Recent events in the Middle East have shaken not only regional security but also the global economy. The military operations carried out by the US and Israel against Iran, along with Tehran’s retaliatory targeting of regional military and energy infrastructure, were immediately reflected in oil markets. The price of Brent crude, the world’s main benchmark, rose above $114 per barrel in early May, reaching one of its highest levels in the past four years.
The main reason is not an actual physical oil shortage, but the possibility of one.
Roughly one-fifth of the world’s daily oil trade passes through the Strait of Hormuz, located between the Persian Gulf and the Gulf of Oman. As military risks rise in this route, markets price those risks in. The Trump administration’s hardline policy toward Iran and Israel’s direct targeting of Tehran have further increased these concerns.
For the region, this means a new humanitarian and political crisis. But for Azerbaijan, as an energy exporter and transit country, the crisis has also opened a window of economic opportunity.
History shows that crises in the Middle East have often resulted in increased oil revenues for Baku, expanded state capacity, and heightened geopolitical importance.
The question is: is the same scenario repeating itself?
How did the war begin?
The confrontation between Israel and Iran is not new.
After the 1979 Iranian Revolution, Tehran began viewing Israel as one of its principal regional rivals. Over the following decades, the conflict was largely conducted indirectly — through proxy forces, intelligence operations, and cyberattacks.
Iran-backed armed groups such as Hamas and Hezbollah have long been considered major security threats by Israel. Israel, meanwhile, has consistently portrayed Iran’s nuclear program as a direct threat to its national security.
Reports by the International Atomic Energy Agency in recent years indicated that Iran had increased uranium enrichment levels, raising alarm in Western capitals.
For Washington and Tel Aviv, the issue is not only Iran’s nuclear potential but also the regional balance of power. As Iran expanded its influence in Iraq, Syria, Lebanon, and Yemen, Israel increasingly viewed this as strategic encirclement. The US, meanwhile, has sought to protect the security architecture of its regional allies. For this reason, the current war is not simply a military confrontation between states. It is also a struggle over energy routes, regional dominance, and global economic stability.
How has the global economy reacted?
Military conflict in the Middle East is first reflected in energy markets.
The reason is simple: Iran is one of the world’s largest oil and gas producers, but even more important is its geographic position. The Strait of Hormuz is one of the most critical chokepoints in global energy security. Approximately 20 million barrels of oil and petroleum products pass through it every day. This is equivalent to roughly one-fifth of global seaborne oil trade. As risks along this route increase, the market immediately translates them into prices.
Once again, the same thing happened.
Israel’s strikes on military targets inside Iranian territory and the possibility of Tehran’s response immediately pushed oil prices higher. Oil prices rose sharply within a few days. Not only physical supply, but also logistics costs began to increase. As energy prices rise, transportation, production, and consumption costs also go up. This, in turn, intensifies inflationary pressures worldwide.
In other words, war in the Middle East is not only a military crisis, but also a global economic event.
The most direct beneficiaries of such crises are usually energy exporters. Azerbaijan is among them.
Azerbaijan’s main gain: Expensive oil
Economist and chairman of the REAL Party, Natig Jafarli, tells Meydan TV that geopolitical tensions in the Middle East directly affect the energy market and generate additional revenue for exporting countries like Azerbaijan:
Economist Natig Jafarli. Photo: Meydan TV
“Events in the Gulf countries and around the Strait of Hormuz make it physically more difficult for oil and gas to reach the market as a result of geopolitical tensions. In particular, the possibility of a closure of the Strait of Hormuz and strikes on energy infrastructure initially reduced the volume of oil reaching the market by at least 14–15 million barrels. Although part of this can be offset through alternative routes, geopolitical tensions have significantly pushed up oil prices.”
Azerbaijan’s 2026 state budget has been prepared based on a benchmark oil price of $65 per barrel. This means that as market prices rise above this level, the government gains additional revenue opportunities.
In the global market, Brent crude oil is trading at around $110 per barrel. Azeri Light, the main export grade of Azerbaijani oil, is sold on international markets at a price close to Brent crude.
This is approximately $45 higher than the price assumed in the budget. Azerbaijan exports an average of around 450,000 barrels of crude oil per day. In simple terms, if there is an additional $45 per barrel difference, this amounts to $20.25 million across 450,000 barrels. This represents daily additional revenue. Over a monthly period, this figure exceeds $600 million.
