Anvita Basu: "EU's becoming an energy partner will increase investment in Azerbaijan"-INTERVIEW

 Anvita Basu, head of Europe country risk at Fitch Solutions

© APA |  Anvita Basu, head of Europe country risk at Fitch Solutions

# 31 October 2022 13:23 (UTC +04:00)

Anvita Basu, head of Europe country risk at Fitch Solutions, answered the questions of APA-Economics Regarding the impact of global geopolitical and geoeconomic processes on Azerbaijan

– How will the economic consequences of the war on Azerbaijan's economy? What is Fitch Solutions' vision in this case?

– For Azerbaijan, we have penciled in growth of 5.1% in 2022 which is only slightly slower than 2021’s 5.6%. Azerbaijan’s economy has been supported by high energy prices and still positive real wage growth at home. According to data from the Central Bank of the Republic of Azerbaijan (CBA), the economy grew by 5.8% in the first eight months of the year – which is in fact faster than the 3.6% recorded in the same period of 2021. The Azeri oil and gas sector contributes over 50.0% to GDP and in the wake of historically high energy prices, the sector’s output has risen by around 48.0% year-to-date compared to the same period in 2021. The oil sector’s strong performance has also had spill-over effects on the non-oil sector which has seen its output rise by 10.2% year-to-date as of August 2022 (latest available data).

– To what extent can a change in oil prices affect the economy of Azerbaijan?

– While we expect the economy to remain robust over the coming months, the growth momentum could ease partly due to falls expected in global oil prices – our Oil and Gas team expects oil prices to average USD100/bbl in 2023 from USD105/bbl. However, there is a chance that oil prices may fall even further given our view of economic recession in the eurozone (set to contract by 0.3% in 2023) and a similarly grim view for the US economy (0.90% growth in 2023). As such we have penciled in a full-year growth slowdown of 3.5% in 2023 for Azerbaijan.

– As You know Azerbaijan big energy partner of EU countries. How will the war affect EU-Azerbaijan economic and political relations?

– Over the medium term, there is a likelihood that investment in Azerbaijan will increase as the country becomes a key source of supply for Europe’s energy. In July 2022, Azerbaijan signed an agreement with the EU to double exports of gas to Europe to 20bcm per year by 2027. Our Oil and Gas team expects this to lead to a steady stream of projects coming on stream, including the Shah Deniz II project, which was interrupted by the Covid-19 pandemic, as well as the currently delayed first phase of the TotalEnergies Absheron project and several others in exploration and pre-final investment decision development stages, including Umid-Babek, ACG Deep Gas and Shafag-Asiman. This will as a result support growth in fixed capital that suffered severe weakness during the Covid-19 pandemic. That said, growth in the oil and gas sector simply means that Azerbaijan will remain heavily dependent on the commodity sector and as such beholden to volatile price movements in the global market. Interestingly, the EU’s dependence on Azeri oil will likely make it less critical for Azerbaijan’s assertive policy against Armenia.

– What are your expectations regarding the peace agreement between Azerbaijan and Armenia, the restoration of transport and economic relations, including the resolution of the Zangezur corridor issue?

– In our view, the Azerbaijan-Armenia issue will remain complicated. Certainty the EU mediation and the agreement to host an EU-led civilian mission along the borders is positive but a peace deal itself could remain difficult to reach. One issue we have highlighted is that in Armenia there doesn’t seem to be a huge amount of appetite for such an agreement in which the country will effectively have to forsake its claims in Karabakh. Indeed Armenian prime minister Nikol Pashinyan has already been threatened with a no-confidence motion in parliament were he to sign the deal. Even if something were to be arranged – normalization of ties and improved economic relations seem tough to attain given so much uncertainty around the future of these areas.

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