Azerbaijan's economy in 2025: Record forex reserves, expanding oil and gas operations in Middle East

Geopolitical processes in the world in 2025 influenced the economy of most countries worldwide. As a result, volatile external conditions were observed in global markets throughout the year. On one hand, especially in the second half of the year, there was a decrease in oil and gas prices. On the other hand, there has been a significant increase in the prices of gold, silver, and other precious metals. For example, gold prices broke records more than 50 times during the year and reached $4,500 per ounce.

Overall, since the beginning of the year, gold has appreciated by approximately 70%, demonstrating the best annual performance since 1979. As for silver, prices exceeded $82 per ounce for the first time, partly due to expectations of metal shortages amid high industrial demand. Under these conditions, the government of Azerbaijan managed to ensure macroeconomic stability in the country, implement a series of reforms aimed at increasing the country's investment attractiveness and improving the business environment, keep inflation within the forecasted range, and ensure an improvement in the standard of living through real wage growth.

Macroeconomics

Despite the difficult external macro environment, the flexible actions of Azerbaijan's relevant state structures ensured overall macroeconomic stability. As a result, for the first 11 months of 2025, Azerbaijan's strategic foreign exchange reserves grew by 17.7% to a record level of $83.6 billion. At the same time, foreign exchange reserves exceed the country's external debt by 17 times! This has formed, in the language of international rating agencies, the necessary safety cushion that reliably protects Azerbaijan's economy from all kinds of external shocks. However, some wave-like patterns in economic growth rates still persist. In one year, the economy demonstrates high rates of economic growth, as for example in 2022 and 2024, after which in the following year, there is some slowdown in economic growth rates, as for example in 2023 and 2025. But this is largely related to the external economic environment.

For example, according to International Monetary Fund estimates, global economic growth in 2025 will slow to 3.2% from 3.3% in 2024. The Organization for Economic Cooperation and Development (OECD) adheres to the same assessment. International rating agency Fitch Ratings expects global GDP to slow this year to 2.5% from 2.9% in 2024.

Based on the results of 11 months of 2025, Azerbaijan's GDP growth was 1.6%. In 2024, the economy grew by 4.1%. Several external and internal factors influenced the slowdown in economic growth. Among external factors, instability in the oil market can be noted, which manifested in lower oil prices. In 2024, the average export price of Azeri Light crude oil was around $84 per barrel. However, in 2025, the price of Azerbaijani oil was lower. For the first half of the year, the price was $73.8 per barrel, dropping to $70.2/barrel after nine months, and will be even lower in the fourth quarter. Among internal factors that affected the slowdown in economic growth, the continuing trend of declining oil production, a slight increase in gas production (for 11 months of 2025, the decline in oil and gas GDP was 1.8%), as well as the high base of GDP in 2024, can be noted.

Growth in the non-oil and gas sector was a moderate 3.2%. In the medium term, Azerbaijan's GDP growth rates will be significantly higher than current indicators. According to government estimates, in 2026-2029, the economy will grow by an average of 3.5% annually, while growth in the non-oil and gas sector will be around 5%. According to various estimates by international financial institutions, global economic growth in 2026 will be at the level of 2.8-3.2%, and approximately the same pace will be maintained in the short term. Thus, in the medium term, Azerbaijan's economy will grow at a higher rate than the global economy.

This year, there was some acceleration in the inflation rate. While in 2024, the average annual inflation slowed from 8.8% to 2.2%, in 2025 it remained at around 6%. This situation was due to both external and internal factors. The main external factor is the rise in import prices due to high inflation in major partner countries. As for internal factors, increased demand and rising monetary income of the population fueled inflationary trends. But overall, inflation remained within the corridor defined by the government and the Central Bank, namely (4±2%).

Additionally, the growth of nominal monetary income of the population in the current year (8.1% for 11 months) was higher than annual inflation (5.5% at the end of November), which ensured high purchasing power of the population (retail turnover increased by 3.7% over 11 months).

Energy

The oil and gas sector traditionally plays an important role in Azerbaijan's economy. In 2025, many interesting and important events occurred in this sector, which confirmed the growing interest of foreign investors in Azerbaijan's fuel and energy complex, as well as the strengthening of the country's international positions in this sector. One of the significant events of the year was the start of Azerbaijani gas supplies to Syria in August. The supplies are carried out through the Kilis-Aleppo pipeline under a trilateral agreement between Azerbaijan, Türkiye, and Syria. Thus, about 2 billion cubic meters of gas can be exported to Syria annually. It is expected that the implementation of the project will significantly improve the energy supply system for up to 5 million subscribers in this region of Syria. As a result, the number of countries buying gas from Azerbaijan has reached 14. Additionally, in December, SOCAR announced an agreement with Qatar's UCC Holding to create a joint venture to supply fuel to Damascus International Airport (Syria).

