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  October 5th, 2015 | Written by

Iran Nuclear Deal Offers Azerbaijan Opportunities

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  • New trade opportunities for Azerbaijan could offset lower oil prices likely to ensue from Iran nuclear deal.
  • In August 2015, an Azerbaijan delegation visited Iran to hold negotiations on strategic projects.
  • Oil and gas accounted for 37 percent of Azerbaijan's GDP and 90 percent of its total goods exports in 2014.

The Iran nuclear deal and the associated lifting of economic and financial sanctions offer Azerbaijan the opportunity to boost foreign trade and investment with neighboring Iran, Moody’s Investors Service says in a recently published report.

These new trade and investment opportunities could partially offset the negative effects from the nuclear deal: pressures on Azerbaijan’s government and export revenues thanks to Iran’s return to oil exporting and the lower oil prices that could potentially ensue.

“Thanks to its close geographic location and strong trade ties in the pre-sanctions period, Azerbaijan could benefit from a lifting of sanctions on Iran by increasing foreign trade and investment with its neighbor”, says the report.

With a population of 78 million people and generating the 18th largest GDP in the world in 2014, Iran is the third largest economy in the Middle East, GCC, and CIS regions, after Russia and Saudi Arabia, and offers significant trade and investment opportunities to the smaller economy of Azerbaijan, according to Moody’s.

Azerbaijan was among the first countries seeking new foreign trade and investment opportunities with Iran. In August 2015, a delegation from Azerbaijan’s government visited Iran to hold preliminary negotiations on a number of strategic projects. The talks focused mostly on cooperation in the oil and gas sector: swapping deliveries of their oil supplies, bilateral cooperation in oil and gas engineering and joint production of oil and gas equipment.

Iran has expressed an interest in co-operating with Azerbaijan in its Southern Gas Corridor project, which plans to bring natural gas from the Caspian Sea to the European Union. Several infrastructure projects have also been discussed by the two countries, such as the North-South Railway project and the construction of a common hydroelectric power station in the border region.

Azerbaijan could benefit from a new road through Iran, as it would significantly shorten the shipping distance and the number of transiting countries of the 25 percent of the country’s oil exports which go to Asia.

One of Azerbaijan’s main economic goals is to diversify its economy beyond the dominant oil and gas sector, which accounted for 37 percent of its GDP and for more than 90 percent of its total goods exports in 2014. Assuming Azerbaijan’ exports to Iran go back to pre-sanction levels, says Moody’s, Azerbaijan could reduce its reliance on the petroleum sector.