The Effect of Oil Price Fluctuations on the Exchange Rate of the National Currency of Azerbaijan: Assessment of the years 2014-2017

The Effect of Oil Price Fluctuations on the Exchange Rate of the National Currency of Azerbaijan: Assessment of the years 2014-2017

Since the year 2014, falling oil prices continued. In the beginning of 2016, oil prices bottomed at about USD 29 /bbl, but a gradual increase was recorded towards the end of the year. During 2016, an upward trend in oil prices was obvious, despite market interventions and the lower than average annual price of oil (USD 43.55 /bbl) compared to 2015.4 Currently, a gradually increasing trend for oil prices is being recorded for 2017 and there have not yet been any significant fluctuations observed. Throughout the years 2014-2017, the repercussions of dropping oil prices on the exchange rate of the national currency of Azerbaijan, the manat (AZN), have been easy to follow. During this period, oil price fluctuations have affected the Azerbaijani economy through the depreciation of the manat. As a substantial part of the country’s revenue is obtained from the sale of oil and gas, in times of high oil prices the country has experienced resource windfalls and consequent problems of economic diversification, leading to economic problems in times of low oil prices. In fact, falling oil prices in the global market directly impact the exchange rate of the manat, since this process creates a deficit in the balance of payments (BOP) of Azerbaijan, which in turn leads to a decrease in the foreign exchange reserves of the country.

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