In 2025, SOCAR expanded its operations abroad - primarily in the Middle East region. In particular, the State Oil Company of Azerbaijan concluded a deal with Union Energy in late January to acquire a 10% stake in the Tamar project (in Israel - ed.), one of the largest offshore gas fields in the Mediterranean. This acquisition marks SOCAR's first major investment in exploration and production projects in the Mediterranean. Tamar is a gas field discovered in January 2009.

The first gas from the field was obtained in April 2013. According to an independent reserves assessment conducted by NSAI, the estimated natural gas reserves at the field are approximately 13.73 trillion cubic feet (389 billion cubic meters). In addition, SOCAR and Union Energy signed a memorandum of understanding in March for joint gas exploration in Israel's exclusive economic zone. A consortium consisting of the State Oil Company, BP Plc, and Israeli NewMed Energy received licenses for gas exploration in Zone I-6 of Israel's EEZ in the Mediterranean Sea.

Among the state oil company's successful agreements this year, the following can be noted: with German SEFE - a 10-year gas purchase contract (annual volume will gradually increase to 1.5 billion cubic meters); with the Ministry of Energy of Uzbekistan and Uzbekneftegaz - a Production Sharing Agreement (PSA) providing for geological exploration and subsequent hydrocarbon production in investment blocks of the Ustyurt oil and gas region (investments in the project are estimated at $2 billion); with API Holding - on the acquisition of 99.82% of shares in Italiana Petroli S.p.A. (IP Group, completion of the deal is expected in the first quarter of 2026).

All these agreements are aimed at expanding SOCAR's geographical footprint, diversifying the company's revenue structure, as well as transforming it into a multinational company with a large portfolio of projects in various parts of the world. The effective activities of Azerbaijan and its foreign partners have led to gas production in the country reaching 50 billion cubic meters per year, and improved infrastructure for gas transportation. Azerbaijan and Türkiye launched the Igdir-Nakhchivan pipeline in March for gas supplies to the Nakhchivan Autonomous Republic of Azerbaijan (NAR).

Azerbaijan's President Ilham Aliyev and Türkiye's President Recep Tayyip Erdogan participated in the pipeline launch ceremony via videoconference. Gas from Azerbaijan, entering the NAR through Turkish territory, will solve the autonomous republic's gas supply problem. Additionally, shareholders of the region's largest gas field project - Shah Deniz - signed the final investment decision (FID) in June for the construction of the Shah Deniz Compression (SDC) platform project.

The $2.9 billion SDC project is a continuation of the two previous phases of field development. The aim of this project is to ensure the availability of low-pressure gas reserves in the field and enable their production, which will allow achieving maximum gas recovery from the field. The project is expected to produce and export about 50 billion cubic meters of additional gas and about 25 million barrels of additional condensate from the field.

Azerbaijan has also signed an agreement (on basic, non-legally binding terms) with XRG, the international investment division of the state-owned company ADNOC (Abu Dhabi National Oil Company, UAE), regarding investments within the Southern Gas Corridor. British BP plc this year acquired 35% equity stakes in both the Karabakh field development project and the promising Ashrafi-Dan-Ulduzu-Aypara structures in the Azerbaijani sector of the Caspian Sea. SOCAR retained the remaining 65% in both projects.

BP will serve as the operator for both projects. As is known, one of the key directions for Azerbaijan in the energy sector is renewable energy sources (RES). In recent years, Azerbaijan has been actively working in this direction and has achieved significant accomplishments. This includes increasing the number of implemented projects and expanding partnerships. This year, two major projects were carried out in this direction: BP, SOCAR Green, and the Azerbaijan Entrepreneurship Development Fund signed a final investment decision on the construction of the Shafag solar power plant with a capacity of 240 MW in the Jabrayil district (investment - $200 million); BP, SOCAR, and other investors of the Sangachal oil and gas terminal approved its electrification project (investment - $220 million); in June, the November 8 power plant was opened in Mingachevir, resulting in an increase of the station's total generating capacity to 1,880 MW.

