By Dr. Gubad Ibadoghlu, Visiting Senior Fellow at London School of Economics and Political Science (LSE) <\/p>\n\n\n\n
Abstract<\/strong><\/p>\n\n\n\n Keywords<\/strong>: Azerbaijan; ACG; SOCAR; SOFAZ; oil production; oil revenues; oil price; well productivity; capital efficiency; opex; capex; petroleum economics; resource depletion<\/p>\n\n\n\n
Azerbaijan\u2019s oil revenues are conventionally understood as a function of two variables: production volume and world oil price. This article shows that this two-factor model is no longer sufficient to explain the country\u2019s fiscal trajectory. During the first half of 2026, Azerbaijan\u2019s oil and gas revenues continued to decline even as global oil prices rose sharply amid instability in the Strait of Hormuz \u2014 a combination the standard model cannot account for. Drawing on a sixteen-year dataset (2010\u2013H1 2026) covering national production, price, and revenue, together with field-level data for the BP-operated Azeri- Chirag-Gunashli (ACG) block and SOCAR\u2019s own operations, the article identifies two structural forces operating beneath the price-and-volume surface: a sustained decline in the capital efficiency of ACG\u2019s investment (output generated per dollar of capital and operating expenditure) and a parallel decline in the drilling productivity of SOCAR\u2019s own fields (output generated per metre drilled). Both indicators point to the same underlying phenomenon, field maturation, but through different mechanisms and with different implications for producers, regulators, and fiscal planners. The article concludes that continued reliance on price and volume alone as explanatory variables for Azerbaijan\u2019s oil revenue trajectory will systematically misstate the country\u2019s fiscal outlook, and it proposes a set of institutional and technical responses to the productivity decline documented here.<\/p>\n\n\n\n