Reversal of Fortunes: Armenia’s oil-rich arch-foe reels under falling revenues

The continuing currency market shocks and related price hikes in neighboring Azerbaijan do not directly impact Armenia, but observers say developments in a country hostile to Armenians may have influences on the situation in and around the Nagorno-Karabakh conflict zone as well as broader regional politics.

On December 21, the Central Bank of oil-rich Azerbaijan decided to free float the national currency, the manat, to reflect the dramatic fall in international oil prices and decreased currency revenues in this fuel exporting country. As a result, the manat immediately lost about 50 percent of its value against the U.S. dollar and continued to fall in the subsequent days. The situation resulted in panic currency buying and also affected the level of consumer prices in the country.

Azerbaijan’s Turan news agency reports that last week in Azerbaijan’s capital Baku exchange offices practically stopped selling dollars and euros, giving rise to “black market” transactions where the manat has an even lower exchange rate against hard currencies.

Natural gas, oil and oil products make up 95 percent of Azerbaijan’s exports and the country’s state budget is by 75 percent formed due to revenues from fuel sales. The fairly high level of international fuel prices until recently ensured stable revenues for Baku, but a reverse situation is taking its toll now.

Azerbaijani President Ilham Aliyev addressed the issue at a cabinet meeting on January 10, considering the development of the non-oil sector of the economy and reduction of dependence on energy resources to be a priority issue for his government in 2016.

At the same time, media in Azerbaijan also write about other economic woes of the country, including difficulties in the tourism and jewelry sectors and predict more challenges ahead as fuel prices continue to fall on the world market.

While many Azerbaijanis seek to leave the country, some take to the streets these days for protests against their government. These mass anti-government actions taking place in different cities and towns are accompanied by arrests of activists by police.

Other desperate citizens in Azerbaijan attempt suicides as possible ways out of their dire financial straits. A report from one of the towns in Azerbaijan says three young men tried to kill themselves by attempting to plunge from a five-storied building because of not being able to even afford to buy staple bread for their families.

Political analyst Hrant Melik-Shahnazaryan sees greater political activity among residents of Azerbaijan in fighting against the regime led by an autocratic president.

“A few days ago a republic was proclaimed in one of the [Caspian Sea] islands of Azerbaijan, and on Tuesday one of the major highways in the country was closed by authorities to prevent protests at sea ports. It is obvious that society in Azerbaijan already feels the severity of the economic situation to a degree that despite all the persecution its members stage protests and raise economic issues,” the Yerevan-based expert tells ArmeniaNow.

Still, the analyst sees risks that the government in Azerbaijan will try to use the factor of the Armenian-Azerbaijani dispute around Nagorno-Karabakh and through increased border tensions will once again attempt to divert public attention from social and economic problems.

But Melik-Shahnazaryan does not think this method will work this time around. “The Azerbaijani authorities have long used border tensions as a means of solving their domestic problems, but I think that this policy has exhausted itself and the public in Azerbaijan no longer has the same perception of what is happening at the borders with the Armenian states as before. They do understand that their difficulties are not caused by the warlike situation, but are conditioned by the internal policies of their government,” he says.

In Melik-Shahnazaryan’s view, official Baku also understands that new approaches are needed. But while these approaches are absent, he says, Azerbaijan will continue to use the threat of renewed hostilities in Nagorno-Karabakh as pressure also on the international community.

Despite its continuing war rhetoric, because of the drop in international oil prices Azerbaijan has had to nearly twice reduce its military spending for 2016. Until recently, Baku boasted of having a military budget equivalent to the entire state budget of Armenia at around $3 billion.

Azerbaijan’s ceasefire violations in the Nagorno-Karabakh conflict zone and at the state frontier with Armenia in 2015 resulted in the deaths of more than four dozen Armenian soldiers. Several Armenian civilians also died in border shooting.