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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 (banks, oil, manats, and blusters) 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 percent of Azerbaijan’s currency, the manat, on Dec. 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 level, people in Azerbaijan lost half their wealth in less than 12 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 goods.

How could this happen to an “oil rich” country like Azerbaijan, where the hydrocarbon industry accounts for some 40 percent 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) 3 million Azeris. The impact on Russia means less business and less money for Azerbaijan (trade is down by 24 percent). It means lower levels of remittances from Azeris living and working in Russia. It means that some Azeris are 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 6 to 8 months of these reserves (at about $9 billion). That seems to make sense in light of the latest devaluation. However, the U.S. Federal Reserve Bank’s recent rate increase might also have served as a trigger, since the higher rate tends 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 2012-2014 were record years for oil income. This suggests 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, and 2007 (26.4 percent, 34.5 percent, and 25 percent, 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 percent and 2016, just 1 percent.

Azerbaijan’s banks’ loan portfolios (how much money they have lent out) have declined by 21 percent. Foreign trade overall and real estate investment are both down 29 percent.

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 $3.1 billion in 2011 and 2012, $3.7 billion in 2013, $4.8 billion in 2014, and $5 billion in 2015; but in 2016, it decreased to $1.8 billion. What does that suggest?

Meanwhile, 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 quite obviously decided to escalate tensions along the Artsakh/Republic of Armenia border, so 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 and his gang perfectly, since Azeri corpses meant families and, at least, some portion of Azeri society, would turn their anger at Armenians and would be 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 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 those fools in the State Department who are close to the Azeri and Turk leadership, to act now to prevent Azerbaijan from escalating the level of bloodshed.


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 (banks, oil, manats, and blusters) 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 percent of Azerbaijan’s currency, the manat, on Dec. 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 level, people in Azerbaijan lost half their wealth in less than 12 months. This is because oil is usually bought and sold in dollars, much of international [...]
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 (banks, oil, manats, and blusters) 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 percent of Azerbaijan’s currency, the manat, on Dec. 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 level, people in Azerbaijan lost half their wealth in less than 12 months. This is because oil is usually bought and sold in dollars, much of international [...]
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