Oil price weakness to test Azeri budget, currency

The impact of the global crisis on Azerbaijan could spread beyond reduced remittances and stalled building projects, as further oil price weakness would test its currency, budget and ultimately political stability.

The Caucasus state, a supplier of oil and gas to Europe from the Caspian Sea, is set to face plunging revenues this year as oil prices languish below $50 a barrel compared to nearly $150 last summer.
The rainy-day state oil fund gives the former Soviet republic a cushion against weak oil prices but officials say a budget revision is possible in May-June as the main financial document was based on a price of $70 per barrel versus $44 now.

The fund is forecast to receive $10.5 billion in 2009 based on an average price per barrel of $70, compared with $14.9 billion in 2008.

“The oil fund assets are going to be depleted while the fund itself is not being replenished this year,” said Ana Jelenkovic, an analyst with London-based Eurasia Group.

“What that means is that Azerbaijan is going to face a more difficult time, perhaps not in 2009 but in 2010, depending on how much the (economic growth) is forced to (slow), how long the oil price remains depressed.”

Reuters