Fluctuations in global oil prices remain a critical vulnerability for Azerbaijan’s economy, with each $1 change in the average annual oil price equivalent to approximately $300mn in lost export revenues and $150mn in reduced budget income, according to updated forecasts from ING Group, the Netherlands’ largest banking group.

The bank’s revised outlook for the CIS-4 economies, Azerbaijan, Armenia, Kazakhstan and Uzbekistan, factors in slowing global growth, falling oil prices and persistent inflationary pressures. Azerbaijan, alongside Kazakhstan, is identified as particularly exposed to energy price volatility, with oil accounting for 88% of the country’s total exports and 52% of budget revenues.

ING estimates that a $5 drop in average oil prices in 2025, followed by an $11 drop in 2026, could result in losses equivalent to 2% of Azerbaijan’s GDP over two years.

Despite some relief from lower global inflation, the Azerbaijani manat, which remains pegged to the US dollar, has not gained from the recent 8% depreciation of the greenback against major currencies. ING notes that capital flows continue to avoid emerging markets, including the CIS-4, amid global uncertainty and geopolitical risks.

In its latest projections, ING downgraded Azerbaijan’s GDP growth outlook to 2.5% for both 2025 and 2026, down from an earlier forecast of 3% for 2025. Inflation is expected to remain stable at 5.1% annually through 2025 and 2026.

At the same time, Azerbaijan’s central bank, like its peers in Kazakhstan, Uzbekistan, and Armenia, is keeping interest rates on hold, despite earlier expectations of policy easing. ING attributes this to persistent inflation risks, noting that the scope for rate cuts in 2025 is “extremely limited.”

According to the bank, the region’s modest reaction to dollar weakness reflects broader capital market dynamics, where risk-averse investors are shifting from one safe asset to another, bypassing economies like Azerbaijan that are heavily reliant on hydrocarbons and have limited capital market depth.