Azerbaijan Country Forecast Highlights

Simmering Territorial Dispute

• Parliamentary elections scheduled for November will proceed as planned, despite a lawmaker’s concern that tensions with Armenia should justify their indefinite postponement, based on a new constitutional amendment defining the process to cancel elections in case of a “state of war”…
• Because the current regime’s political opposition is hopelessly weak—from repression and from competing leadership ambitions—it is highly unlikely that any rival party could challenge YAP’s dominance, even if international pressure forced President Ilham Aliyev to implement democratic reforms…
• The potential for a split in YAP is the biggest threat to its staying in power after the November legislative elections or the 2013 presidential elections, and barring another collapse in global oil prices, Aliyev will have the funds to keep his patronage networks, the bedrock of his political power…
• The breaking of the impasse between Turkey and Azerbaijan over the Nabucco project after a state visit by Russian President Dmitry Medvedev to Ankara ended a key diplomatic bargaining chip for Aliyev, who could be tempted to allow disruptions in gas flows to affect change in the future…

Sputtering Economic Growth

• Given the still uncertain outlook for the completion of the Nabucco pipeline, Azerbaijan continues to explore other options to deliver gas to the European market…
• Although the global financial crisis did not deliver a direct economic hit to Azerbaijan, the ensuing worldwide recession contributed to a significant deceleration of growth, and growth in the oil sector has been lower than the non-oil sectors…
• Long-term success for the government’s plan to reduce its oil dependence depends on attracting foreign investment; key obstacles are widespread corruption, a cumbersome bureaucracy, heavy regulation, the sometimes arbitrary application of laws, and an inefficient, opaque legal system…