Oil changed the lives of
men forever. It gave man power to defeat darkness in night. It also powered
modern engines that defined the modern world. The exploitation of oil as an
important natural resource began in the 19th century. In 1858, the Americans
found an oil well in Titusville, Pennsylvania. It marked the beginning of the
rise of the United States as an oil producer. However, before Titusville, one
country in particular already found oil and began to exploit it. The city of
Baku in the Russia Empire had already been discovered.
The
City of Baku
The city of Baku, the
capital of modern day Azerbaijan, continues to be known as an oil hub. But
before Baku became known for its oil, followers of Zoroastrianism, who
worshiped fire, made Baku a center of their religion. They used its oil for
religious and ceremonial purposes. Marco Polo also recorded his encounter with
oil in Baku. Marco Polo wrote:
“…there is a fountain of oil which discharges so great a quantity as to furnish loading for many camels. The use made of it is not for the purpose of food, but as an unguent for the cure of itching in men and cattle, as well as other complaints; and it is good for burning. In neighboring country, it is used in their lamps, and people come from distant parts to procure it.”
In 1806, the Russian
Empire annexed Azerbaijan from the Persians. Baku continued to be an
obscure city during the early 1800’s. Oil continued to be a vital source of
activity in the city. In 1821, the whole Absheron Peninsula, along with Baku,
had 120 simply hand-dug oil wells. In 1848, Major Alexeev of the Bakinskii
Corps successfully drilled into the soil of Bibi-Eibat (Bibi-Heybat) using a
new method based on the proposal shown to the government officials by Vasili
Semyonov and originally conceived by Nikolai Voskoboinikov. It used machines
and vents rather than hands and spades to dig through the soil. However, the
striking of oil in Bibi-Eibat centered more about the new drilling method than
the oil itself. For the locals and the Russian Empire, back then, the black
substance oozing in the lands of Baku only meant for small time use, like in
medicine and lighting.
Baku
Oil Boom
In the 1850’s, however,
Baku’s opportunity to become a recognized oil center came. A new source of
lighting began to expand and to be known across the world – kerosene. Made in
1846 by Abraham Gesner, it grew in use in the 1850’s. With the discovery of the
Titusville oilfield in 1859, the United States dominated the oil market.
Suddenly, with news about Baku’s oil spread and many eyed Baku as another major
producer of oil.
Investment on Baku’s oil
grew through the next decade. In 1859, V.A. Kokorev and P.I. Gubonin
established a facility producing kerosene in Baku. When in the 1860’s Tsar
Alexander II liberalized the Russian economy by allowing the entry of foreign
capital, the German Chemist Justus von Liebig sent a scholar named Eichler to
establish an oil refinery in Baku. Many more followed. Russians and foreigner
alike invested in buying lands, drilling oil wells, and refining and producing
kerosene. Russian scientists also went to Baku to make a living. The famous
Russian scientist who created the periodic table, Dimitry Mendeleev, went to
Baku to advice in refining oil. Later Mendeleev found himself working as a
consultant to the famous Swedish family of Nobels.
The
Nobel Family
The name Nobel was one
of the most distinguished names in Baku oil history. Besides dynamite, the
Nobels also made contributions in the oil industry. The involvement of the
Nobels in the Baku oil business began in 1873.
Robert Nobel, the
brother of the both famous and infamous inventor Alfred Nobel, went to Baku to
secure a supply of walnut lumber for rifle butts for his family’s weapons
factory in St. Petersburg. He brought with him 25,000 Rubles. Robert already
knew the lucrativeness of oil because of his former experience with kerosene in
Finland. Sensing the opportunity to double his money with oil, instead of
getting lumber, he bought a piece of land and a small refinery from a certain
Dutchman named De Boer. Nobel’s investment paid off. He then decided to permanently
make business out of the oil in Baku.
The Nobel family
supported Robert’s enterprise. The father and son, Ludvig, brother of Robert,
and Emmanuel joined in Baku. Together, they formed the Nobel
Brothers Association, which later became the Tovarishchestvo Nephtanavo
Proisvodtsva Bratiev (Nobel Brothers Petroleum Production Company) or
simply known as Branobel by 1879. It started with a capital of 3 million rubles
and Ludvig and his son had the majority of shares that worth 1.61 million
rubles.
The Ludvig and Emmanuel
Nobel tandem ruled the company for its entire existence. In 1875, The Nobels
hired American drillers to assist in the drilling of new oil wells using
steam-powered machines. The company share of Russia’s oil production began with
5% in 1876. A decade later, Branobel increased its output share to 18.5% in
1886.
