Tuesday, January 26, 2016

How did the Baku Oil Industry Grew Under Tsarist Russia?

Branobel Facility in Baku
Baku oil fed the Azerbaijan economy today as it did before when it fed the Russian imperial economy. Explore how the oil industry in one of the oil rich cities in the world began and grow under the Russian Empire.

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?

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. 

No comments:

Post a Comment