History of the Baku Oil Industry. Part 24

Chapters from the book by Ismail Agakishiev

After the discovery of 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.

Despite the visible success in the branch, the USSR was way behind the USA in both oil extraction and processing. In 1913 oil extraction in Russia was 27% of that in the USA while in 1928 only 9%. In absolute terms the USSR was seen behind the Venezuela. In the late 1920s the development of the oil branch was directly associated with the industrial power of the country because oil provided fuel for the aviation, transport and military industry.

Already in the 1920s Lenin and his party colleagues realized that the classic Soviet system will not ensure the breakthrough  in oil industry. That was why Lenin proposed to give Baku oil field in concession to the foreign entrepreneurs. In his letter to Serebrovsky in April 1921 Lenin wrote that “it would be good to give one quarter or even one half of Baku oil fields in concession.”

The topic of Baku oil was implicitly  present in the discussions about the relations of the Soviet Russia and the world at the conferences in Genoa and the Hague.  As Muradaliyeva puts it,“oil was not mentioned neither in the protocols, nor in any other official documents, but in reality it was discussed. It was necessary to cover the old debts.  Western powers wanted to make the Soviet Russia give them concession for the oil industry. Many noted then that even the air in Genoa smelled of Azerbaijani oil in those days”. At the Genoa conference in 1922 “Royal Dutch Shell” was particularly active in claiming the long-term concession. The Soviet government was generally in favor of this if one quarter of the oil fields remained in the Soviet hands, while three quarters were given to the foreign companies.

The contract was impeded by the stubbornness of the other foreign delegations, primarily the French, in the question about military and pre-war Russian  debts. By concluding a separate treaty with Germany in Rapallo Russia managed to break the line of the Western powers. But the question about the Baku concessions was postponed  It reappeared in the Hague in June, 1922.  The Soviet delegation presented a list of companies that could be given in concession to the foreign firms. These included oil plants in Bibi-Eibat, Artem, Chekmen, Shubany, Puta. Gala. Despite the interest that   many foreign firms in the offer, the negotiations did not bring any results. The questions of the concessions was not settled. It seems that the main reason was in the competition of the main oil companies. All of them, in particular “Standard Oil” and “Royal Dutch Shell, wanted to monopolize the Russian market and did not intend to yield. The concessional policy of the Soviet government in the oil industry could hardly be considered constructive. Soviet leaders were too cautious in granting foreigners access to the Baku oil. And this, in turn, caused a cautious attitude on the part of foreign investors. In any case, the attempt to increase efficiency of the Baku oil industry through the use of resources and expertise of foreign companies failed. That is why the Soviet state had, in fact, to facilitate a breakthrough in the development of oil industry at a crucial period of industrialization - during the prewar five-year plans. The first Soviet five-year plans were to provide a tremendous step forward in the development of industrial potential. Naturally, the development of energy sector was given a large place in the framework of ambitious targets. A special place in terms of economic development was given to the oil industry. For a long time, actual results of the development of the oil sector had not been determined accurately. Only the decision of the CPSU (B) from November 15, 1930, stated that oil production in 1933 should amount to 45-46 million tons. It was a clearly overstated and, as it appeared, an unrealistic figure. The researcher of this period, A. A. Igolkin, after having carefully studied documents of the period, established peculiarities of the development of Soviet oil industry in those years, which in his opinion, were the causes behind the unaccomplished plans.

There were several causes. One of them was the insufficient development of metallurgical industry and because of which the oil production was not provided with proper amount of equipment. Concerning the first five-year period, Igolkin noted that "it was absolutely impossible to accomplish ambitious plans with equipment and materials supplied to the oil industry." The same author gave some interesting facts concerning the second five year plan: according to the plan, the oil production was supposed to receive 25,340 tons of casing pipe, while in fact only 12,022 tons were delivered.  The plan also allocated 7550 tons of drilling pipes, while only 2787 tons were shipped.2 Another important reason for the failure of achieving the planned results for the development of oil industry was insufficient oil capacity and the lack of transport. The oil pipe Baku-Batumi, completed in 1930 had a capacity of only 1.6 million tons per year1.

The most important defining feature of the development of the petroleum industry was the structure of capital investments in the oil industry of the USSR. This structure was significantly different from the American model. Thus, in the USSR from 1925-1926 all in all 65.8% of all investments in the oil industry were spent, while in the US – only 48.2%. At the same time, in America 24.1% of investments in the industry were directed at processing the oil and 9.6% - on the production of new pipelines. The Soviet Union allocated for the same purposes respectively 7.5 and 3.5%. The foundation of these differences lies in the approaches to the developmental prospects of the oil industry.