PROLONGED UNCERTAINTY

Geopolitical tensions in the Middle East are increasingly extending beyond regional confrontation, taking on the scale of a phenomenon capable of reshaping the global economic framework. What was until recently seen as a local threat is now forming a fundamentally new configuration of world markets, where three eternal pillars re-emerge at the forefront—energy, logistics, and supply security. Assessments from the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), and the International Monetary Fund (IMF), despite varying scenarios, converge on one key conclusion—the world is entering a period of prolonged uncertainty, where the price of a barrel of oil increasingly reflects geopolitical tension.

Warnings and forecasts

The narrow bottleneck of the global energy system remains the Strait of Hormuz—the artery through which a significant portion of oil and gas flows pass. Any extended disruption in navigation along this strategic route instantly triggers a price surge, followed by a chain reaction impacting inflation, investment flows, labour markets, and ultimately the overall pace of global economic growth. In this regard, the current crisis can rightly be viewed as a form of stress test for the entire system of globalisation.

In this context, Anna Bjerde, Managing Director for Operations at the World Bank (WB), urges countries worldwide not to relax their commitment to socio-economic reforms despite increased instability. “We must now take into account developments in the Middle East, which are causing shocks related to fuel and fertiliser prices. This can slow economic growth, affect employment, fuel inflation, and worsen food security,” she emphasised. “However, managing this uncertainty is only half the task. Governments must continue investing in reforms to turn stability into real opportunities.”

According to Bjerde, over the next 10 to 15 years, the global labour market will increase by 1.2 billion people due to a growing younger generation, the vast majority of whom live in low- and middle-income countries. “However, current forecasts suggest that only about 400 million jobs will be created globally during this period,” she noted.

The WB Managing Director highlighted that fiscal reforms are by no means synonymous with austerity measures and should be understood as “preserving the capacity to invest in people, expanding opportunities and ensuring resilience, even amid an increasingly fragile global environment.”

Bjerde recalled that the bank predicts global GDP growth of 2.5% in 2026, with around 4% growth in developing countries. “These figures are simply insufficient to bring developing countries closer to the level of developed economies. They are also inadequate to generate enough jobs to meet demographic needs,” she added.

The EBRD, meanwhile, issued a warning: a sustained rise in oil prices to $100 per barrel could reduce global economic growth by at least 0.4 percentage points (p.p.) and accelerate global inflation by more than 1.5 p.p., considering disruptions in supply chains for chemical and metallurgical products. Fertiliser prices also risk significant increases since 25 to 35% of global trade in raw materials for fertiliser production passes through the Strait of Hormuz. As experience shows, rising fertiliser costs inevitably lead to higher prices for staple food commodities.

The EBRD intends to revise its economic growth forecast downward when publishing updated assessments in June if energy prices remain elevated.

Under double pressure

Today, the South Caucasus finds itself in a dramatically dual position. Geographical proximity to the conflict hotspot and deep integration into trade and logistics networks with Iran make the region vulnerable. Specifically, Iran accounts for 3.7% of Armenia’s total imports, 3% of Azerbaijan’s, and 1.7% of Georgia’s. The Iranian direction is particularly important for Türkiye—about 1.2% of its total exports.

Yet the same geography also presents a new role—as an alternative transit corridor and energy hub capable of redirecting flows around unstable zones.

According to ADB, it is precisely the countries of the South Caucasus, Central and Western Asia that will bear the brunt of the Middle Eastern crisis. Combined economic growth losses for this group could reach 1.6 p.p. in 2026-2027, along with an inflation spike of 4.5 p.p.

ADB forecasts that the Middle Eastern conflict could slow economic growth in developing Asian countries by between 0.3 and 1.3 p.p. during 2026-2027 while simultaneously accelerating inflation by 0.6-3.2 p.p., assuming energy market disruptions last longer than a year.

The bank’s analysts outlined three potential development paths, each painting a distinctly different picture of the future.

The base scenario assumes that active conflict lasts no longer than two months. Global oil and gas prices peak in March 2026 before gradually returning to pre-conflict levels. The average price of Brent crude would then be $72 per barrel in 2026 and $63 in 2027.

The first scenario allows for continued supply disruptions until the end of June. In this case, the average oil price could surge to $105 per barrel in the third quarter. Economic growth in developing Asian countries would slow by 0.3 p.p., while inflation would accelerate by 0.6 p.p.

The second scenario assumes that the Strait of Hormuz remains closed to shipping until the end of September. Under these circumstances, oil would trade on average at $130 per barrel in the second quarter and $120 in the third quarter. Regional economic growth would decline by 0.7 p.p., with inflation accelerating by 1.2 p.p.

The third, most severe scenario considers logistical restrictions continuing until the end of February 2027. Oil prices could reach $155 per barrel in the second quarter of this year and then stabilise around $140 until the first quarter of 2027. The hit to regional economic growth would be 1.3 p.p., with inflation accelerating by 3.2 p.p.

The scenario palette proposed by ADB clearly demonstrates how fragile the global economic architecture remains in the face of energy shocks. Moreover, under the harshest option where supply disruptions persist into 2027, this would no longer be a deviation from normal but rather represent the formation of a fundamentally new pricing reality.

EBRD analysts take this logic to its extreme by contemplating an oil price spike to $150-180 per barrel. In the short term, oil demand is inertial and barely reacts to price increases—this rigidity underpins such extreme price surges. However, over a longer horizon compensating mechanisms emerge: businesses accelerate energy-saving technologies implementation, consumers adjust spending patterns, and governments increase investments in alternative energy sources. Thus, ironically, this crisis acts as a catalyst for energy transition.