Of course, this calculation does not take into account logistics, contractual differences, and market volatility. However, it is sufficient to illustrate the overall trend: rising oil prices amid war create additional fiscal room for Azerbaijan. A significant portion of this revenue flows directly and indirectly into public finances. Natig Jafarli argues that the fiscal impact of the price increase will be felt directly in the State Oil Fund:
“Taking into account Azerbaijan’s daily oil production and export capacity, the State Oil Fund could receive an additional $1.5–2 billion in funds this year compared to the planned level. This is because foreign currency first enters the Oil Fund and is then transferred to the state budget.”
As the expert also notes, additional transfer opportunities to the state budget emerge through the State Oil Fund, foreign exchange reserves increase, and fiscal stability is strengthened. This is a significant advantage for the government, especially in a context of high dependence on oil revenues. However, Azerbaijan’s gains are not limited solely to oil prices.
How can Azerbaijan’s transit importance increase if the Strait of Hormuz is closed?
If energy routes in the Middle East come under risk, Azerbaijan’s geographic location becomes more valuable.
If oil prices are the first economic dividend, transit routes are the second source of gain.
Natig Jafarli also says that the crisis is changing not only the energy market but also the logistics map:
“The disruption of maritime logistics increases Azerbaijan’s importance as a logistics hub. As one of the key links of the Middle Corridor, the volume of cargo passing through Azerbaijan is rising. This brings additional transit revenues to the country and enhances its geopolitical significance.”
Iran is not only an energy producer but also an important logistical transit route between Asia and Europe. Rising security risks in the Strait of Hormuz and the instability of Iranian routes increase the importance of alternative corridors. At this point, Azerbaijan’s position comes into focus.
The Baku–Tbilisi–Ceyhan pipeline is one of the main alternative routes for transporting Caspian oil to the Mediterranean Sea. Its strategic advantage is that it lies outside the risks of the Persian Gulf. The same applies to the Middle Corridor. Stretching from China through Kazakhstan, the Caspian Sea, Azerbaijan, Georgia, and Turkey to Europe, this route has in recent years become a key alternative bypassing Russia.
According to the European Bank for Reconstruction and Development, cargo volumes along the Middle Corridor are growing rapidly, creating new economic opportunities for Azerbaijan. In 2024 alone, shipments increased by 62%, reaching 4.5 million tons. In 2025, this figure is forecast to rise to 5.2 million tons.
These figures show that as geopolitical risks increase, alternative transit routes become more valuable.
If military risks in the Middle East deepen, the interest of Central Asian countries and Europe in routes passing through Azerbaijan could increase further. This would expand Azerbaijan’s role beyond an energy exporter, turning it into a regional logistics hub.
However, Natig Jafarli also notes that an increase in energy revenues does not automatically translate into improved public welfare. According to him, Azerbaijan’s high dependence on imports also makes the negative effects of such geopolitical crises inevitable:
“From a structural point of view, the Azerbaijani economy is quite rudimentary and highly dependent on imports. Around 73–74% of food products in the country depend on imports. In pharmaceuticals, this figure is 94%, while in electronics and household appliances, as well as in cars and spare parts, it is close to 100%. Against the backdrop of such high external dependence, the emergence of logistical problems and rising energy prices increase inflation abroad, which in turn raises the prices of imported goods in Azerbaijan. This leads to a new wave of inflation in the country. Although additional revenues enter the state budget and the State Oil Fund, this does not translate into improved public welfare. On the contrary, prices rise and real incomes decline.”
Jafarli adds that economic indicators also show the situation is not as stable as it appears:
“In Azerbaijan, gross domestic product decreased by 0.3% in the first quarter. This shows that economic growth is close to stagnation. We are almost on the brink of recession.”
However, history shows that economic gains from external crises in Azerbaijan do not produce only economic outcomes. They also have political consequences.
A historical parallel: what happens in Azerbaijan when oil prices rise?
Over the past 15 years, oil price increases driven by regional crises have several times brought additional revenue to Baku.
The first major example was in 2011. As the Arab Spring shook the political order in the Middle East, oil markets were also disrupted. Production in Libya came to a halt, regional uncertainty increased, and Brent crude prices approached $120. For Azerbaijan, this marked a continuation of a period of record revenues.
In the Arab world, authoritarian systems were facing street protests, while in Azerbaijan high energy revenues were strengthening the financial stability of the political system. The most visible political consequences of this process emerged in 2013–2014. After the 2013 presidential election in Azerbaijan, pressure on civil society and independent media increased sharply. Human rights defenders such as Anar Mammadli, Leyla Yunus and Arif Yunus, Intigam Aliyev, Rasul Jafarov, Bashir Suleymanli, investigative journalist Khadija Ismayilova, politicians Ilgar Mammadov, Tofig Yagublu, Yadigar Sadigov, and many other prominent civil society figures were arrested. International human rights organizations described that period as a phase of systematic repression against civil society in Azerbaijan.
