On April 1, amid risks stemming from the conflict in the Middle East, Azerbaijan’s external economic position was assessed as highly resilient. According to a macroeconomic outlook for CIS countries published by ING Group, the largest Dutch banking holding, regional economies are being affected through multiple channels, including higher fuel prices, declining global risk appetite, potential trade disruptions, and mounting inflationary pressures.

The report notes that rising oil prices are strengthening export prospects for Azerbaijan and Kazakhstan, while increasing pressure on energy-import-dependent Armenia. ING analysts revised their 2026 Brent crude forecast upward to $82 per barrel, an increase of $20, while warning that risks remain tilted toward even higher prices. At the same time, reliance on imports from the EU, other developed economies, Türkiye, Iran, and GCC countries continues to represent a structural vulnerability. Kazakhstan’s economic growth is also expected to slow in 2026 due to VAT increases.

The document emphasizes that escalation in the Middle East is intensifying global inflation risks, prompting a cautious policy approach across the region. Azerbaijan’s manat remains stable against the US dollar, while Armenia’s dram appears overvalued. Short-term prospects for the currencies of Kazakhstan and Uzbekistan are viewed positively. Analysts estimate that each additional $10 increase in oil prices per barrel could generate approximately $3 billion (4% of GDP) in additional export revenues for Azerbaijan, along with $1.5–2.0 billion in extra budget income.

Despite potential increases in defense and security expenditures, Azerbaijan’s fiscal position remains strong. In 2025, the consolidated budget surplus reached 2.6% of GDP, while sovereign savings exceeded 100% of GDP. According to the outlook, economic growth could return to the 2–3% range in 2026–2027, provided fiscal policy remains balanced and trade relations with the US, EU, and China continue to improve.

The report also highlights positive developments in the non-oil sector, including steady corporate lending growth and signs of renewed investment activity. Azerbaijan’s fiscal breakeven oil price is estimated at around $59 per barrel. While inflation in 2025 broadly aligned with historical averages, it accelerated at the beginning of 2026 following increases in domestic utility tariffs. Food and services, which had previously driven disinflation in 2024, have since contributed to rising prices, partly due to these tariff adjustments. Given that nearly half of imports originate from regions exposed to Middle East-related inflation risks, upward pressure on the consumer price index is expected.

Analysts further note that a 10% increase in global food prices could add approximately 1.5 percentage points to overall inflation. The positive current account balance continues to rely primarily on oil and gas exports, with the EU accounting for 62% of this share. Meanwhile, imports from the United States rose to 9% in 2025, reflecting Washington’s broader strategic engagement in the region under the Trump Route for International Peace and Prosperity (TRIPP) initiative. Azerbaijan has also diversified its import structure, increasing trade with China (15%) and reducing dependence on Russia (11%).

Azerbaijan’s external position is underpinned by substantial sovereign assets, including Central Bank reserves and SOFAZ holdings, totaling approximately 115% of GDP. These buffers are expected to support the AZN/USD exchange rate at around 1.70, even if oil prices temporarily fall below the fiscal breakeven level of roughly $60 per barrel.

According to ING, the country’s credit outlook remains broadly positive, with ratings firmly within investment grade. Despite risks of negative spillovers from the Middle East conflict, Moody’s maintains a positive outlook. The ongoing peace process with Armenia, given recent progress, is also viewed as an important positive factor. In this context, Azerbaijan is considered an attractive and reliable safe-haven asset in the event of prolonged regional instability and sustained oil price volatility.

ING forecasts that annual inflation in Azerbaijan will reach 5% this year and 5.5% next year. Compared to previous projections, expectations for 2026 have been revised downward by 0.2 percentage points, while the 2027 forecast has been increased by 0.9 percentage points.