As holder of vast gas reserves Azerbaijan is set to benefit from Russia’s tensions with the EU through higher fuel exports and budget revenues amid conservative fiscal policy.
At the same time, the country’s trade ties with Russia are limited and diplomatic relations are relatively distant, lowering the risk of secondary sanctions and underpinning Azerbaijan’s beneficial position.
Meanwhile, outside of strong foreign trade and financial position, Azerbaijan is challenged by a stagnation of the oil sector, slowing growth in non-fuel sectors, sticky elevated inflation, high dependency on food imports from Turkey and Russia, and the need to maintain relatively tight monetary policy.
Tensions with Armenia, despite the recent diplomatic momentum, remain a risk and could also become a trigger for some easing in fiscal policy.
