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.