17 minutes of Armenia coverage by Transcaucasian Telegraph.
Azerbaijan's main oil field will be depleted in 7 years: economist-researcher Vahram Revazyan
REPORTER: You recently published an extensive paper on Azerbaijan's shrinking oil reserves and its possible impact on the country's foreign policies, including towards Armenia. Armenian analysts have been speaking about the end of oil in Azerbaijan for a century now, and despite indications of reduced oil levels, we don't see its end. When will the reserves end and what export dynamics have you observed over the last few years?
REVAZYAN: Most of the oil industry is built around the ACG (Azeri-Chirag-Gunashli) oilfield. It peaked in 2010 when it was responsible for 80% of Azerbaijan's oil industry. It has since declined.
2010: 40 million tons
2023: 18 million tons
As a result, the share of ACG has declined from 80% to 60%.
REPORTER: Did the overall extraction also decline?
REVAZYAN: Yes. It has declined from 50 to ~35 [million tons]. Since the ACG is exploited by the British BP, a public company, it discloses detailed reports about the oil field. Before making a large investment, it also publishes detailed reports about the investments.
We know from those reports that the total amount of extractable oil in this field was 730 million tons, of which 580 have already been extracted.
The extraction continues to decline. With the current trend, it will end in 2030, at best. In other words, it will continue to decline annually until a point where it's no longer economically feasible to extract it.
REPORTER: Does that mean that by 2030-35 the oil won't be profitable?
REVAZYAN: You could say that, yes, and it will come before 2035. The best scenario is 2030. The ACG extractions account for only 60% of total extractions, yet ACG's share in Azerbaijan's total oil and gas revenue is 90%. Most of Azerbaijan's revenues come from this field.
REPORTER: Let's say it's no longer profitable to extract the oil. What now? What will the economy's structure look like?
REVAZYAN: What could happen? We have an example from 2015 when the oil prices dropped from $100 to $40. Azerbaijan's economy plunged into crisis and the value of the national currency manat, which is not floating and is fixed to the dollar, was cut in half, becoming one of the worst performers in the world.
How was their economy functioning? BP would exploit the field and give 75% of ACG revenues to Azerbaijan's state oil fund [SOFAZ]. Then they would decide every year how much to transfer from the oil fund to the state budget. On average, this is 40%-50% of Azerbaijani state budget revenues.
When SOFAZ doesn't have enough revenues, they are forced to cut spending. They found themselves in that situation in 2015 when the transfers from SOFAZ to the budget halved. The economy entered recession, manat was devalued, inflation began, and the living standards dropped.
Unlike Armenia and other market economies, the state has a big role in Azerbaijan's economy. Azerbaijan didn't decentralize resources, unlike most ex-Soviet republics. The biggest drivers of the economy and economic growth are state expenditures, especially capital expenditures. They get the money from the oil fund and maintain a large and inflated state apparatus with large volumes of state capital expenditures, which is over 10% of GDP.
Today around half of capital expenditures are directed at Karabakh, where they build infrastructure that does not make sense from an economic perspective. For example, they are building 3 international airports, 2 of which are complete, yet there is no population or economy there, and no natural resources in the region to justify it.
REPORTER: But sometimes you build logistics first and then people come.
REVAZYAN: Not in this case. There is no population to justify such large investments. As of last year, there were only 5,000 people there. The majority of Azerbaijani refugees from Karabakh [after 1st war] have either left Azerbaijan or have settled in other regions with easier access to jobs. On top of that, one generation has passed, and it'll be difficult to convince someone who grew up in Baku to move and live in Karabakh villages.
REPORTER: So we might see ghost towns?
REVAZYAN: Yes. The government has already announced plans to build 110 communities in Karabakh. The town of Agdam, the largest in the area, had a population of 30,000 in 1989, yet they plan to rebuild the city for 100,000 people; this is visible from satellite photos.
REPORTER: How much oil does Azerbaijan have that isn't being extracted right now? Could they use newer technologies to tap into new reserves?
REVAZYAN: The search for new fields has never stopped in Azerbaijan. The last time they discovered a large field was in the 1980s, and that was the ACG we've been talking about.
REPORTER: ACG wasn't being properly used initially, but when the technologies developed, it changed.
REVAZYAN: It wasn't due to a lack of technologies. The last section of ACG was discovered in 1987 but the USSR collapsed and they didn't have an opportunity to exploit it. In 1994, when the war ended, they signed agreements with international corporations and the extraction began 4 years later.
