Why are oil and natural gas so important to Azerbaijan’s economy?

Oil and natural gas are central to Azerbaijan’s economy because they serve as the primary drivers of national revenue, transforming the country into one of the most hydrocarbon-dependent economies in the world.12

Historically, Azerbaijan is recognized as the birthplace of the petroleum industry, with Baku serving as the world’s first oil town. Following the transition to a market economy in the 1990s, the state facilitated the development of vast Caspian Sea reserves by partnering with international companies. The 2005 opening of the Baku-Tbilisi-Ceyhan pipeline was a critical milestone, allowing this landlocked nation to deliver large-scale energy exports to the global market.34

This reliance on hydrocarbons has shaped Azerbaijan into a rentier state, where the government depends heavily on these external revenues. While the country is diversifying into engineering and food production, the energy sector remains the dominant economic force, with recent gains in natural gas production helping to offset declines in oil output.132