastructure, increasing energy efficiency and adopting alternative energy sources can help mitigate the effects of price shocks.

Fourth, vulnerable population groups should be protected. Targeted social assistance can be more effective in reducing the impact of food inflation on low-income households. This approach can help preserve purchasing power while ensuring that additional public expenditure is directed more precisely to those who need it.

Rising global energy prices create both economic opportunities and significant cost risks for Azerbaijan. Additional revenue from oil and gas exports can strengthen the state budget, foreign-exchange reserves and the external trade balance. Conversely, price pressures affecting food, agriculture, industry, transportation and household expenses can adversely affect real incomes and business competitiveness.

The key point is that higher oil prices can increase national revenues, but this does not automatically mean that the entire economy will become stronger. Azerbaijan’s long-term economic resilience will depend on how additional energy revenues are used, how successfully the non-oil sector develops and how effectively inflation is managed.