Azerbaijan's Wealth Fund: A Warning Sign

The State Oil Fund of Azerbaijan (SOFAZ) is at a crossroads as it deals with lower production and changes in the world market. The Chamber of Accounts says that the fund's earnings are predicted to drop to a fifteen-year low between 2012 and 2026. This is because of reduced oil production, steady transit revenues and missed dividend targets from big energy projects. Even though global oil prices are fairly stable, the fund is struggling to meet its budget predictions, which means its assets could be used up quickly if things don't change.

One of the biggest problems for the fund is the almost total loss of transit revenues. Because of the Russia-Ukraine war, oil and gas transportation through the Western Export Pipeline and Black Sea routes has stopped. Transit earnings have fallen from millions to just a few thousand manats. Also, the expected dividends from the Southern Gas Corridor and the STAR refinery have not happened. SOFAZ expects money to come from these projects in its 2026 budget, but SOCAR says that dividend payments are unlikely until 2029. This creates a big difference between what is predicted and what is actually happening.

The fund's investment choices have had mixed success. The equity and bond sub-portfolios made small gains in 2025, but the real estate portfolio, worth over $4.6 billion, made no money. Important properties in London, Moscow, Paris and Tokyo have been hurt by a worldwide slowdown in the commercial property market. This is made worse by rising interest rates and uncertainty in the world. On the other hand, gold has become the saver of the fund's assets. Big price increases and extra purchases have caused the gold portfolio to grow to almost $23 billion, which is more than a third of the fund's total investment.

Besides the energy business, the Chamber of Accounts says there is financial mismanagement in state infrastructure projects, especially the Baku Metro. Audits of the new Purple Line showed over a million manats in increased costs and unapproved budget changes that have not been fixed since 2024. These local problems, along with the decline of the Azeri-Chirag-Guneshli fields, where production is much lower than it was in 2010, show that Azerbaijan's traditional sources of wealth are disappearing. This means the country needs to be very careful with its remaining reserves.