Ludvig turned out to be
a dynamic businessman. He had new and sometimes radical ideas, which he applied
in Branobel. As an employer, he showed more compassion than the rest of other
employers in global standards. This included higher pay and lower work days per
week. In addition he also provided housing, education, both for his workers and
their children.
Nobel also looked for
better ways to transport oil. In 1877, Ludvig and Robert found a new way to
efficiently transport oil across the Caspian Sea, then to the Volga River and
then the Russian heartlands. Previously, oil producers shipped their oil in
barrels before being hauled in ships. These ships were powered by coal. Coal in
Russia was expensive. And so, the high transportation cost increased the prices
of Baku oil making it uncompetitive against those from the dominating American
oil company – Standard Oil.
The Nobels then used
recent scientific breakthrough in shipping - oil powered ships - to solve the
problem. Moreover to a new source of power, the Nobels also thought of using
tanker where the bulk of the ships served as the large container of oil. And
so, in 1877, the Nobels ordered the building of an oil tanker in Sweden, which
they christened as the Zoroaster. The Zoroaster had the capability of hauling
750 tons of oil and operated cheaply by using oil instead of coal. It saved the
Nobels a lot of money and made them into one of the most leading oil companies
in Baku.
In 1878, Branobel
innovated again in the Baku oil industry. From their exploits in Pennsylvania,
they discovered that using pipes to move oil from well to refinery worked
effectively more than transporting it in barrels on the backs of horse, camels,
or whatever carrying animals available. They decided to copy the idea of pipelines
and installed a line between their wells and refinery. The construction faced
difficulty from local wagon drivers that relied on the transportation of oil in
barrels for livelihood. Riots and sabotages occurred to halt the construction.
Nevertheless, the Nobels pushed through with the plan. At the same year, they
completed a 12 kilometer long steam-powered pipe line that connected oil from
other parts of the Absheron Peninsula to Nobel refineries.
The
Batumi-Tblisi-Baku Railroad and the Rothschilds
The Nobels, however, did
not had a monopoly on great ideas in improving the Baku oil industry. During
the late 1870’s and early 1880’s, Armenian oil magnates, Andrei Bunge and
Sergei Palashkovski, proposed the construction of a railroad line that went from
Baku through the high Caucasus mountains, then to Tbilisi, and finally to
Batumi. The end in Batumi would allow Baku to gain access to the Black Sea,
then shipments to Odessa, where there was a railway to connect with European
markets. It also had the possibility, with Ottoman approval, of gaining Baku
oil access to the Mediterranean Sea. Many saw the project ambitious and risky
but with great rewards. So, they sent agents to Europe to acquire loans to
finance the endeavor. They found one in form of Alphonse de Rothschild of the
famous business family, House of Rothschild.
Rothschild agreed to
finance the construction of the railroad line in exchange for a share of the
oil production of the involved oil producers. The Baku oil producers agreed.
The Batumi-Tblisi-Baku began operation in 1883. Bunge and Palashkovski
established the Batum Neftepromushlenoe i Torgovoe Obschshestvo or
the Batum Oil Production and Trading Company, often known for the shortname,
BNITO. The company and the railroad soon controlled 44.5% of oil shipments from
Baku to Batumi. Rothschild on the other hand had shares of the company as part
of the agreement in the loans. In 1884, Bunge and Palashkoski made an expensive
investment for new oil wells, but it failed miserably and led them to
indebtedness. Alphonse de Rothschild then purchased the company and founded a
new oil company known as the Caspian and Black Sea Petroleum Company.
The Batum-Tblisi-Baku
Railroad signaled the continuing growth of the Baku oil industry. It signaled
as well the entry of another foreign player, the Caspian and Black Sea
Petroleum Company, which threatened the Nobel domination of the Baku oil.
Other
Oil Players in Baku
Although, the Nobels and
the Rothschild dominated the Baku oil industry, it nevertheless brought success
and wealth to many other businessmen from different ethnicities. In 1899
Alexander Mantanshev, a Georgian, became wealthy with his Mantashev Company.
Musa Nagiyev, an Azer, became a rich man because of oil. But his wealth failed
to cure his ailing son. In memorial of his son, he build a magnificent palace –
the Ismailiya – with oil money. Many more independent oil players emerged by
the end of the 19th century. It included Murtuza Mukhtarov, Shamsi
Asadullayev, and Seid Mirbabeyev.
At
the Turn of the Century
At the end of the
1800’s, Russia emerged as an oil power. It actually outranked the United States
thanks to Baku. When the US exported 62 million barrels of Kerosene, Russia
exported 84 million barrels of kerosene, which was 60% of the total world
kerosene trade. Baku became known as the Black City with 2,000 oil wells, and
200 refineries, giving the city wealth and the Russian Empire prestige.