The search for new fields has never stopped since the 1980s but they haven't found any large ones that can substitute ACG. What is the likelihood of discovering something now that they haven't been able to find for 40 years?
Another oilfield that they've discovered, called "Karabakh", holds only ~20 million tons, about one year's worth of ACG. It's also not very profitable to extract it; it's been sitting for decades. They had an agreement with some company but it didn't move forward. The latest attempt was with the Norwegian company Equinor which was supposed to extract it, but last year they sold their shares in ACG and Karabakh and simply left Azerbaijan. So it's incorrect to suggest that Azerbaijan has reserves that it isn't using.
REPORTER: Can other parts of the economy "substitute" the oil, and how reliant are they today on the oil industry?
REVAZYAN: The Azerbaijani government has been talking about diversifying non-oil sectors for years but when you look at the data, it shows they have no successes there. Their main export is oil products so they must try to develop other parts of the economy to find substitutes for export. The data shows that oil and gas remain 90%-95% of exports, and this hasn't changed for years.
To produce exportable goods other than oil & gas, they must raise the role of the private sector in the economy, but the authoritarian government has been avoiding that. Unlike Armenia, Azerbaijan has not gone through widespread privatization and all infrastructure and natural monopolies are under state control.
Similarly, Azerbaijan's state oil company SOCAR pays 7% of the state budget revenues and they are one of the largest employers in the country.
To diversify exports, Azerbaijan must decentralize the resources to have a dynamically developing private sector, but this goes against the interests of the Aliyev regime. Decentralization of resources and an "independent" population is a threat to the regime.
REPORTER: SOCAR (company) and SOFAZ (fund) are also international because they invest abroad. They have partnerships in Georgia, Ukraine, Switzerland, etc. How much resources [including from non-oil investments abroad] does SOFAZ have and how long can they continue to feed the budget if oil ends?
REVAZYAN: SOFAZ is the sovereign fund that collects and manages oil and gas revenues. These types of funds often collect enough to benefit future generations. They also act as a buffer against short-term energy price fluctuations. In the case of Azerbaijan, SOFAZ is tasked with both functions.
SOFAZ is the most powerful part of Azerbaijan's economy because they have $55-$60 billion, which is massive. To put it in perspective, the annual transfers from SOFAZ to budget nowadays is $7 to $10 billion, so roughly speaking, you could say they'll last 5-6 years without oil revenues, but it's not that simple in real life. For example, in the event of a crisis, when the population realizes oil revenues are down, people will attempt to buy foreign currency en masse and will withdraw their bank deposits, and some banks will go bankrupt as in the case of 2015. There will be an exodus of investment capital. So SOFAZ's bailout will last shorter than 5-6 years, more like 2-3 years if the oil revenue stops.
REPORTER: What about SOCAR's reserves?
REVAZYAN: I can't give a specific figure right now but SOCAR is focused on the domestic economy. SOCAR's production of gas is enough for partial coverage of domestic demand. As for oil, it's refined and sold to the population at subsidized prices. The prices of gasoline, diesel, and natural gas are subsidized in Azerbaijan, which is why SOCAR doesn't have large reserves. That changed in the last 2 years when the oil gas prices shot up, plus they made a profit on Russian sanctions.
REPORTER: How? By being a transit for Russian gas and oil?
REVAZYAN: That's a myth in the case of gas because Azerbaijan does not import large amounts of Russian gas because the capacity of the Azerbaijan-EU gas pipeline is already almost full. Azerbaijan imports small quantities of Turkmen and Russian gas to satisfy its domestic needs.
However, starting last year, Azerbaijan began to "re-export" Russian oil. After the West imposed a price cap on Russian oil, the price difference between Russian oil and Brent oil, which was usually just $1-$2, became a whopping $40, and today it stabilized at ~$15.
Azerbaijan buys cheaper Russian oil, processes it locally, gives it to the Azeri population, and exports the "freed-up" Azeri oil to others. Last year they made a $250 million profit on it. Not very big, but not small.
REPORTER: Can Azeri gas revenues substitute the oil?
REVAZYAN: Profit margins are small with gas. In Azerbaijan, just as in the case of the ACG oilfield, the gas field is centralized in the Shah-Deniz, which was discovered in the 1950s and exploited only in the 2000s by BP. Some 70% of gas comes from there, and that's also what they export to Georgia, Turkey, and the EU.
Under normal conditions, before the war in Ukraine and the subsequent gas price hike, the share of gas revenue in oil & gas was only 5%-10%. After 2022's 6x increase in the price of gas in the EU, the share of gas revenue increased in Azerbaijan.
