History of the Baku Oil Industry. Part 7

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.

The history of the oil craft in Azerbaijan goes far back to the past. Early medieval Arab authors give us detailed accounts about oil extraction and use on the Absheron peninsula. The later sources testify that oil extraction remained one of the main occupations and sources of income for the local population. The modern history of the oil business in Azerbaijan begins with the establishment of Russian rule. The new authorities were quick to recognize the advantages of possessing the oilfields, which were then declared the state property. The profit was based on the system of farming oil revenues. The oil was extracted from the relatively shallow wells and these wells were farmed out. The renter of the wells, when obtaining the right to exploit them, promised to pay taxes to the state. The standard contract length was four years. Both the leaseholders and the state obtained significant revenue from these arrangements, although it was still too early to speak about a real development of the oil business. The industrial demand for oil was low, and this valuable commodity was used only for household needs.

Meanwhile, oil extraction was gradually monopolized. The Russian entrepreneur  of Armenian origin, I. Mirzoyev, bought up the rights for all the Absheron oil wells. In the period from 1862 to 1872 he brought under his control all the oil extraction on the Absherom peninsula. According to the traditional view, the system of rented wells slowed down the development of oil extraction and processing and hindered entrepreneurial competition in the sphere. The main argument for this was the use of the forced labor of peasants who were assigned to the wells. This can be regarded as a form of corvée. However, Azeri historian E.B. Muradaliyeva believes that this oil revenues farming system was a transitional stage between feudal exploitation and the modern industry, because the peasants, although bonded to the wells, were receiving fixed wages. In addition, the system presupposed a certain division of labor – digging, extracting, transporting – that was not typical for the traditional feudal system and looked more like factory production.

The rapid development of capitalism throughout the entire world, including Russia, created unprecedented demand for oil and oil products. The abolition of serfdom in Russia in 1861 and the Great Reforms transformed and strengthened the industrial potential of the country.Factories and transportation systems needed fuel, first of all in the form of oil products. The demand for kerosene and lubricants grew particularly fast, and contemporaries understood this very well. The renowned Russian chemist Dmitri Mendeleev studied the Russian oil industry in the 1860s and made recommendations about ways to improve production. He suggested “uninterrupted distillation” and “production of enameled barrels” for oil products. It was Mendeleev who suggested replacing the shallow wells with deeper boreholes. This idea was supported by the Russian entrepreneur V. A. Kokorev, who believed that these innovations were incompatible with the oil revenues farming system. Kokorev had big plans to expand in the oil industry and started a big campaign in the press. In 1865 he wrote that, “the existing oil farming hinders the industrial development”. The oil well monopolist Mirzoyev opposed the initiative of Kokorev. In November 1865 he appealed to the Baku state chamber to “prevent drilling in the pale of his farming”. But life demanded new conditions to develop free entrepreneurship. In the 1850s most of the wells were located around the settlement of Balakhany. In the 1860s they expanded to other districts of Baku. Thus, Bibi-Eibat became a new center of Baku oil extraction. The quantity of peasants was insufficient, therefore new workers were hired. In 1864 the institute of assigned peasants in the mining and drilling industries was abolished. Moreover, the process of oil production also underwent significant changes. It is commonly believed that the first oil-processing plant in Absheron appeared in 1859.  V.M. Kapustin and S.G. Kukes, however, date it back to 1837, when a small oil refinery was built in Balakhany according to the project of the engineer Voskoboinikov to produce kerosene. By the 1860s there were several oil refineries for the industrial production of kerosene. Kokorev was very successful in the oil processing business. In 1865 only about 1600 tons of illuminating oil was produced on the entire Absheron peninsula, while in 1867 the same amount was produced by Kokorev’s plant alone. The growth of factories required a growth of the workforce. The days of the farming system were counted.