Banks + Oil + Manats = Bluster

Garen Yegparian
Garen Yegparian

Garen Yegparian


It seems to me I may have just realized why, over the past year and a half or so, Azerbaijan’s bellicosity and acting on that impulse have risen, costing dozens of Armenians and Azeris their lives. The reason for the increase in BOMBs (see the first letters of the title of this piece) and bullets emanating from the Azeri side must lie in the economy. So many aspects of it are shaky that one has to wonder if a crash is not imminent.

As is usually the case when it comes to economics, nothing is certain, much is subject to perceptions, many considerations are intertwined, one factor can push the economy in a positive direction while triggering another that pushes it in a negative direction, and matters are usually tough to fully comprehend.

The most recent news is the devaluation by close to 50% Azerbaijan’s currency, the Manat, on December 21. Coupled with an earlier devaluation (February 2015), the Manat now stands at half its value against the dollar relative to a year ago. On some levels, people in Azerbaijan, lost half their wealth in less than twelve months. This is because oil is usually bought and sold in dollars, much of international trade is in dollars, and Azerbaijan imports a lot of stuff.

How could this happen to an “oil rich” country like Azerbaijan, where the hydrocarbon industry accounts for some 40% of the economy? Oil prices have plummeted in the last year and a half, which means that the cushion provided by the brought in through the sale of that commodity is not as large as it once was. Couple this with the corruption rampant in Azerbaijan which enriches (at the expense of the country and its people) the president, his clan, and various others, and you have a recipe for serious economic trouble.

Interestingly, this drop in oil prices, which some have argued was engineered by the U.S. to hurt Russia, also, inevitably, hurt Azerbaijan. And, this “hurt” isn’t limited to the impact of lower oil income. Russia is one of Azerbaijan’s largest trading partners and home to (some estimates say) three million Azeris. The impact on Russia means less business and less money for Azerbaijan (trade is down by 24%). It means lower levels of remittances from Azeris living and working in Russia. It means some Azeris returning home, unemployed, creating even more of a burden.

In trying to buy time, the Central Bank of Azerbaijan has been using its foreign currency reserves to prop up the value of the Manat. This is done by using those reserves to buy Manats which props up its value. One estimate in July 2015 gave the bank another six to eight months of these reserves (at about $9 billion). That seems to make sense in light of the latest devaluation. But, The U.S. Federal Reserve Bank’s recent rate increase might also have served as a trigger, since the higher rate will tend to make the dollar stronger, meaning even more devaluation for the Manat.

Another source of comfort was Azerbaijan’s oil money reserve, which stood at some $37 billion. But $13 billion of that was used up in 2014. Undoubtedly, even more was consumed during 2015.

The crash of 2008 did not impact Azerbaijan as fast or as much as other places because its banking industry is a relatively small part of the economy, it is poorly integrated into the world banking structure, and the years 2012-14 were record years for oil income. This suggests to me that weaknesses in the economy were masked, intentionally and/or unintentionally. But now, it looks like Azerbaijan may be about to pay the price of its profligacy.

Let’s look at a few other numbers. Azerbaijan’s GDP (gross domestic product, probably the most commonly used measure of economies) registered astronomical growth in 2005-2006-2007 (26.4%, 34.5%, and 25%, respectively), at least in part due to oil pipelines that became functional then. Thereafter, growth slowed, even with the bump in oil money in the early part of the current decade. 2015’s growth is expected to be 2% and 2016, just 1%

Azerbaijan’s banks’ loan portfolios (how much money they have lent out) has declined by 21%.

Foreign trade overall and real estate investment are both down 29%.

With the lifting of the embargoes on Iran, Azerbaijan will face even more competition because Iranian oil costs less.

Starting at $1.6 billion in 2010, Azerbaijan’s military budget increased to – (in billions) $3.1 in 2011 and 2012, $3.7 in 2013, $4.8 in 2014, $5.0 in 2015 – but in 2016, it decreased to $1.8 billion. What does that suggest?

Large companies have recorded losses and the insurance market has declined.

What does all this mean, especially for Armenians?

Since the Aliyev regime is not stupid, (brutal –yes, corrupt – yes, autocratic – yes, but not stupid) it no doubt perceived the coming troubles 18 months ago. So, Aliyev has been getting ever “louder” in his anti-Armenian pronouncements. Heeding the advice implicit in Samuel Johnson’s observation that “Patriotism is the last refuge of a scoundrel”, Aliyev and his cronies quiet obviously decided to escalate tensions along the Artzakh/Republic of Armenia border, BOMBs, soo they could later play on people’s patriotic sentiments.

The massive purchases of weaponry (remember the huge military budgets) provided a basis for bragging. Then, that hardware had to be used. Of course this meant killing Armenians, which, of course, meant retaliation and dead Azeris. This suited Aliyev & gang perfectly, since Azeri corpses meant families, and at least some portion of Azeri society, angry at Armenians and distracted from their day to day problems and the corruption of the elites in Baku.

Now that the anticipated economic problems have struck, with stores closing or unwilling to sell products for fear of LOSING money (because of the currency devaluation), banks in a tight spot, foreign exchange being limited and people ending up stuck with Manats they don’t want, and overall dissatisfaction among citizens being sharpened by the pain in their wallets, the Aliyev regime can play on the anti-Armenian, bellicose sentiments it has been creating.

Otherwise, opposition forces, which are already chiming in with their critiques could become a very serious problem for Baku’s crooks. One cleverly phrased commentary is, “Azerbaijan has moved to a floating exchange rate but someone forgot to teach it how to swim,” from Natiq Cafarli, an economist and member of the opposition Republican Alternative.

It is very unfortunate that in this season of merriment, we have to witness what might be the onset of an even bloodier period. As has already been observed, there is no longer a ceasefire along the Armenian/Azeri line of contact. Rather, it might best be described as a very low-level war.

It’s time to brace ourselves, some very unpleasant days may be looming. Let’s all, worldwide, push our governments, even the Azeri and Turk loving fools in the State Department, to act now to prevent Azerbaijan from escalating the level of bloodshed.


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  1. Robert Bedrosian said:


    You are probably right about some “bad times,” in the near future, however there may be quite a New Dawn ahead.

    How about a positive New Year’s scene, complete with Gaghant Baba?

    To the children of Asia Minor he will give the gift of independence.

    Time has come to carve the Turkey!

    Happy New Year, Garen, and thanks for your excellent articles. You should publish them in a ebook.

    Robert Bedrosian

  2. Serop said:

    The crash has already occurred, the Azeri government has devalued the manat by almost 100% against the dollar, they are far too arrogant and stupid to accept the reality that their economy has crashed. The price of oil currently at USD$37 is causing serious budget grief for the azeri government as their economy relies over 90% on oil, they are good at hiding the facts and fabricating information which even an 11 year old can see through

  3. joe said:

    Great analysis. I agree that the level of violence is going to escalate for the same reasons. Forget the State Department, as the Neo-cons and Zionists would rather Armenia not be there at all. Instead, unfortunately, Armenian and diaspora must prepare for the reality of possible all out war. We must have world wide drills for this possible reality. Of course no one wants war. Its the last thing anyone wants. In fact Armenia must try to wait this vile regime out while its own economic noose tightens. Unfortunately war might be the regimes last survival tool. That why we must be prepared.

  4. Gaidzag Shahbazian said:

    Great article. Another source of comfort is the closing of many Azerbaijan’s consulates around the world. We need to be prepared always for possible all out war.