Oct. 10, 2021 • 2 min
Azerbaijan's transformation is particularly impressive considering that twenty-seven years ago it was involved in a deep political and economic crisis. Amid post-Soviet uncertainty, the economy was in free fall, with a severe contraction in output and growing inflation. The revival of the country's economy followed the introduction of a new oil strategy which encompassed a series of production sharing agreements, and the opening of Azerbaijan's historic oil sector to international investment. A 1994 agreement, hailed as the 'contract of the century', gave investors access to Azerbaijan's rich oil fields in the Caspian Sea. The resulting inflow of capital and expertise permanently altered the country's fortunes. Large-scale production and the construction of multiple pipelines contributed to making Azerbaijan one of the world's largest oil and gas exporters. Azerbaijan's biggest challenge today is diversifying away from hydrocarbons (chemicals found in petrol and natural gas), which represent more than 90 percent of the country's total exports, a 60 percent increase from fifteen years ago. The country expects to capitalise on hydrocarbons for at least another forty years, but oil production is believed to have peaked and Azerbaijan must do more for its non-oil economy. For the government this is a clear priority.