Analysis: Azerbaijan looks to stash cash
Posted on : 2007-10-25 | Author : World News Editor
News Category : World

WASHINGTON, Oct. 25 (UPI) In a world of record-high energy prices,
several former Soviet states flush with cash from hydrocarbon exports,
notably Russia and Kazakhstan, have begun to invest their surplus
energy revenue abroad, primarily in their energy-poor
neighbors. Current estimates allocate Azerbaijan 0.6 percent of global
proven oil reserves while Baku’s rapidly expanding energy
infrastructure in 2006 shipped 50 percent more than in 2005.

Azerbaijan’s $21 billion economy, expanding at more than triple the
rate of China’s, can now be added to that select category of former
Soviet states so flush with clash that it can afford to consider
foreign investment. Like its massive energy-rich colleagues, Baku has
begun to acquire assets in neighboring states. Azerbaijan’s
hydrocarbon production is on a steep increase, having grown by 45
percent from 2005 to 2006, while it is expected to grow another 30
percent between 2006 and 2007. While at $60 a barrel, Azerbaijan’s
revenue stream was estimated at around $230 billion; currently, world
energy prices are hovering at nearly $90 a barrel, producing more cash
than the economy can absorb, in a pattern similar to the Organization
of Petroleum Exporting Countries’ windfall in 1973 following the oil
embargo imposed after the Arab-Israeli war.

According to the U.S.-Azerbaijan Chamber of Commerce, the economy of
Azerbaijan is the fastest growing in the world with a growth rate in
2005 of 26 percent, while it exceeded 30 percent in 2006. For 2007 the
International Monetary Fund in February predicted Azerbaijan’s growth
would be 29 percent, down from 31 percent in 2006.

Speaking last month to journalists, President Ilham Aliyev said
Azerbaijani investments had reached several billion dollars.

"For instance, the State Oil Company of Azerbaijan has started
investing in the economies of Georgia, Turkey, and East European
countries," he said, adding SOCAR "has a high credit rating, which
allows the company to draw any funding both for its activity in
Azerbaijan and for investment projects abroad."

Profit was not the sole consideration of the Azeri government,
however, as Aliyev said Baku should invest primarily in countries that
are "friendly to Azerbaijan." SOCAR is also considering investing in
Romania.

Aliyev had even more positive data for his parliamentarians, telling a
Cabinet meeting that Azeri gold and foreign exchange are now $6.3
billion, adding Azerbaijan’s 2008 consolidated budget will be $12
billion. As a measure of how far the Azeri economy has come in a short
time, in 2002 Azerbaijan’s government budget was $1.5 billon. Since
2004, Azerbaijan’s state budget quadrupled.

The massive influx of oil revenues has not been an unalloyed blessing
for the Azeri economy, however. According to Azer Amiraslanov, the
deputy chairman of the Majlis permanent parliamentary commission on
economic policy, inflation in Azerbaijan next year is projected to hit
13 percent, but he downplayed its potential impact.

"The level of inflation is not the major problem. It is important to
have inflation within a regulated level, which can be achieved through
pursuing the right macroeconomic policy."

Azeri inflation is being fueled not only by increased energy prices
but also by a rise in grain prices, a commodity Azerbaijan imports
mainly from Russia, Ukraine and Kazakhstan.

Baku is also diverting revenue to some dubious projects such as an
expanded defense budget that, according to Deputy Economic Development
Minister Mikayil Jabbarov, in 2006 accounted for 15 percent of all
government spending, exceeding $1 billion, an extraordinary amount for
a nation of 8.1 million citizens. A further factor influencing any
"trickledown" effect of energy revenues to the Azeri population is the
country’s rampant corruption.

Complicating Azerbaijan’s gold rush is its geographical location,
bounded as it is by its fellow Caspian petroleum neighbors Russia and
Iran. Baku’s prosperity is based on a carefully calculated reading of
the foreign policies of its giant petro-state neighbors to the north
and the south. Despite Azerbaijan’s ardent desire for closer relations
with NATO and Washington, the recent Caspian Sea Littoral States
Summit apparently decoupled Baku from its earlier efforts to secure
U.S. and NATO backing for its efforts at safeguarding its independence
by acknowledging that Iran and Russia remain primary foci in its
foreign policy — this despite massive Western investment in its
energy export infrastructure in the from of the Baku-Supsa and
Baku-Tbilisi-Ceyhan pipelines, both free of Russian or Iranian
control. Should Russia and the United States come to a major
disagreement over Iran’s nuclear and energy policies, it seems certain
Azeri prosperity will suffer. Azerbaijan’s prosperity will only
continue as long as it mollifies Washington, Moscow and Tehran, a
complicated balancing act at best.

(e-mail: energy@upi.com)

WASHINGTON, Oct. 25 (UPI) —