Economy
Azerbaijan's Oil Resources
The Caspian Sea region is one of the world’s three largest energy resource deposits, and Azerbaijan holds significant resources in this area. Known since ancient times for “digging a hole and finding oil,” the capital city, Baku, saw the world’s first commercial oil drilling in 1848. At one point, its production even surpassed that of the United States, and it experienced a global oil boom until the early 20th century.
During Russian rule, haphazard development reduced production, causing Baku to lose its reputation as a major oil producer by the early 20th century. However, after the Soviet Union occupied the area in 1922, negotiations with Western countries and state investments led to a resurgence, making it the world’s third-largest oil producer by the 1930s.
Throughout the World Wars, Baku supplied the majority of the Soviet military’s oil. Notably, Hitler aimed to capture Baku, sending a 15,000-strong special unit that failed due to fuel and supply shortages.
Post-war, Baku remained a key Soviet oil city until the discovery of vast Siberian oil fields in the 1950s caused a decline. Nonetheless, Azerbaijani engineers and experts continued to make significant contributions to global oil development based on their expertise.
Following the Soviet Union’s collapse, Azerbaijan revitalized its oil industry, securing foreign capital and technology with the “Contract of the Century” in 1994. Azerbaijan now exports oil to Europe and global markets through the Baku-Tbilisi-Ceyhan (BTC) pipeline and has signed 27 production sharing agreements with 30 companies from 15 countries.
The geopolitical significance and resource wealth of the Caspian Sea have drawn considerable interest from the U.S., Europe, Russia, and China, leading to competitive development of energy transport routes. Azerbaijan, a former Soviet state and a Muslim-majority nation, maintains a neutral stance, fostering cooperation with various countries. South Korea has also formed a consortium with several companies to pursue drilling initiatives in the region.
Azerbaijan's Export and Import Market
After gaining independence from the Soviet Union in 1991, Azerbaijan faced severe economic downturns until 1995. However, government-led economic policies leveraging abundant resources resulted in significant recovery. Nonetheless, the country’s resource-dependent economy has its drawbacks. Rapid development was achieved, but the 2015 global oil price decline led to a drastic devaluation of the local currency, the manat, by over 50%. In response, the government announced the “National Economic and Macroeconomic Development Strategy Roadmap,” focusing on economic diversification.
Azerbaijan’s balanced diplomatic approach with surrounding powers and its rich resources have strengthened and expanded economic cooperation with Western countries, Central Asia, the Black Sea region, and Eastern Europe, primarily focusing on natural gas and renewable energy. The Ukraine crisis increased demand for stable gas supplies from non-Russian sources, leading to the construction of the Trans-Adriatic Pipeline extending from Georgia to Turkey, Greece, Albania, and Italy. In 2023, Azerbaijan began supplying natural gas to Hungary, Romania, and Slovakia.
Moreover, Azerbaijan will host the 29th Conference of the Parties (COP29) to the United Nations Framework Convention on Climate Change in 2024, declaring this year the “Year of Green World Solidarity.” The country aims to prioritize “green growth,” targeting a 30% share of renewable energy in total capacity by 2030. The produced green power will be exported across Europe through the Black Sea Energy Submarine Power Cable, a project in collaboration with Georgia, Romania, Hungary, and Bulgaria.
Despite global uncertainties, Azerbaijan has consistently increased its foreign exchange reserves and maintained a stable trade surplus amid high oil prices. The trade pattern mainly involves exporting primary products and importing capital and machinery. Russia and China are Azerbaijan’s top import partners, with South Korea ranking in the top 10. As a rising mid-power in the Caspian Sea region, Azerbaijan continues to strengthen economic ties with neighboring countries based on energy cooperation while establishing itself as a logistical hub through Central Asia.
In addition to energy, Azerbaijan offers diverse and attractive products, thanks to its rich cultural heritage and varied climate. Notably, carpet weaving, which originated in ancient Azerbaijan, is famous worldwide. Other notable products include wine, almonds, and pomegranates.