High oil revenues gave the authorities broader fiscal capacity. Social spending was increased, foreign exchange reserves were maintained, and at the same time the economic costs of political pressure could be more easily absorbed. A similar dynamic was observed in 2022. After Russia’s invasion of Ukraine, energy prices rose again, and Europe turned to Azerbaijan in search of alternative gas supplies. Azerbaijan’s geopolitical weight increased, and at the same time political arrests also intensified. The new energy shock unfolding amid the Israel–Iran conflict today could also create a similar pattern.
History shows that when regional crises generate additional income for Azerbaijan, these revenues are used not only for the economy but also to reinforce the resilience of the political system.
Political commentator Nahid Jafarov, speaking to Meydan TV, believes that the current geopolitical situation creates short-term relief for authoritarian systems:
Photo: Nahid Jafarov’s personal Facebook page
“Today’s rise in oil prices and Azerbaijan’s increasing importance in energy security are real and visible factors. However, in global politics, principles such as human rights and democracy are being pushed into the background, while realpolitik is coming to the forefront. Ilham Aliyev is also trying to make maximum use of this.”
What are Russia’s gains from this war?
The economic consequences of the Israel–Iran war are significant not only for Azerbaijan but also for Russia. For Moscow as well, the main gains still come from energy. Although the Russian economy operates under sanctions, energy exports remain one of the main pillars of its budget. Rising global oil prices increase Kremlin revenues. This is particularly important in the context of the financial burden of the war in Ukraine.
For Russia, the second political benefit is the diversion of attention. Since 2022, the West’s main political and military focus has been on Ukraine. A new major war in the Middle East divides this attention. This creates strategic relief for Moscow. Washington’s military and diplomatic resources are stretched, and the Western agenda becomes fragmented.
However, Moscow also faces risks. Iran is one of Russia’s key partners in the region. If Tehran is weakened, the Kremlin’s influence in the Middle East could also decline. In other words, while Russia may gain short-term economic benefits from the war, it could simultaneously face longer-term geopolitical risks.
War and the gains of authoritarian leaders
Wars are often not only a threat for authoritarian leaders, but also an opportunity. History shows that narratives of external threats are among the most effective tools for strengthening political control at home.
This mechanism operates in a similar way in different countries.
The war in Ukraine has pushed Vladimir Putin’s rule in Russia to lean even more heavily on security-focused rhetoric.
In Israel, Benjamin Netanyahu managed to push political pressures into the background during wartime.
In the United States, Donald Trump’s foreign policy rhetoric is likewise grounded in projecting strength and a tough security stance.
In Azerbaijan, as noted, external wars generate indirect economic gains rather than direct involvement. Historical experience shows that energy revenues arising from regional crises tend to strengthen the resilience of the political system. The price surge that began during the Arab Spring in 2011 expanded fiscal capacity through high energy revenues between 2011 and 2014. In 2014, a total of 9.3 billion manats was transferred from the State Oil Fund to the state budget, making it one of its key pillars. During the same period, pressure on civil society and independent media became systemic in nature. From a political economy perspective, however, the logic is clear: high energy revenues increase the economic flexibility of the ruling system, and this flexibility makes it easier to manage political risks. Today, the new energy shock created by the Israel–Iran war could once again bring additional income to Azerbaijan.
According to Nahid Jafarov, however, the current realpolitik phase is temporary, and in the future democratic values may once again return to the forefront of international politics:
“After the Russia–Ukraine war, Europe will once again align more closely with values such as human rights, democracy, and the rule of law. International institutions will reassert their leverage. This will also be reflected in how countries with authoritarian governance models, such as Azerbaijan, are treated.”
The key question, however, is whether these revenues will be directed toward economic reforms or further reinforce the existing political status quo.
Although the Israel–Iran war does not pose a direct military threat to Azerbaijan, its economic and geopolitical impacts are already being observed.
Rising oil prices promise additional revenue for Baku.
Like Russia, Azerbaijan may also gain an energy benefit from this crisis.
Moreover, Azerbaijan’s experience over the past decade shows that rising energy revenues do not only change economic indicators. They also transform the political system. More precisely, they make it more resilient. While missiles and air defense systems are active in the region, another process begins in Baku:
The conversion of oil dollars into political influence.
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