But the heyday of the
Baku oil under the Russian Empire began to end with the turn of the century.
Rising ethnic tensions became a serious threat to stability. Disparity of
wealth between the wealthy Armenians and the laboring Azeris caused racial
tensions, which escalated to violence.
A political movement
exploited this tensions. The communist Bolsheviks threatened the existence of
private enterprises in Baku as for the same as the Tsarist regime. The issues
of low quality working conditions, wages and long working hours began to
surface in Baku. In 1901, oil workers organized the first strike in Baku. The
communist began to infiltrate the workers organizing strikes. In 1904, a strike
managed to persuade an oil company to give higher salary with shorter working
hours. The Georgian Josef Vissarionovich Dugashvili organized this strike and it
brought his acclamation within the Bolshevik ranks. He later became known with
his party name – Joseph Stalin.
Violence and strikes
became a problem from Baku oil industry. In 1905, when St. Petersburg fell to
chaos with the 1905 Revolution, strikes and riots caused the death of
thousands. The Bolsheviks gained more funding by using kidnapping and extortion
of oil barons in Baku. Unrest marred the first decade of the 20th century.
Batumi-Tbilisi-Baku
Pipeline
But even with the
unrest, oil businessmen still saw development in the 1900’s. In 1908, the
Batumi-Tbilisi-Baku Railway could not keep up with the large amounts of oil
being transported across the Caucasus Mountains. In the late 1880’s,
individuals involved in the Baku oil business, like the Nobels, Rothschild, and
even Mendeleev supported the construction of a pipeline between Baku and
Batumi. However, the government delayed the construction because it threatened
their profits from the Transcaucasian Railway. Yet, construction went ahead,
but lasted for about two decades, opening in 1908. When it opened it had 16
pumping stations and spanned about 833 kilometers, the longest pipeline at that
time.
Towards
the Revolutions
But the opening of the
pipeline did not meant a continuous prosperity for oil barons. In 1912, the
Rothschild sold their Baku oil company after the death of Alphonse de
Rothschild seven years ago. Rothschild oil assets went to Royal Dutch Shell.
In 1914, the unrest in
Baku and the overall deterioration of political situation in Russia led to
falling market share of Baku in the world oil trade. Eventually the end of the
Baku oil under the Russian empire came in 1917 with the Russian Revolution. The
Tsar abdicated and later executed by the Bolsheviks. The Bolsheviks in 1920,
decided to enact its economic philosophy of state control over industries.
Vladimir Lenin ordered the nationalization of the Baku oil industry. The head
of the Branobel, Emmanuel Nobel, who ascended to leadership after the death of
his father Ludvig in 1888, attempted to get back its properties or at least get
compensation in vain.
After
the Russian Empire
Baku remained
significant for Russia. It became a major source of its oil supply, most
especially for a nation like the Soviet Union that wanted to secure its own
resources. During World War II, the Nazis targeted the oil fields of the
Caucuses, including Baku’s. And even after the fall of the Soviet Union, it
remained a vital source of revenue for the independent state of Azerbaijan.
Today, Baku is an affluent city thanks to its oil and its beginnings during the
time of the Russian Empire.
Summing
Up
Baku's modern oil
industry began during the world started to value oil. Even before, it boasted
its black water as a source activity and significance. As the world treasured
oil for its lighting and energy, so too it did towards Baku. With investments
from men willing to take a risk for hefty returns, Baku's oil developed,
contributing to the industrialization of Russia and her rise as a major oil
producing country. But Baku's prosperity also came connected with the Russian
Empire. As the Romanovs faced decline in St. Petersburg, Baku too
descended to anarchy leading eventually to the rise of communist, including the
ruthless Soviet dictator Joseph Stalin. The rise of the oil industry in
Baku during the time of the Russian Empire became the foundation for its growth
and significance as a major city in Central Asia even to this day.
Explore also:
Who was Ludvig Nobel?
Bibliography:
Black, Brian. Crude
Reality: Petroleum in World History. Lanham, Maryland: The Rowman &
Littlefield Publishers, Inc., 2012.
Li Xiaobing & Michael
Molina. Oil: A Cultural and Geographic Encyclopedia of Black Gold
Volume 1. Santa Barbara, California: ABC-CLIO, 2014.
Marriott, James &
Mika Minio-Paluello. The Oil Road: Journeys from the Caspian Sea to the
City of London. Brooklyn, New York: Verso, 2012.
Weissenbacher,
Manfred. How Energy Forges Human History. Santa Barbara,
California: ABC-CLIO, LLC, 2009.
Vassiliou, M.S.
(ed.). Historical Dictionary of the Petroleum Industry. Lanham,
Maryland: Scarecrow Press, Inc., 2009.
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