Possibility of Nagorno-Karabakh conflict resumption is a ‘moderate’ threat for Azerbaijan, Moody’s rating claims.

The first driver of Moody's decision to upgrade Azerbaijan's ratings into investment grade Baa3 is the significant improvement in the government's financial strength in recent years.

The agency estimates the outlook on the rating is steady, however, the country's strong financial strength is partially offset by its low economic and institutional strength and moderate susceptibility to event risk.

Among possible threats the agency refers to the Nagorno-Karabakh conflict. The threat is moderate regarding tension over the Karabakh and, in particular, the possibility of a resumption of the conflict between the two countries.

Although a resolution to the conflict currently seems unlikely, there is also significant international interest in maintaining stability in the region as Azerbaijan's significant hydrocarbon resources are of particular interest to Russia and Europe.