Azerbaijan

We note that regional political tensions are another cause for concern, with the 'frozen conflict' with Armenia over the breakaway region of Nagorno-Karabakh recently heating up. In addition to the enormous economic costs involved in a wider escalation of the conflict, we believe major political instability in the region - though not our core view - would jeopardise Azerbaijan's long-term potential as a major regional transit hub. Furthermore, unilateral steps to escalate regional tensions could hurt Azerbaijan's ties with Turkey, which would have considerable ramifications for non-energy trade between the two countries and further overshadow Azerbaijan's longer-term growth prospects.

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