Azerbaijan-Russia 2023 Trade and Investment Summary

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By Constantin Duhamel


Large swathes of common history. The presence of Turkic tribes in the Russian Empire from at least 1552 (fall of Kazan) and the latter’s expansion to the Caucasus in the subsequent centuries has brought Russians and Azeris into close contact and facilitated exchange of ideas and goods. The formation of the modern Russian and Azerbaijani nation-states crystallised circa 1920 – when both Russians and Azeris were enmeshed in civil wars that formed short-lived republics – and then shared 70 years’ history as part of Soviet Union following the triumph of Leninist ideals in the area.

A transactional relationship… Rather than lofty goals and roadmaps, Russian and Azerbaijani elites have pursued a balanced and realistic approach to managing their relationship – a code of conduct that suits both parties’ modus operandi in politics and trade.

…Leads to interesting outcomes. Despite the Western-leaning tendencies of Azerbaijan in defence (proximity with both Turkiye and Israel) and the fact that Russia is bound by a mutual defence clause with Azeri arch-enemy and CSTO member Armenia, Russia has remained one of the preferred sources of security provision for Azerbaijan in the form of weapon system imports. Russia’s role as a powerbroker in the region was also confirmed as the Karabagh conflict stabilised only after Russian mediation and the eventual deployment of peacekeepers on Azerbaijan sovereign territory.

Multi-vectoral trade policy for Baku. On the one hand, Azerbaijan is a motivated EU Eastern Partnership member but has not yet signed a cooperation agreement with the EU. Its importance has also risen in EU eyes as a source of ‘sovereign’ (ie., non-Russian) gas as part of Re-Power EU. On the other, as a CIS member Azerbaijan’s trade with Russia is governed by the 1992 Free-Trade Agreement, allowing goods, services and people flow relatively freely in a more than 150-million strong market.

Enduring cooperation despite changing ‘centres of gravity’. With Baku increasingly turning to its Turkish elder brother and Russia doubling down on its Eurasian economic perspectives after the abrupt termination of its European relationships, the two countries have maintained solid cooperation. Ties with Azerbaijan could not be more important considering Western attempts to isolate Russia, while Azerbaijan’s Russia-based diaspora still numbers in the millions – meaning that all things Russia necessarily hit hard at home.

Azerbaijan Macro indicators

Nearly USD 80 billion GDP? Supposing a constant exchange rate – Azerbaijan’s economy is now worth something close to the USD 80 billion mark (133 million manats). On the medium-to-long term, this is something that will likely be boosted by increased demand for hydrocarbons as part of the Re-Power EU initiative. Significant changes in trade partners relating to this will be examined further

Source: Azerbaijan Central Bank, Authors’ own calculations. Manat:USD FX as of 07/03/2023.

Non-oil GDP steadily improving. Notwithstanding the boon in oil and gas for energy-hungry EU partners, Azerbaijan’s non-oil economy is also moving positively at USD 36 billion compared with USD 30 billion a year prior, out of a total of USD 79 and USD 55 billion total GDP figures, respectively.

44% YOY increase in GDP. 2022 was clearly a turning point for Azerbaiijan’s economy, profiting from the warped trade and investment picture as Russia was cut out of Western supply chains and exposures. Azerbaijan – along with rival Armenia that we previously covered – is stepping up to make up for Russia’s usual commodity export volumes.

2022 Investment & Capital Markets summary

Source: Azerbaijan Central Bank, Authors’ own calculations. Manat:USD FX as of 07/03/2023.

Stable investment picture. Per the Central Bank of Azerbaijan, the total stock of capital investments – likely a combination of both portfolio and FDI investments – have been stable at around USD 10 billion for the last few years. Despite a slight dip in the Covid period (2021), capital investments have now recovered and near USD 11 billion. This is likely to increase as the need for more non-Russian gas exports to Europe puts pressure on Azerbaijan to invest more in its hydrocarbon sector.


Fig. 3   Total Azerbaijan Trade in 2022, USD billion

USD billion Turnover Imports Exports Balance
Azerbaijan 57 15 42 27

Source: Azstat

Record current account surplus. Azerbaijan is a typical export-oriented commodities exporter, with over twice the value of goods exported as imported – racking up a USD 27 billion commercial surplus in hard currencies for the Caucasian nation.

Fig.4    Azerbaijan main trade partners in decreasing order of importance 2022

USD billion % of Azerbaijan trade turnover Of which export Of which import
Italy 11 98 2
Turkey 7 60 40
Russia 4 26 74
China 3.5 3 97

Source: Azstat

Curious mix of import and export partners with Russia at the forefront. The data above suggests that Italy and Turkey are Azerbaijan’s top two export partners – with gas evidently at the forefront, considering Italy’s energy needs – while Russia and China act as providers of other essential goods and services for the country to operate. Russia in particular is the top import partner of Azerbaijan, with a market share marginally above that of China. Figures could also be relatively boosted when factoring in EAEU countries.

Non-oil and gas imports and exports on the rise. Export of foodstuffs like tobacco and tea rose by 30% and 60%, respectively, while aluminium (processed and unprocessed) rose by 42% and 50%. Compared with 2021, Azerbaijan increased its imports of foodstuffs such as wheat, oils, sugar and derivative products typically by more than 10% per category. Chemical products and finished goods such as air conditioners also increased by more than 50% YOY.

Future trends

Fig. 5 Key indicators

MANAT:USD official CB Interest rate Inflation rate GDP per capita, USD
0.59 8.25% 14% 7800

Source: Central Bank of Azerbaijan

Relatively high GDP per capita figures. Interestingly, Azerbaijan ranks amongst the richest of Caucasian countries, and upwards pressure on GDP per capita is likely considering its increased importance as a hydrocarbon supplier. That said, GDP per capita is just an accounting measure and does not reflect the realities of wealth distribution in the country that are skewed to favour the ruling elite.

Fig. 6   North-South corridor routes

Source: Silk Road briefing.

Azerbaijan as an increasingly popular North-South transit hub. Assuming security in the Nagorno-Karabagh region is maintained, Azerbaijan has a real capacity to act as a crossroads between trade routes linking North – South (ranging from India to Russia) and West – East across the Caspian, linking Europe with Central Asia and ultimately China (known as TRACEA). The former has become key as Russia seeks to develop direct trade with India via Iran. Azerbaijan’s location, therefore, is ideally placed to benefit from increased flows of capital, people and goods or services that this would imply.

Fig. 7   East-West (TRACEA) transport corridor

Source: Magellan geographics.

East-West flows are still king. TRACEA remains, however, the most actively used transport route as Europe seeks to import hydrocarbons and other commodities from outside of Russia. Per the State Statistics Committee of Azerbaijan, cargo transportation along the TRACEA in 2022 was 30% more YOY, reaching 51 thousand tons, half of which was transported by road.

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