Oil prices as motivation tool not source of sorrow
By Gulgiz Dadashova
Despite crash in oil price, the year of 2015 is expected to produce a positive yield for energy rich Azerbaijan.
The country is hosting the Baku 2015 European Games and arrangements for the inaugural Games are in full speed. Dropping oil prices -- now below $50 a barrel -- is indeed badly affecting energy producing Azerbaijan.
British Capital Economics analysts announced that each $10 per barrel fall in oil prices represents a transfer of annual income of around $330 billion from oil producers to oil consumers. Azerbaijan’s energy giant SOCAR earlier announced that the losses can reach about 400 million manat ($510,796 million), if the prices of oil in 2015 remain at the level of $60 per barrel.
However, the government said nothing can stop the realization of the projects in the country particularly those in the energy field.
Analysts say the world is experiencing much more than a temporary fall in crude prices and will have long-term effects.
The free-falling price of oil will impact several areas for better or worse. The good news is that the country’s economy is more diversified than it used to be. Agriculture is supposed to be one of the most affected areas because of its being very energy-oriented.
Lower oil prices will benefit farmers and consumers as food prices are expected to drop. Meanwhile the government views non-oil sector as the core of the country’s further development. In this line, agriculture is the main pillar of development in this field. The government has prepared programs to help farmers develop agro complexes and attract financial institutions, such as the EBRD, to invest in this sector.
Falling oil prices may badly affect investors wishing for developing new oil and gas fields. Reduction in energy research and development will hurt companies and induce higher costs once oil prices rebound. British BP, which is engaged in major energy projects in the Azerbaijani section of the Caspian, has already announced plans to slash its staff. This is one of the first signs of affects of low prices.
But falling prices will benefit the car industry, which is supposed to see boom worldwide due to cheaper costs.
The industry makes up most economic activities outside of the energy sector in Azerbaijan. Given that the costs of manufacturing and a wide range of other activities have decreased because of oil prices, people spend less on energy and more on other things. In such conditions, manufacturing sector can be the winning side.
Drop in oil prices will benefit travelers, as airline prices will drop accordingly. So, Turkish Airlines which is one of the most popular airlines in Azerbaijan along with AZAL, has offered a price drop. The airline gets a 4 percent profit during the procurement of fuel, which is quite a serious figure for civil aviation, the company official said recently.
So, cheaper oil means a more confused market. This chaos will emerge a winner and a loser.
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