Baku: 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.
According to Azeri-Press News Agency, 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. Analysts’ assessments indicate that this impact will be significantly weaker compared to Russia’s war against Ukraine in 2022. However, the rise in oil and gas prices may lead to an increase in export and budget revenues for hydrocarbon-exporting countries such as Azerbaijan, Russia, and Kazakhstan.
Analysts further explain that the short-term impact of additional oil revenues on economic growth may be limited due to the implementation of fiscal rules. These rules include directing additional funds obtained from hydrocarbon revenues to sovereign funds. The report highlights Azerbaijan’s sovereign fund, the State Oil Fund (SOFAZ), which is large compared to the size of the economy and reaches approximately 100% of GDP.
Moreover, Azerbaijan’s fiscal rules restrict the amount of oil revenues that can be used in the state budget each year, mandating that extra revenues be directed to the Oil Fund. Adhering to this fiscal framework ensures that the short-term impact of additional oil revenues on the economy remains minimal.