Simultaneously, Azerbaijan continues active implementation of major projects in the field of green energy that involve countries of Central Asia, the South Caucasus, Türkiye, and the European Union. In particular, the energy ministers of Azerbaijan, Georgia, Türkiye, and Bulgaria signed a memorandum on cooperation in the field of green energy, thereby initiating the process of creating a new corridor, while Azerbaijan, Kazakhstan, and Uzbekistan signed a document on the establishment of a joint venture "Yasil Dehliz Birliyi" ("Green Corridor Union") to implement the Central Asia - Azerbaijan Green Energy Corridor project.

Foreign Exchange Market

Macroeconomic stability and relatively comfortable hydrocarbon prices ensured stability in the country's foreign exchange market. In 2025, the trend continued where supply exceeded demand in the foreign exchange market.

As a result, the State Oil Fund of Azerbaijan reduced foreign currency sales in currency markets by 24.3% to $4.35 billion during the first 9 months of 2025. While in the first quarter of 2025 the fund's currency sales amounted to $2.42 billion, in the second quarter they were $1.3 billion, and in the third quarter they fell to $632.2 million. Additionally, according to the Central Bank, over 11 months, the volume of foreign currency purchased by exchange offices from the population exceeded the sale of cash currency by $393 million. As a consequence of this situation, the Central Bank's foreign exchange reserves grew by 4.3% over 11 months to $11.4 billion, while the State Oil Fund's assets increased by 16.9% over nine months to approximately $70.2 billion.

In general, it is safe to state that the government has adapted to the current conditions in the oil and gas market, namely to fluctuations in oil prices. SOFAZ and the CBA implement a flexible policy that helps protect the country's foreign exchange reserves from these price fluctuations. Therefore, in the current conditions, all talks about a possible devaluation of the manat are unfounded. There are no economic prerequisites for this now. In addition, the current account surplus of the balance of payments maintains a positive trend – the surplus equals $3 billion for nine months. There is also a surplus in foreign trade for 11 months at the level of $2.2 billion (decreased by 2.5 times compared to the same period last year due to lower hydrocarbon prices and an increase in imports by almost 13%). Thus, the situation in the foreign exchange market remained stable this year. This process was accompanied by de-dollarization of public deposits – the share of individual deposits in foreign currency decreased to 29% by the end of November.

Fiscal Policy

Relatively comfortable oil prices and stable growth of non-oil and gas tax revenues ensured the formation of a significant state budget surplus. According to the Ministry of Finance, in January-November of the current year, state budget revenues amounted to 35.6 billion manats (+4.6% from the indicator of 11 months of last year), expenditures – 31.4 billion manats (+1.2%), and the surplus - 4.2 billion manats (+39.5%). This situation allowed for the timely and full execution of budget expenditures throughout 2025. In addition, taking into account the significant surplus in the state budget and the provision of additional state budget revenues, the Ministry of Finance introduced a new mechanism this year – conducting deposit auctions, within which it placed treasury account funds in the country's systemically important banks for a short-term period. This mechanism provided additional state budget revenues amounting to 98.6 million manats. Thus, deposit auctions have proven their effectiveness, and it can be expected that the Ministry of Finance will continue to use this mechanism in 2026.

Finance

The Central Bank of Azerbaijan, taking into account inflation and domestic demand/supply in 2025, adhered to easing monetary policy. This year, the CBA held 8 meetings on the discount rate; at 6 of them, it left the rate unchanged, and twice it decided to reduce it – each time by 25 basis points. As a result, the current discount rate is 6.75% - at the minimum level for the last 4 years and close to the neutral interest rate. As for the financial sector, the situation here is also under control. The current year passed without shocks for the financial sector. Bank assets grew by 17.1% over the year and reached 58.7 billion manats at the end of December 1. The loan portfolio of banks increased by 8.4% during the reporting period - to 27.9 billion manats, deposits of the population - by 14.3% - to 15.8 billion manats.

Positive dynamics also persist in the insurance market: insurers' premiums in January-November amounted to about 1.4 billion manats (+11.7% from the indicator of 11 months of 2024), payments – 844.8 million manats (+21.7%). A similar situation is observed in other segments of the financial market. The results of 2025 create conditions for comprehensive economic development of the country in 2026. Next year completes the implementation of the Strategy for Socio-Economic Development of the Republic of Azerbaijan for 2022-2026, aimed at ensuring sustainable growth and diversification of the economy through the development of the digital economy, green energy, improving living standards, and ensuring competitiveness. This strategy is designed to ensure a smooth transition of the economy from the post-COVID period to economic development at a faster pace in 2027-2030. The Government of Azerbaijan has already begun the process of developing a strategy for the new medium-term period.

Report Analytical Service