History of the Baku Oil Industry. Part 8

After the discovery of the oil fields, Baku became a special place, where various economic and political interests of international coalitions, industrial clans and leaders were concentrated and clashed. VK begins publishing chapters from the book by Ismail Agakishiev "History of the Baku Oil Industry and the Second Oil Boom (second half of the 19th century - beginning of the 20thcentury.)". The book presents a historical analysis of the emergence and current state of the Azerbaijani oil industry.

In 1872 the farming system was officially abolished. The oil industry and entrepreneurship grew dramatically. The shallow oil wells were replaced by the deeper borehole, and oil was now extracted through the process of bailing. The exploitation of the smaller wells was gradually decreasing and finally stopped in 1879. The steam-engine became widespread. State support was very important for the development of oil business.  In 1876 a Committee of the Russian Imperial Technical Society concluded that the best way to help Russian oil business is to exempt it from any excise tax. Acting in favor of the oil industrialists, the state abolished the excise tax for the entire branch from September,1 1878. This decision played an important stimulating role. Oil production grew significantly. Already in 1878 Baku oil region gave 20 times more oil than six years prior. By 1900 Russia extracted 12.2 million tons of oil

Kerosene was the key oil product of the time. For while Russian demand for kerosene were supplied with American import. The rapid growth of oil extraction  - Russia became the leading extractor in the world – pushed American kerosene away from the Russian market. In addition, Russia itself started to export kerosene. By the 1890s the export of Baku kerosene reached 480 million tons.  Thus, just within a couple of decades Russia became the leader of the world’s oil extraction and transformed from the oil-importer into the oil-exporter. The capitalist development determined the demand for oil products. Thus, Russia consumed three times less oil that Germany.  This led to the creation of the dozen of enterprises to extract, refine, sell and transport the oil.

Oil boom stimulated the unprecedented entrepreneurial activity in the region of Baku. Gustva Terpudd, who since 1842 worked for one of the leading  oil corporations “The Nobel brothers partnership”, described this oil fever with following words: “Wherever I go – to the hairdresser, to the shoemaker, butcher or bar-tender – everyone talks about his wells, his refineries,  his lots, where he is looking for oil. Everybody is praising God for allowing them to be born among the people to which they belong – Armenian, Persians, Tartars, Georgians, Circassians, Chechens, Ossetians, Imeretians, Turkmens, Arabs, Negroes, Tekins, Turks, Greeks, Russian, Italians, French, Romanians, all possible Germans, Jews, Brits, Americans, Swiss, Swedes and Finns.” And all this considering the fact that the climate in the region, according to Terpudd, was very unfavorable. For instance, he mentioned that “forty thousands of Baku and its suburbs inhabitants drink water delivered by donkeys in the jugs”.

The oil fever was natural. Everybody was eager to buy some piece of land that can bring profit. This hopes were stimulate by the combination of the high revenues and very low cost price of oil connected to the flowing well operation typical for Baku region. The first strong fountain appeared in 1873 in the well just 30 m deep; in a short amount of time it brought hundreds of thousands tons of oil. This was how the Baku oil boom started. One Baku fountain could give the same amount of oil per days as 25000 oil wells in the US. The cost price of Baku oil thus decreased from 45 to 5 kopeck per pud (16.4 kg). In 1887 flowing well operation comprised 42 percent of all oil extraction in the Russian Empire, although this indicator will decrease later on. Oil business remained extremely profitable. Dozens of small and medium-size firms were created. In 1879 there were 126 companies involved in oil extraction in the area of about 410 hectares, 260 of which belonged to the state, while the rest was in private ownership.

Naturally, Russian industrialists were the first to use the oil branch. The above-mentioned Vasily Kokorev was the pioneer. He was the owner of the biggest oil refinery on the Absheron peninsula in the 1860s. In 1865 as the head of the “Trans-Caspian trade partnership” he took part in the Russian industrial exhibition in Moscow.  His silver medal became the first award the oil industry got in these exhibitions.  In 1874 Kokorev also found “Baku Oil Society” – the first joint-stock company in Russian oil industry.

In 1875 the Society owned 10 oil wells with the daily extraction between 10 and 160 tons. The headquarters of “Baku Oil Society” were in St. Petersburg, but the Baku office was an important center. Kokorev can be called the first successful lobbyist of the oil business.  It was on his initiative that the government adopted several progressive decisions, in particularly, the abolition of excise tax. The wells of “Baku Oil Soceity” expanded their oil extraction. By 1880 they produced 57000 tons of oil. Kokorev paid special attention to the development of the refinery process.  In 1879 his plant produced 14000 tons of kerosene and almost 10000 tons of lubricants and benzene. Kokorev was also among the first Russian industrialists who started developing the transportation of oil. The tanker “Surakhany”, able to transport 5400 tons of kerosene, was constructed on his order in Sweden. In addition, Kokorev initiated some  charity programs for the population of Baku. Thus, in 1882 the first school for the children of oil-workers was created at his expense. S. M. Shibaev was another Russian industrialists actively involved in Baku oil business. In 1879 Shibaev built three factories in Absheron – one to produce sulfuric acid, another – glass , and third one – oil lubricant. “Partnershio Shibaev and Co” were quickly became one of the leaders of oil production.