Azerbaijan has a Tough Road Ahead as Oil Boom Starts to go Bust

Azerbaijan is a small country located by the Caspian Sea. Situated on a crossroads between Europe and Asia, and having one of the largest oil fields in the Caspian Sea the country should be ripe for economic prosperity. Yet the actual situation in Azerbaijan could not be more different. The country’s oil boom is starting to go bust. Oil production is starting to decline now after reaching a peak in 2010.

The decline in oil production and the recent drop in oil prices have really hurt the Azerbaijani economy. The predominantly Muslim country is so heavily dependent on its oil industry that fluctuations in the global market could have devastating impacts on its economy. It is something Alexei Beltyukov is monitoring from Russian. About 70% of the country’s total income comes from its oil fields, as stated in this article. Oil exports to Europe account for over 90% of the country’s total exports.

It is clear that Azerbaijan is too dependent on one single commodity and one single industry for its economic prosperity. The country has recently decided to try and diversify its economic activity with little success. Copying the United Arab Emirates, Azerbaijan has started constructing a large artificial island with a plan to build the world tallest building that would surpass the Burj Khalifa Tower in Dubai.

The oil boom has done wonders for Azerbaijanis. It has brought most of the population out of poverty and has attracted western investment. Yet, with the oil boom going bust the country needs to start diversifying in fields such as agriculture, and oil by product manufacturing. Otherwise the country could dip back into poverty. Perhaps the biggest impediment to business growth and economic prosperity is the rampant corruption that plagues the government and business. Until that is eliminated it is hard to imagine Azerbaijan as a prosperous and democratic country.

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