In 2022-2023, SOFAZ received $1.5 billion from the Shah-Deniz gas field, with another $2 billion profit tax. It's on the decline again. So the gas cannot compensate for the loss of oil. Moreover, Azerbaijan has a problem with expanding the extraction of gas.
REPORTER: When the revenues drop, how will that affect the AM-AZ relations?
REVAZYAN: Under economic shock and worsening conditions for the population, and lack of democratic institutions to absorb the shock and public dissatisfaction [elections], the regime will struggle to explain how they managed to squander the state resources for 3 decades without building something.
There are 2 ways to prevent this: (1) The regime modernizes the economy by investing the incoming revenues and SOFAZ reserves into the modernization of the non-oil sector to have a dynamically growing private sector. As I've said earlier, this is a problem for the authoritarian regime because it wants to centralize power and resources. They don't want "competitors".
Additionally, the economy has inertia and you can't change it quickly.
Even if the current high prices of oil remain for a while, we are looking at an economic crisis in Azerbaijan within the next 2-3 years. And if the oil prices drop, that crisis could begin sooner. They don't have time to reform the economy and avoid a crisis.
It's also a question whether they can make reforms. They were unable to do it in the 2000s and early 2010s during peak oil, and they didn't even do it after the 2014-2016 crisis. If they didn't do reforms then, why would they do it now? So this option for avoiding a crisis through modernization is unrealistic, in my opinion.
(2) War against a foreign enemy to mobilize the population. Everything is your enemy's fault. You defeat your enemy and sell the victory to your population. The April 2016 war began after a sharp decline in oil prices, and so did the 2020 war.
A new war and a victory against Armenia could be a temporary relief for Aliyev, but either way, Azerbaijan is facing a major collapse due to economic issues. I'm not saying the country will stop to exist, but the system will collapse. //
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84% of Azerbaijanis want a peace agreement with Armenia: Azeri government agency survey
13% are against it.
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Hungary reportedly lifts the veto on EU's non-lethal military support to Armenia
After months of deliberations, the 27-nation bloc moved early this year to approve 10 million euros (about $11 million) worth of “non-lethal” aid from its European Peace Facility, a special fund designed to boost EU partners’ defense capacity.
for
creating a field hospital and auxiliary facilities for a battalion-size Armenian army unit
Hungary was demanding similar aid for Azerbaijan. After Hungary assumed the EU's rotating presidency recently, it dropped the veto as part of a compromise deal with other European countries to provide de-mining assistance to Azerbaijan from another source [not EU Peace Facility].
The final green light to deliver the aid to Armenia will be made on July 22.
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Turkey's president cancels trip to occupied Shushi where he was supposed to attend the Organization of Turkic States, because he'd rather watch soccer in Germany than stare at Aliyev's mustache for hours
Hungary's Viktor Orban, on the other hand, will be there. Hungary has been an OTS observer since 2018.
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Armenian government announces the amount of housing assistance for flood damage victims
• If the apartment or house is lost (totally gone or 4th-5th category damage), the owner will receive a certificate to purchase a new one. To calculate the value of the certificate, the government will use the Cadastre data of recent housing transactions in that community and choose the average.
• If the housing is damaged but repairable, the owner will receive compensation for renovation. The amount of aid per m2 will be ֏60K ($155) in heavily affected communities, and ֏40K ($103) in others. There will be an upper limit of 80 m2.
• Separate assistance to purchase appliances and furniture.
• Example: If your 50 m2 apartment was damaged in one of the heavily affected communities, the compensation will be ֏60K x 50 = $7,700. Plus an additional $3,100 to purchase appliances and furniture.
• 16 apartments and 2 houses are a total loss. Another ~245 need repairs.
• Affected areas: 9 municipalities with 39 communities.
• The "heavily affected" regions with higher compensation are Alaverdi municipality and its communities, and Noyemberyan municipality's Ayrum community.
PASHINYAN: This aid package is about compensation for living space only. We've also decided to require at least 60% of the subsidy to be spent electronically, to combat corruption. The other 40% can be converted to cash to pay varpets, although varpets should also make their work traceable. In any case, our priority right now is to restore the disaster zone as quickly as possible. //
• The 854 individuals who lived in the affected 263 housing units will also receive $100-$150 each as social assistance to buy minor items not covered by the larger aid for appliances/furniture.