An even more alarming signal is not so much the absolute price level but the rapidly growing unpredictability of the oil market. ADB materials highlight that oil price uncertainty (OPU) has reached levels last seen in the 1970s—during an era of global energy upheavals. Specifically, OPU surged sharply in February 2026 close to its highest point in nearly half a century.

ADB research shows a direct impact of OPU on the real sector: a 90-point increase leads to about a 0.35 p.p. drop in global industrial production. Given current index values exceed 700 points, the potential scale of global economic slowdown appears substantial.

This impact is largely psychological but no less tangible for that reason. When price trajectories become unpredictable, households instinctively delay major purchases to build reserves against upcoming shocks. Businesses freeze investment plans due to inability to forecast costs accurately. As a result, capital accumulation slows, production chains break down, and productivity declines.

Holding steady as much as possible

Against this backdrop, ADB recommends central banks focus not so much on offsetting price increases but on smoothing their fluctuations when setting monetary policy. Strengthening social protection systems also becomes crucial—primarily through targeted transfers supporting vulnerable populations.

As emphasised by IMF First Deputy Managing Director Dan Katz, regulators face a choice between two threats—inflationary or recessionary—each involving inevitable losses. He observed that governments attempt to soften social impacts via subsidies and price controls but such measures inevitably burden public budgets heavily. Katz pointed out the “exceptional complexity” facing central banks when defining their approaches. He explained that if high energy prices persist for long periods, financial regulators will likely have to “find balance” between risks to price stability and threats of economic contraction alongside “potentially tighter financial conditions.” Given that global growth is already subdued—as noted by WB—manoeuvring space is extremely limited. The world is entering a phase where economic policy is increasingly dictated not by domestic priorities but external shocks.

It is precisely against this background that international financial institutions’ stabilising role grows stronger. The WB has already signalled a shift towards more active responses. Several developing countries have approached WB because conflict began directly affecting commodity pricing and logistics chain resilience. The response involves preparing large-scale financial support through phased mechanisms enabling accelerated fund disbursement—essentially moving towards an “emergency financing” mode allowing rapid allocation of resources to vulnerable economies. Through its structures, the bank aims to provide enterprises with liquidity, trade finance and working capital—critical measures for preserving employment and business momentum.

This represents an effort to safeguard developing countries’ gains amid an increasingly hostile external environment. At the same time, a clear divide emerges between energy-importing and energy-exporting nations: for importers, rising prices worsen trade balances, pressure national currencies and fuel inflation; for exporters—temporary income surges and improved macroeconomic indicators. However, even here there is no unconditional advantage: heavy reliance on commodity rents leaves economies vulnerable to future price swings, while short-term gains may turn into long-term traps.

Azerbaijan at a crossroads

For Azerbaijan, ongoing transformations take on a particularly distinctive tone. On one hand, rising oil and gas prices boost export revenues, strengthen balance-of-payments stability and broaden budgetary leeway. Since armed conflict began in the Middle East region just one month ago, Azerbaijani oil prices reached their peak level rising by 70.8% ($51.5). While Azerbaijan’s state budget had set an oil price benchmark at $65 this year, on March 28 it exceeded $124 per barrel.

As noted in a report by Dutch banking giant ING Group on macroeconomic indicators across CIS countries, Azerbaijan’s overall external economic position remains very strong amid risks linked to Middle Eastern conflict. It also notes that every $10 increase in oil price per barrel adds roughly $3 billion (4% GDP) annually to Azerbaijan’s exports value and yields additional budget revenues between $1.5-2 billion.

Meanwhile fiscal position remains robust: consolidated budget surplus reached 2.6% GDP in 2025 with sovereign savings exceeding 100% GDP.

The study further highlights stabilisation of corporate lending growth alongside relatively high industrial confidence suggesting potential investment recovery in non-oil sectors: “Azerbaijan’s fiscal breakeven point remains within its decade-long range. Strong fundamentals have helped keep fiscal breakeven oil price stable around $59 per barrel,” it states.

However, given that almost half of imports come from regions exposed to inflationary risks related to Middle East developments, consumer price indices face pressures—a 10% rise in global food prices adds about 1.5 p.p. to overall inflation domestically.

Azerbaijan’s overall external economic position remains very strong with sovereign assets including central bank reserves and SOFAZ holdings near 115% GDP levels. Analysts believe these buffers should protect ₼/US$ parity at approximately 1.70 even if oil prices temporarily fall below breakeven near $60 per barrel.

“The ongoing peace process with Armenia at this stage is more likely to act as a positive catalyst considering progress over recent years,” reads the report. “In this context Azerbaijan appears attractive as a reliable safe asset amid prolonged Middle East conflict and sustained oil price surges.”

Amid rising turbulence in the Persian Gulf, global markets are increasingly seeking reliable politically predictable energy suppliers; Azerbaijan steadily establishes itself as one of Eurasia’s key components within energy architecture.

According to State Customs Committee data, in January-February 2026 Azerbaijan exported 3.6 million tonnes of oil and bituminous petroleum products earning approximately $1.7 billion.

Equally significant is transport-logistics dimension of ongoing shifts: disruptions in established supply chains force global players to seek alternative routes—here the Middle Corridor rapidly gains importance evolving from reserve option into urgent necessity strengthening Azerbaijan’s role as connective link between Central Asia, Türkiye and Europe. This extends beyond mere transit fees toward deeper integration into value creation chains.

Thus Azerbaijan finds itself at a rare junction where several powerful currents converge: energy crisis, restructuring global logistics and growing role of international financial institutions. The current situation opens unique opportunities but simultaneously demands impeccable managerial precision and strategic clarity.

Now the important question is what place Azerbaijan will occupy within this renewed system of coordinates.