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Oil History

The natural gas exudations and the petroleum deposits of the Apsheron Peninsula have been known for many centuries; indeed, it is asserted that the existing site of the Temple of Fire-worshippers, situated near the extremity of the peninsula, at Surakhany, has been frequented by Parsee devotees for more than 2500 years, and, according to the statement of the British Consul at Batoum, the last priest only departed towards the end of the 19th Century. It is also affirmed by historians that the Baku petroleum had for centuries been collected by the Persians and sent into the interior of Persia and India, where the white variety, found in some districts, was employed as a medicine for curing divers internal complaints, or applied externally as a dressing for relieving irritant sores, etc.; but there is little evidence to show that the common "crude" was used as an illuminant or a source of heat, except in the form of briquettes made by mixing the oil with ashes or earth.

In 1723 Baku was annexed by Peter the Great, but in 1735 the territory was restored to Persia, being eventually re-occupied by Russia in 1806. When Russia took possession of Baku a second time there was a small trade in oil, and the Government, after deliberation, granted to a merchant named Meerzoeff a monopoly for extracting oil from the petroleum deposits, in return for payment of a royalty on all oil raised, the effect of which was to restrict the output of petroleum, which, in 1872, only amounted to about 1,500,000 poods per annum. A popular demand for the abolition of the monopoly arose, to which the Government ultimately assented (1872), but its removal was followed by the imposition of a tax in the form of excise duty. The oil industry showed a marked improvement under the altered conditions, although still impeded from full development, but in 1877 the excise duty was also cancelled, and the business, freed from all restrictions, rapidly increased in magnitude and importance.

Previous to the year 1871 all the Russian petroleum was obtained from hand-dug surface pits, the deepest of which rarely exceeded 50 feet; but in the year named the first oil well was bored on the Balakhany plateau, and the highly successful results attained opened lip a new era in the oil fields, by the appearance of fountains, or what the Americans term "gushers." The common occurrence of fountains which followed the introduction of the drill totally demoralized the Baku petroleum industry for a time, and the price of crude oil fell to about one-eighth of its former cost on the striking of the first "gushing" well. The tapping of deeper oil strata, which it had been impossible to reach by hand-dug wells, resulted in the outrush of petroleum in quantities hitherto unprecedented in the world's history, and the verity of the reports which reached England and America concerning the Baku "gushers" was for many years doubted, if not disbelieved.

The Brothers Nobel, two engineers of Swedish extraction, who were destined to revolutionize the whole oil industry of Russia, opened a small refinery at Baku in 1875, where they employed their undoubted talents in building up a modern refining plant by introducing a number of Western ideas. Robert and Ludwig Nobel were far-sighted enough to see the possibilities that lay in the petroleum industry, and they not only exerted their remarkable commercial abilities in the operations of producing and refining, but they took the necessary steps to secure a market for their goods in the Russian centres - a point which had till then been quite neglected by the Baku refiners.

In a few years the Brothers Nobel, with the assistance of money already in the family, laid the foundation of an enterprise that eventually became one of the greatest industrial concerns in Europe, and they were for a time refining and distributing about one-half of the total production of oil from the Baku fields. The Nobels were not only the most modern explorers when they entered the exploiting business, and the most scientific refiners; but they laid down the pioneer pipe-line, at a cost of about £10,000, between the oil fields and Blacktown (the refining suburb of Baku), for the delivery of crude to the refineries; they built the first tank-vessel to convey oil in bulk on the Caspian, and constructed the first tank-wagon for the conveyance of oil in bulk on the Russian railways.

During the early life of the industry there were few facilities for disposing of the refined products when produced, and while America was supplying the Russian demand for kerosene, and conducting a most lucrative business, Baku was shut almost entirely out of the market by the absence of means of transport into the interior and communication with a tidal port. There was no railway connection with Baku, and the owners of vessels trading on the Caspian Sea demanded an unreasonable freight for the transport of dirty kerosene on their vessels to the mouth of the Volga and to Persian ports. The cost of making barrels in Baku, to contain the oils, was very great, the barrel being far more valuable than its contents, and, by the time the refined products reached the Northern and Central Bussian towns, the cost often exceeded the value of the American article, although the latter had been conveyed 4000 miles further than the Baku product.

For many years the crude oil from Balakhany was conveyed to the refineries at Blacktown, eight miles away, in barrels supported on Tartar two-wheeled carts, termed "arbars," and the road (the term "road" is used, but the track was, until 1899, unworthy of such a designation) between the two places contained one long string of these carts during the whole day. Nobels' pipe-line, the first one laid in Baku, met with considerable opposition from the carters who formerly carried the petroleum, and it was necessary for a long time to keep guards stationed at frequent intervals along its length to prevent the tubes being damaged by the enraged Tartar cartmen. Other firms, who were very sceptical at Nobels' venture, and declined to take part in such a scheme when invited, quickly followed their example on observing the success of the undertaking, and soon the whole of the oil has reached the refineries in pipe-lines.

Nobel met with obstruction in every quarter, and after making in vain many overtures to shipowners and trading companies to convey his produce at a moderate rate to the northern Caspian ports, he decided to design and construct a vessel provided with tanks which would convey the oil in bulk to the mouth of the Volga, barges being built for the transhipment and conveyance of the oil up the river. In 1879 the first tank-steamer was constructed, which met with sufficient success to decide the firm to build several more, and from this experiment originated the enormous distributing business which gradually increased and encircled all the principal Central Russian towns.

The oil industry had drifted into the hands of Armenians and Tartars, who became the proprietors or lessees of nearly all the available oil lands, and owners of most of the refineries. Grants of oil-bearing territory made to generals and officers who had distinguished themselves in the conquests of the Caucasian regions were generally disposed of by the owners for sums that were absurdly small for such valuable holdings, and many Armenian and Tartar inhabitants who purchased lands at that period became millionaires, and many more who could with difficulty write their names were immensely wealthy.

In 1883 the Baku oil merchants, who were for the most part men of local extraction and very narrow-minded, received a rude shock when the firm of Rothschild commenced to interest itself in local affairs, and reports were circulated broadcast that the firm intended to monopolize the Baku petroleum industry. The house of Rothschild had, previously to this date, secured interests in the oil business under the name of the Russian Standard Co., and were exploiting oil-bearing territory in the Kuban district; but their Baku enterprise was initiated with the object of exporting oil from Batoum to other countries where they held distributing interests. The name of Rothschild carries with it, in many places, the idea of swallowing all small concerns; but there seems little doubt that the presence of this firm, with a plentiful supply of ready money, greatly assisted the Baku refiners, who were paid in advance for their refined products at remunerative prices.