Western Sanctions on Russia May Have Repercussions for Azerbaijan

As Western sanctions in opposition to Russia proceed to mount, observers in Azerbaijan are involved concerning the potential ramifications in a rustic with shut financial ties to Moscow.

Some specialists consider Russia’s worsening financial place will hurt Azerbaijan’s commerce relations and cash transfers with the nation, which is Azerbaijan’s principal import associate and residential to over 2.5 million Azerbaijani migrant laborers.

Economist Natig Jafarli informed VOA that financial sanctions on Russia will create issues for the banking sector of Azerbaijan and will create sure obstacles to worldwide cash transfers, since Azerbaijan doesn’t have a separate cash switch system with Russia.

“If Russia is totally excluded from the worldwide cash switch system, on the very least, interbank cash transfers and transfers between Azerbaijan and Russia will change into unattainable,” Jafarli mentioned.

In line with Gubad Ibadoglu, senior economist and visiting fellow on the London Faculty of Economics and Political Science, the State Oil Fund of the Republic of Azerbaijan would be the most affected by the fast adjustments within the Russian economic system.

“SOFAZ’s investments in Russia have exceeded $903 million,” he mentioned. “These investments are presently in danger, which is able to in the end result in trade fee losses for SOFAZ. In different phrases, there shall be a rise in extra-budgetary expenditures, which is able to improve its international trade earnings,” suggesting that SOFAZ and different Azerbaijani authorities our bodies should promote their belongings earlier than “the financial disaster” in Russia and withdraw their investments.

Along with SOFAZ, Ibadoglu mentioned Azerbaijan’s commerce relations with Russia shall be affected, contemplating that Russia is Azerbaijan’s principal import associate.

Azerbaijan purchased $2.1 billion value of products and bought $920.8 million on the Russian market in 2021. Greater than 95% of these items had been non-oil merchandise. Ibadoglu mentioned issues with financial institution settlements with Russia, which is the normal market of the non-oil sector, and the devaluation of the ruble this yr may create critical difficulties for exporters.

“Those that export items from Azerbaijan to Russia will face losses as a result of sharp depreciation of the ruble in opposition to the Azerbaijani manat, which is able to scale back the revenue of producers and exporters, particularly within the non-oil sector, primarily in agriculture,” he mentioned.

Remittances despatched from Russia by the roughly 2.5 million Azerbaijanis dwelling there shall be one other space affected by the state of affairs in Russia, Ibadoglu mentioned.

In most Azerbaijani districts, Azerbaijani labor migrants play an essential function in figuring out family revenue. Ibadoglu mentioned tensions within the Russian labor market, in addition to the decline and devaluation of earnings because of the tensions, matched with the ruble’s depreciation, will lead to a lower in remittances to Azerbaijan.

“In line with the information from the Central Financial institution of Azerbaijan for the primary 9 months of 2021, about 60% of remittances got here from migrants dwelling in Russia. Because of this final yr, remittances despatched via banks by migrants dwelling in Russia amounted to $680 million. A pointy decline on this switch is anticipated this yr,” Ibadoglu mentioned.

Azerbaijani parliament member Rasim Musabeyov agrees that remittances shall be affected.

“Russia’s sanctions will considerably restrict banking operations. With the financial downturn in Russia, will probably be tough to ship cash to households,” he mentioned.

He additionally argues that sanctions may have a destructive affect on Azerbaijan’s international commerce with Russia.

“We used to import crucial meals merchandise from the Russian market. However it’s tough to say to what extent will probably be doable to import them now,” Musabeyov mentioned.

But the lawmaker says Russia’s financial downturn additionally creates alternatives. He claims that since communication routes via Russia are restricted, and Ukraine’s borders are closed as a result of struggle, commerce that was beforehand carried out via Russia, Ukraine and Belarus, will now primarily move via the Baku-Tbilisi-Kars route.

“The significance of our transport routes will improve considerably. Each the Southern Gasoline Hall and the Baku-Tbilisi-Ceyhan oil pipeline shall be closely loaded. It’s estimated that a big a part of Kazakh oil shall be exported to the markets, not via Novorossiysk, however via Azerbaijan, and it’s prone to considerably improve our capability,” Musabeyov mentioned.

This story originated in VOA’s Azerbaijani Service.