Azerbaijan remains an energy-rich nation that wants to be recognized for more than hydrocarbons. Oil and gas still make up around 90% of export income and over half of government revenue, leaving the country among the most fossil-fuel-dependent economies globally. That reliance was lucrative during high-price years, but it also reinforced the “resource curse”: a strong currency, a dominant state role, and a private sector that gravitates toward construction and services instead of manufacturing.
Cotton has become the government’s preferred remedy. Through the State Program for the Development of Cotton Growing (2017–2022) and new investments in ginning and early-stage textiles, Baku has been working to revive the sector. Yields have climbed considerably over the last decade, and official data puts ginned production near 88,000 tons in 2023 — still modest by global comparison, yet a noticeable improvement from the post-Soviet low point.
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Azerbaijan’s textile base is small, with only a few spinning and weaving facilities in operation. As a result, the country exports only a few million dollars’ worth of textiles annually, and very little apparel. Anyone considering building textile capacity in Azerbaijan must begin with a tiny but gradually reawakening sector still overshadowed by oil and gas.
The Upside: Land, Geography, and Competitive Energy
Start with agriculture. The lowlands along the Kura and Aras rivers have been producing cotton for generations; by 1913, the region was already an important supplier within the Russian Empire. Irrigation networks — although often ageing — are in place, and yield trends show that with targeted policy support, productivity can more than double compared to early-2010s levels. For spinners and weavers, having domestic lint close to gins helps maintain quality and lowers transport losses.
Geography provides another major advantage. Azerbaijan sits at the heart of the “Middle Corridor,” the route connecting China and Central Asia with Europe. The Baku–Tbilisi–Kars railway and upgraded Caspian ports shorten transit times compared with maritime alternatives. As the BTK line expands capacity and schedules stabilize, more Asia–Europe containers are expected to pass through Azerbaijan, making textiles and apparel natural candidates for rail shipment.
Energy costs and incentives also work in Azerbaijan’s favor. Gas exports continue to rise — shipments to Europe grew over 13% in the first seven months of 2024 — and the country plans to bring EU-bound volumes to 20 bcm per year by 2027. This energy backbone supports industrial parks and the Alat Free Economic Zone (AFEZ), which offers zero corporate tax, VAT, property taxes, and customs duties for export-oriented firms. For spinning or weaving investors, the combination of tax benefits, reliable power, and ready infrastructure forms one of Azerbaijan’s few clear cost advantages.
The Downside: Governance, Politics, and the Oil Legacy
The same oil revenue that funds development also reinforces political structures that make brands cautious. Power remains concentrated under President Ilham Aliyev and his family, while opposition forces, civil society, and independent media have been pressured for years. Recent documentation by rights groups and international outlets highlights additional arrests, including the detention of the last remaining independent journalists in 2025. Commodity traders may overlook this, but consumer-facing brands operating under ESG and due-diligence requirements cannot.
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Oil dependence also shapes the business environment. State enterprises and politically connected groups dominate major projects. Meanwhile, small and medium manufacturers often operate in a regulatory climate marked by bureaucracy, discretionary decisions, and recurring rent-seeking. The U.S. State Department’s investment climate review still describes an economy heavily reliant on hydrocarbons, with non-oil sectors underperforming despite diversification claims. Textile investors should not assume fully predictable commercial law or neutral regulatory enforcement.
Nagorno-Karabakh adds further complexity. Azerbaijan’s 2023 operation restored full control over the enclave, leading to the exodus of its Armenian population and subsequent trials of former local leaders. A U.S.-brokered peace deal in 2025 and recent removal of cargo restrictions to Armenia point to a shifting regional order with new transit opportunities. Nevertheless, the association with a recent conflict and ongoing human-rights concerns will remain relevant for global buyers.
Between Moscow, Ankara, Brussels, and Washington
Any long-term textile strategy intersects directly with geopolitics. Historically, Azerbaijan’s relationship with Russia was deep, shaped by Soviet economic planning and post-independence security arrangements. Today, ties are more transactional and at times strained, though recent developments suggest a careful easing. Azerbaijan is no longer simply a Russian satellite, but Moscow’s influence still matters.
Turkey forms the other key anchor. The BTK railway and multiple pipelines create an Azerbaijan–Georgia–Türkiye corridor that bypasses Russia and Armenia while linking directly to EU markets. Turkish mills already dominate Azerbaijan’s textile and apparel imports, indicating that short-term opportunities may lie in joint ventures, contract manufacturing, and supporting Turkish-managed supply chains.
