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Azerbaijan: Low Oil Prices Fuel Discontent

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By William Tucker
Contributor, In Homeland Security

Protests have erupted in Azerbaijan over the last few days as prices of flour and bread have increased. Government forces used water cannons and tear gas in the Quba district to break up the demonstration after protest leaders refused to meet with the district chief. Several arrests have been made in conjunction with the demonstration and it is possible that the following days with bear witness to follow on protests. For its part, the Azerbaijani government has watched as the national currency, the manat, has fallen in value rather precipitously and attempts to prop up the manat have only served to burn through the national currency reserves. In response, the Aliyev government suspended the VAT tax on wheat imports and has moved to put a cap on flour and bread prices, but this is unlikely to stabilize an economy built entirely on oil exports.

Azerbaijan is not the only nation to undergo immense strain due to falling oil prices. In Russia the 2016 national budget set originally in late 2015 for oil prices hovering around $50 dollars a barrel is already being subjected to revision as prices have now fallen to $30 dollars a barrel and are expected to continue the downward slide. As Russia is supporting military operations in Ukraine and Syria it is certainly conceivable that the economic decline will have bite into some of these activities, though not necessarily disrupt them entirely.

Other oil exporters in the Middle East are likewise feeling the pinch from the decline in oil, but haven’t yet witnessed the popular discontent afflicting Azerbaijan. That said, the possibility of public anger in these nations is entirely possible. Across the Persian Gulf Iran is awaiting sanctions relief, but that is unlikely to greatly improve the economic situation there. An increase in flow of Iranian crude into an already over supplied market will likely lead to a further drop in the price of oil. Interestingly enough it would be expected that the decrease in oil prices would lead to relief in other areas of the global economy, but with China already undergoing a contraction in its GDP a global economic slowdown seems all but inevitable.

As we are only two weeks into a new year it may seem premature to forecast an economic decline; however this has been underway for some time. To be quite frank, the financial crisis of 2008 was never really remedied and eight years later a sluggish global economy offers little in the form of relief. The U.S., on the other hand, seems well situated, and yet, economics can be, and often is, a global contagion.

Economics are only one pillar of the global system, but it directly influences other areas of conflict. As we can already see in Azerbaijan the oil slump has led to a direct impact on food prices. Every human must eat and any disruption in this area quickly leads to social strain. Other oil exporting nations will likely endure similar issues as their economies are predicated solely on a single commodity export. Larger nations, such as China and Russia, will also suffer not only from the oil slump, but also from a decreased demand in manufactured goods. Naturally, this applies much more to China than to Russia; however any disruption in these large, regional powers will radiate to bordering nations and trading partners.

The world has done well in weathering economic pressures in the recent past and is likely to continue to do so now, but we cannot dismiss the possibility of regional flare-ups of ongoing or frozen conflicts as a result of these economic issues. Coming back to Azerbaijan it is doubly important to keep an eye on the numerous conflicts in the Caucasus region. Russia has worked hard as of late to prevent escalation in the territory dispute between Azerbaijan and Armenia, but the kind of social disruption we are seeing now could unravel some, if not all, of this effort. The global situation has been changing quite drastically over the past decade due to many factors and a continuance of economic strains are likely to increase tensions that have long been suppressed.

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