PASHINYAN: In other words, if a family of four lived in a 50 m2 [damaged but repairable] unit in a heavily affected community, they will receive ֏3M+֏1.2M+֏240K [$11,400]. //
• Families of 4 people who died will receive ֏1M each ($2,600).
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Tigran Avinyan is a poor chap so the government will allocate $6.4 million to renovate Yerevan streets
This will cover Ajapnyak, Shengavit, Malatia, and Kentron. The municipality will cover the cost of Zeytun, Avan, Arabkir, and Davtashen. A total of 27 streets will undergo "medium-level" repairs.
PASHINYAN: Issues relating to the quality of asphalt in Yerevan have been a topic of discussion lately, so we have decided to assist the capital to resolve the issues. These are the streets that will be repaired as part of this program: Nardos-Charents-Vardanants, Tigran Mets, Amiryan, Republic Square-Saryan, Atenq-Isakov, Tsitsernakaberd juncture, Tsitsernakaberd-Dalma, Atenq, Tumanyan-Khanjyan-Saryan, Moskovyan-Khanjyan-Nalbandyan, Arami-Khanjyan, Hanrapetutyun, Myasnikyan, Heracu-Myasnikyan-Acharyan, Aton Kochinyan-Zakyan, Martirosyan-Hasratyan-Lukashin, Lukashin-Silikyan juncture-A. Sargsyan, Hasratyan, Leningradyan, Halabyan, Shirazi, Aragats-Mayisi 9, Tamantsiner, Kharibjanyan, Mantyan, Sebastia-Shahumyan-Babajanyan, Sherami, Babayan, 1st, E. Hasratyan, Minas Avetisyan-Ulnetsi, Malyan-Gai, Tamruchi-Safaryan.
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your daily WTF news: on average, 30 city buses get into an accident every week
AUTOBUS CHIEF: It's a holiday season but there are still many cars on the streets and some bus drivers are impatient. There are also incidents where the other driver is at fault. Cars should display tolerance towards buses.
BUS DRIVER: It's often caused by irregular driving, traffic jams, lack of desire to yield to each other, and not enough dedicated bus lanes. I've been in 3 incidents in one month, none of which was my fault.
AUTOBUS CHIEF: If the bus driver is fully at fault, they receive a warning, and lose their job if it's a major incident. We are going to install electronic systems to monitor bus drivers and catch those who smoke, use phone, and mistreat the passengers. Right now it's done by accessing the hard drive of the camera in the bus for each incident. With the electronic system, we will monitor the driver, the speed, the time spent in stops, and how well the engine is performing. We want to digitize everything. We want to launch the digitization and monitoring department by the end of this year.
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dairy with real milk must be color-coded and sold on separate shelves to end misleading marketing by non-milk products: gov't
PASHINYAN: After 5 years of discussing this, we have finally found a way, and we believe we can, to differentiate the dairy made of milk from non-milk products. You all know that today when you visit a grocery store and purchase "source cream", it can contain very little milk or a very large share of other mixtures. It may not be dangerous for your health, but it's misleading. What exactly is "sour cream"?
When we first attempted to tackle this issue, there was a wave of resistance. The complaint was that setting a strict requirement would raise the price of source cream. We have decided to require color-coding of real and fake sour creams. They must have different color codes. They must also be sold on separate shelves.
ECONOMY MINISTER PAPOYAN: If it's made of a milk fat substitute, it must be sold under the orange shelf. Dairy with real milk fat will be sold under green. There is no color requirement for the manufacturer itself, and they can continue to claim on the package label itself that it's "sour cream.
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stores that sell meat will add a QR code with data about the origins of the meat
ECONOMY MINISTER: When the consumer buys meat, there will be a document with a QR code. It will tell whether the meat is imported or local. If it's local, then the date of butchering, the butchery location, and the type of the animal.
PASHINYAN: During my recent conversation with the residents of the provinces I learned that there is a problem with access to certified butcheries and that there are already mobile butcheries that can help address this if we provide targeted assistance to them to serve the remote villages. We must stop butchering pigs on asphalt. It's going to be a difficult transition but we must be persistent and move forward.
ECONOMY MINISTER: Our residents can enter the butchering business as part of the government's agricultural [equipment] leasing program, and we plan to amend the program to improve its terms.
DEPUTY PM MHER GRIGORYAN: Having butcheries with certified conditions is pointless if the farmer is going to throw the butchered meat into his uncertified truck and sell it on the asphalt. The transportation and sale must also meet standards. I urge the Minister to introduce the other requirements simultaneously with the latest amendments.
