The general economic dislocations within the Soviet Union in the late Gorbachev period hurt Azerbaijan by weakening interrepublic trade links. After the breakup of the Soviet Union, trade links among the former republics weakened further. Azerbaijani enterprises responded by establishing many new trade ties on an ad hoc basis. Although some moves were made toward a market economy, state ownership of the means of production and state direction of the economy still dominated in early 1994.

Despite the economic turmoil caused in 1992 and 1993 by the demise of the Soviet Union and the conflict in Nagorno-Karabakh, the Azerbaijani economy remained in better condition than those of its neighbors Armenia and Georgia and some of the Central Asian states. According to estimates by Western economists, gross industrial production plunged at least 26 percent in 1992 and 10 percent in 1993.

In 1992 poor weather contributed to a decline in production of important cash crops. Crude oil and refinery production continued a recent downward spiral, reflecting a lack of infrastructure maintenance and other inputs. Inflation took off in early 1992, when many prices were decontrolled, and accelerated throughout the year, reaching an annual rate of 735 percent by October. Inflation for 1993 was estimated at 1,200 percent, a figure exceeded only by rates for Russia and a few other CIS states. Officials tried unsuccessfully to protect the standard of living from inflation by periodically increasing wage payments and taking other measures. In his New Year's message in January 1994, Aliyev acknowledged that during 1993 Azerbaijan had faced a serious economic crisis that led to further declines in the standard of living, but he promised that 1994 would witness positive changes.

Data as of March 1994