The EU and United States further complicate the picture. The EU is Azerbaijan’s largest trading partner and main gas customer, connected through a 1999 Partnership and Cooperation Agreement that removes quotas but offers no tariff preferences. Talks on a deeper deal have been revived intermittently since 2017. The U.S., meanwhile, alternates between cooperation and pressure on rights issues, leading to Baku’s 2024 decision to halt cooperation with USAID. A newly negotiated U.S.-backed transit corridor will increase American involvement, but it won’t erase governance concerns for U.S. companies.
Positioning for Europe and the United States
In Europe, Azerbaijan is unlikely to rival major sourcing hubs like Turkey, Bangladesh, or North Africa. But it could find opportunities in yarns, fabrics, and certain home-textile categories that benefit from fast rail movement into EU markets. The lack of tariff preferences does constrain competitiveness, yet shorter transit times and flexible small-batch capacity could offer advantages in select higher-value segments, assuming factories meet EU safety and sustainability requirements.
The U.S. market is more challenging. Without free-trade access and with longer shipping distances, Azerbaijan cannot easily compete on basic garments. Still, possibilities exist in specialty cotton, yarns, or denim fabrics for brands seeking to diversify away from China and other sensitive sourcing locations. Increased U.S. engagement in the South Caucasus corridor may eventually unlock financing or export-credit support for bilateral manufacturing ventures.
All of this depends on compliance. U.S. brands must meet the Uyghur Forced Labor Prevention Act and a growing list of ESG rules. Even without specific allegations, Azerbaijan’s political environment means supply chains will face heightened scrutiny. Firms hoping to reach U.S. shelves will need credible audits, transparent ownership, and strong labor-rights commitments from day one.
Looking Eastward: South Asia and Southeast Asia
South and Southeast Asia offer potential partnerships and selective demand. Major South Asian producers — India, Pakistan, Bangladesh — have plentiful cotton and huge spinning capacity, making large-scale fabric exports unlikely. Yet niche opportunities remain for lint, specific yarns, or blended fabrics moved efficiently via the Caspian and Central Asian corridors.
For Southeast Asia, the opportunity is logistical. As Middle Corridor and BTK volumes grow, manufacturers in Vietnam, Indonesia, or Thailand seeking faster access to Europe may use Azerbaijan for consolidation, labeling, finishing, or distribution. Azerbaijani companies with strengths in warehousing, logistics, and light processing can position themselves as service providers for Asian exporters.
The emerging “C6” cooperation framework linking Central Asia and Azerbaijan adds momentum. Trade within this group is expanding rapidly, and cotton and textiles can benefit: mills in Azerbaijan may source machinery or raw materials from Central Asia and send fabrics back, while joint ventures target EU and Middle Eastern markets. For Asian manufacturers seeking a foothold in this region, partnering with an Azerbaijani textile company may offer a lower-risk entry.
What Must Happen for Cotton and Textiles to Take Root?
From a broad perspective, the case for cotton and textile expansion in Azerbaijan is clear: a traditional cotton base, strategic corridors, favorable tax zones, and a government eager to diversify. But whether this translates into durable industry growth depends on execution.
For cotton, improving quality matters more than expanding volume. Modern seed varieties, upgraded irrigation, credible testing systems, and internationally accepted classification standards are essential. Aligning cotton programs with recognized traceability or certification schemes would strengthen buyer confidence.
For manufacturing, Azerbaijan must shift from isolated political projects to competitive clusters of firms built on productivity. This means vocational training, dependable utilities within industrial zones, streamlined customs processes, and functional commercial courts. If Baku can align these fundamentals with its geopolitical advantages — from the corridors to the free zones — cotton and textiles could emerge as a meaningful second pillar of the economy.
Otherwise, they risk remaining largely symbolic: a stated ambition of diversification, still overshadowed by the country’s dependence on oil.
About the Author
Robert Antoshak, Vice President of Global Strategic Sourcing & Development at Grey Matter Concepts, brings over 30 years of experience in the textile and apparel sector. He has advised governments, led consulting projects worldwide, and written extensively on global trade, sustainability, and sourcing. Previously a Partner at Gherzi Textil Organisation, he continues to shape industry perspectives through his articles and thought leadership.
Antoshak is a regular contributor to just-style.com and sourcingjournal.com.
