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Declining oil revenues and a changing energy marketplace are placing Azerbaijan's social and economic development under strain, the International Relations and Security Network (ISN) writes. According to the author of the article the lost income might curtail the country's defense spending.

According to the article the good times are possibly coming to an end, at least for Azerbaijan’s elite, pro-government forces and the country’s military.

“On December 3 2013, Baku gave the country’s Tariff Council the green light to raise gas and petrol prices. As a result, petrol prices increased by up to 33% and natural gas prices almost doubled. This was effectively the beginning of the end of cheap gas and petrol prices for Azerbaijan’s citizens,” it reads.

Skyrocketing domestic fuel prices were quickly followed by an announcement that SOFAZ will reduce its transfers of oil revenues to state coffers in 2014. It has been estimated that SOFAZ’s actions will lead to a 17-18% reduction in government spending.

It is noted that these steps were caused by oil production reduction.

“Estimates suggest that Azerbaijan produced on average 872,000 barrels per day in 2012. By contrast, production stood at 1.02 million barrels per day in 2010. And while Azerbaijan is increasingly developing its natural gas exploration and production capabilities, gas alone will not be able to offset declining oil production,” the author explains and adds that that’s due in part to a decline in gas production from 17.24 bcm per annum in 2010 to 15.6 bcm per annum in 2013.

ISN also writes that in addition, Azerbaijan’s gas sector also faces a number of additional challenges. These include the West’s growing exploitation of unconventional resources as well as the vagaries of the oil and gas markets.

“Currently, Azerbaijan’s economy is not yet diversified enough to cope with such a dramatic fall in oil revenues. This is also reflected by the fact that many Azerbaijanis continue to live below the breadline,” the author underlines.

According to the article the declining oil revenues casts further doubt over the sustainability of Azerbaijan’s defense expenditure. The author believes that at present Baku is not able to continue lavishing its military with substantial defense expenditure and improve social and economic conditions for the majority of the population in the same time.