Azerbaijan is being forced to cut its defense budget, once the pride of the nation, as a result of the collapse in oil prices.
Other oil-dependent states in the region like Kazakhstan and Russia also will likely have to make across-the-board budget cuts because of the drop in oil prices. But the situation appears most dire in Azerbaijan, not least because it is locked in a conflict with Armenia over the disputed territory of Nagorno Karabakh.
Azerbaijan's government has consistently bragged about its defense budget, which, starting in 2011, it claimed exceeded Armenia's entire state budget. Azerbaijan's Foreign Ministry spokesman Hikmat Hajiyev told the American newspaper Defense News in a story published this week that that "defense spending had enabled the Azerbaijani armed forces to be supplied with requisite advanced weaponry needed to re-take 'its Armenian-held territories.'"
“It is our priority and we will continue to increase military spending," said Azerbaijan President Ilham Aliyev in 2014. "Over the past 10 years, our military spending has increased more than 20-fold, and our spending allocated to the armed forces is approximately twice as large as Armenia’s overall state budget."
But that defense spending was fueled by oil, and with prices dropping and unlikely to rise soon, Baku is reportedly having to make cuts in its military budget. How big the cuts will be is unclear, as Azerbaijan's budget -- following the norm around the region -- is far from transparent.
While the base defense budget is slated to rise slightly to $1.2 billion in 2016, that figure doesn't include the "special projects and activities" budget line that is believed to have funded Baku's military procurement since 2011. That line item was excluded from budget estimates published recently, reported British newspaper Jane's Defence Weekly. That could represent about a 40 percent budget cut. "With no indications to date on when or if this supplementary budget allocation will return, or if it will be replaced by a new source of funding, procurement activity seems likely to slow in the short term," Jane's reported.
Azerbaijan's huge defense budgets of the past may have been exaggerated. Emil Sanamyan, a regional analyst who analyzed Azerbaijan's recent defense spending, concluded that: "Judging by itemized spending since 2011, Azerbaijan may have overstated its actual military spending by more than $1 billion annually so that this spending would appear larger than Armenia's budget."
Nevertheless, Azerbaijan has spent freely over the past several years, buying air defense systems, helicopters, and tanks from Russia; drones and missiles from Israel, and armored vehicles from Turkey and South Africa.
Officially Azerbaijan hasn't acknowledged that the defense budget will be cut. In spite of having to revise the budget to account for $30-a-barrel oil (from a previous estimate of $50 a barrel), officials in Baku have said that because of the fall in the currency and inflation, they will be able to actually increase both revenues and spending this year.