BAKU, Azerbaijan, November 4. The assets of the State Oil Fund of Azerbaijan (SOFAZ) can be preserved even if crude oil prices fall to $65 per barrel, according to draft provisions outlined in the country’s 2027 state and consolidated budget package.
Under the baseline scenario, the assets of SOFAZ are projected to reach $78.3 billion in 2030. If oil prices deviate from the baseline forecast, the fund's assets are expected to range between $70.3 billion and $86.3 billion.
The document noted that the significant share of the oil and gas sector in state budget revenues and national exports amplifies the impact of fluctuations in crude oil prices and production volumes on fiscal and macroeconomic indicators. A decline in oil prices below the projected level could lead to a reduction in oil and gas revenues, subsequently weakening the fiscal balance of the consolidated budget and diminishing the assets of SOFAZ.
For this reason, the potential impact of price volatility in the global energy market, production outlooks, and geopolitical developments on the country’s fiscal indicators has been assessed through various scenarios.
Risk scenarios regarding oil prices were developed based on deviations of $10, $15, and $20 from the baseline forecast in both directions. In addition to the baseline scenario, the analysis accounts for the possibilities of oil prices being either higher or lower than projected. To this end, the analysis utilized historical data on how past forecasts deviated from actual outcomes.
SOFAZ assets may reach $78.3 billion in 2030
According to the presented forecasts, SOFAZ assets stood at approximately $49 billion in 2022, $56 billion in 2023, $60 billion in 2024, and $74 billion in 2025. The figure for 2026 is also expected to stand at around $74-75 billion.
Under the baseline scenario, the Fund's assets are expected to increase to $78.3 billion in 2030. However, depending on possible changes in oil prices, assets that year could be approximately $8 billion below or above the baseline figure.
The document emphasizes that reducing transfers to the state budget over the medium term will make it possible to preserve the State Oil Fund's assets even under unfavorable oil price scenarios.
Oil's fiscal breakeven price expected to decline to $65
Another notable aspect of the draft budget is the forecast for a decline in Azerbaijan's fiscal breakeven oil price.
In particular, the fiscal breakeven price of oil is expected to reach $65 per barrel in 2030. This is $20 below the current benchmark of $85 per barrel.
The document states that although volatility in oil price forecasts remains high, the likelihood of prices falling below $65 over the medium term is considered low.
Consolidated budget deficit relative to GDP may persist
Another important area affected by changes in oil prices is the consolidated budget balance.
According to the data presented, the consolidated budget balance-to-GDP ratio recorded surpluses of 6% in 2022, 8% in 2023, 4% in 2024, and approximately 2.5% in 2025. In 2026, this indicator is projected to turn negative, with a deficit of approximately 2%.
The scenario analysis for 2027-2030 shows that fluctuations in oil prices will continue to affect the consolidated budget balance.
In particular, the consolidated budget balance-to-GDP ratio is expected to stand at negative 0.3% under the baseline scenario in 2030. If oil prices move in directions different from the baseline forecast, this indicator is projected to deviate from the baseline scenario by approximately 1.2-2.4 percentage points.
Thus, the scenario analysis presented in the draft budget shows that although potential declines in oil prices will affect Azerbaijan's fiscal indicators, these risks are expected to be mitigated over the medium term through adjustments to the transfer policy and the preservation of the State Oil Fund's assets.