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utility commission is discussing the construction of new pipes to import water for Yerevan from other sources
Residents complain about frequent water outages that often last several hours. The utility regulator said on Thursday that one of the major pipes is old and likely needs to be replaced to avoid frequent incidents.
Additionally, he said that the natural sources feeding Yerevan bring 20%-30% less water than before, so there are discussions to bring additional resources to the capital.
REPORTER: There are residents who haven't had water for 3 days, and it's summer. Is it possible to revoke the contract with the utility firm and find one that can properly deliver water?
OFFICIAL: I'll refrain from commenting on the cancellation of the agreement since it's in the territory of the water committee. The latter should review the agreement if the company's services are unsatisfactory. Not delivering water for 3 days is a violation of the rules if they didn't deliver a certain amount of water with trucks, so each individual case should be investigated.
REPORTER: Are there currently negotiations with the water company?
OFFICIAL: Yes. There are discussions around improving the agreement, as well as the delivery of additional amounts of water to the capital. The issue here is that the company is considered վարձակալ of the state property and is not obligated to make large-scale investments under the agreement. The investments must be made either by the state or through the involvement of loans with favorable terms. That's also under discussion.
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RANT: It's been a month since the ministry delayed the introduction of universal healthcare, and after a month of waiting, only one reporter stationed outside the government building has finally bothered to ask the minister about it, with the rest preferring to focus on junk headlines
Presenting you the latest Q&A with the Health Minister, with excellent questions like "Are you a good minister?", "If Pashinyan fires you, will you still be a good minister?", "Where are you going to vacation?", and "How come two hospital employees got sick?"
I would love to know the answers to those questions.
Said no one ever.
And then a miracle happens after a month of waiting:
REPORTER: Can you update us on the comprehensive medical insurance program, and are there any changes to it?
MINISTER: No additional changes that I can present. The Government is discussing the program. Yes, it's being slightly delayed, but it's a major reform and there was a need for additional work.
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Armenia and U.S. extend the agreement on countering WMD proliferation until 2030
The Armenian government approved the extension of the agreement with the US government on cooperation in countering the proliferation of weapons of mass destruction
The US government will provide Armenia with equipment, materials, and technologies that will help prevent the proliferation of weapons of mass destruction, and will conduct staff training
Armenia will facilitate the entry and exit of US government representatives and manage the movement of necessary materials.
The Armenian government also agrees not to transfer ownership of the equipment or materials to third parties without written consent from the US and to ensure their security
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Armenian Government ratifies the country's membership to EuroJust, signed on April 5
Armenia and Europe signed an agreement to cooperate within the framework of Eurojust, one of the requirements of the CEPA agreement.
STATEMENT: Armenia is one step closer to the full implementation of the AM-EU Comprehensive and Enhanced Partnership Agreement (CEPA). It also opens doors for new opportunities for experience sharing and capacity building.
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today is Soviet-Armenian actor Mher "Frunzik" Mkrtchyan's 94th anniversary
Parliament Speaker Alen Simonyan urged Yerevan's Council of Boomers to discuss the installation of Frunzik's statue in the capital.
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winds have toppled hundreds of aging trees in Yerevan this year: municipality
The city says it plans to replace the old and infected trees.
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crypto giant Binance conducted a survey among Binance users in Armenia in May
• 90% are men. 81% are men aged 18-45. 34% are men aged 26-35.
• 53% have higher education.
• 35% are employed, 21% own a business.
• 51% get their crypto information from the internet, 24% from family, 14% from social networks.
• 70% plan to continue investing in crypto this year, while 4% said they will not.
• 66% believe crypto is necessary for the development of the global economy.
• 48% believe crypto will eventually replace traditional bank deposits.
• 35% agree that the crypto industry needs government regulation, 34% disagree, 31% don't care.
• 50% believe by the end of this year Bitcoin will be worth $70,000-$100,000. [Will Armenians land on the Moon ahead of the US's Artemis? 🤔]
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GSMA's Mobile Connectivity Index: How good is the mobile internet connectivity in Transcaucasia?
93.7 Singapore
77.3 Turkey
73.8 Moldova
71.5 Georgia
69.8 Armenia
69.3 Azerbaijan
65.7 Iran
10.4 South Sudan
... affordability score
100 Switzerland
71.8 Moldova
64.7 Georgia
63.8 Turkey
62.1 Azerbaijan
61.9 Armenia
60.8 Iran
2.2 South Sudan
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