Oil of Russia

The Caucasian Saga of the Siemens Brothers

The successful operations of the German electrical engineering firm Siemens & Halske in the 19th century are fairly well-known. But few are aware that the Siemens brothers were also present at the birth of the Russian oil business.

In 1882, the newspaper Kavkaz [“Caucasus”] published a detailed article by production engineer Stepan Gulishambarov, “Oil Fields in the Empire, Georgia, Guria, Ossetia, Karalini, and Kakheti,” focusing especially on the oil operations of the “Siemens brothers, Prussian nationals whose company is better known in the world for its successes in setting up telegraph communications and manufacturing electrical hardware.”

The six Siemens brothers—Werner, Wilhelm, Friedrich, Karl, Walter, and Otto—had each received a technical education and were successful entrepreneurs. The operations of Siemens & Halske were inextricably linked with Russia from the company’s earliest years. The Siemens brothers began establishing the first business contacts as early as 1851, only four years after they founded the company. Collaboration began with the delivery of 75 recoding telegraphs for Russia’s first telegraph line, which ran from Finland through St. Petersburg, Moscow, and Kyiv to Odessa and the Crimea. For a company that had begun with a small production facility and 10 workers, this was a very important order. A year later, Werner Siemens, full of ambitious plans, came to St. Petersburg. His great expectations were completely justified, and his company was immediately supplied with enough orders to keep it busy for the next 15 years.

Siemens & Halske’s Russian expansion compelled the company’s managers to open their own representative office in St. Petersburg in 1855, headed by Werner’s younger brother, the 24-year-old Karl Siemens. He quickly learned Russian and began studying the Russian way of life and Russian customs with great interest. Soon Karl married a Russian girl, and began to be called Karl Fëdorovich.³⁵

By 1867, the Siemens brothers had become tax farmers for cobalt and iron ore mines in Kedabeg (Tiflis Province), and also leased the Mirzan, Shirak, and Eldar oil wells in Georgia for 4,500 rubles a year. By the time they began operating, the annual tax-farming fee had grown steadily: 1,000 rubles from 1848 to 1858, 2,800 rubles from 1858 to 1862, and 3,100 rubles from 1862 to 1866. Still, the volume of oil production from sources at the disposal of the Transcaucasus Treasury Board was very meager—according to the Learned Mining Committee, these wells yielded only 775 barrels in 1865.

Initially, the organization of oil production at the fields at Imperial Springs [Tsarskiye istochniki] rested on the shoulders of Walter Siemens (1833–1868), the acting consul of the North German Alliance in Tiflis. Residing in the Caucasus from 1865 on, he contributed much in the initial stages for the development and launching of many of the firm’s commercial projects, including the production of oil. However, an unfortunate fall from a horse proved fatal, and he was buried in the Tiflis city cemetery on June 12, 1868. His short obituary in the Kavkaz described him as “someone whose individuality set him apart from most ordinary people.”

Otto Siemens, who took over as acting consul of the North German Alliance in Tiflis, continued Siemens & Halske’s Caucasian oil project. His brilliant abilities as a businessman, engineer, and production organizer were on full display at the Imperial Springs fields. State of the art foreign methods and equipment were employed to organize the first oil production there. Following the construction of new, deeper wells at sites of obvious surface oil shows, the first three new wells were started in 1869, and a refinery was built. According to data from the Caucasus Bureau of Mines, in 1870, the Siemens Brothers oil field contained 80 hand-dug wells and seven drilled wells whose combined oil production was 7,015 barrels. The refinery had four distillation vats with volumes of 325 to 390 gallons, four air coolers, three rinsing tubs, and eight basins for storing crude and residual oil. The produced crude was refined into 1,550 barrels of photogen, 124 barrels of gasoline, 217 barrels of heavy oil, and 4,035 barrels of residual oil.

In July 1868, the Imperial Russian Technical Society (IRTS) established a Caucasian Division in Tiflis. Otto Siemens was elected as a candidate for membership in the new engineering society and regularly took a very active role in discussions on important technical issues associated with the oil industry. One such issue involved the problem of using residual oil as fuel for the smelting of copper ore. Otto Siemens was one of the first in the Caucasus to find an effective way to resolve this problem. At the March 13, 1871 meeting of the Caucasian Division of the IRTS, he presented diagrams of two “regenerative apparatuses for the combustion of residual oil,” one of them designed by Friedrich Siemens and the other by his own hand.

Vladimir Bogachev, a member of the IRTS Caucasian Division, evaluated the apparatuses, observing: “The idea on which the design of the aforementioned devices is based is extremely clever; but how practical the latter will be can only be decided by an experiment that Mr. Siemens intends to perform at one of his factories.”

Otto Siemens can also be considered one of the pioneers in the asphalt paving of roads in the Caucasus. The production of road asphalt was soon under way at an Imperial Springs plant, and the asphalt was used successfully in the construction of Russian bathhouses in Tiflis, among other projects. In addition, Otto Siemens proposed installing asphalt sidewalks for less than 3 rubles per square foot to Tiflis Governor K. I. Orlovsky, but the conservative governor opted instead for cobblestone pavers.

Nevertheless, the company’s contribution to the development of Russian industry, as well as the Siemens brothers’ fruitful activities in Russia over the past 16 years, did not go unrecognized. Great success awaited the Siemens & Halske Company at the 1870 National Manufacturers’ Exhibition in St. Petersburg, where it immediately won two medals, the gold and the silver.

Unfortunately, Otto Siemens was unable to bring all his creative ideas to fruition. He died in the fall of 1871, during a cholera epidemic in Tiflis. The Kavkaz published a report announcing that the Imperial German Consul, Dr. Otto Siemens, had passed away on September 23, 1871, and offering the paper’s condolences to the Siemens trading house.

At the October 11, 1871 meeting of the Caucasus Division of the IRTS in Tiflis, mining engineer Ivan Shteyman, head of the Bureau of Mines of Caucasian Province, read out the obituary for Otto Siemens, which emphasized that his activities “in the mining industry have earned him a place of honor in the history of the Transcaucasus Territory.”

After Otto’s death, Karl Siemens took over management of the Caucasian oil project. In the summer of 1872, Siemens & Halske participated in a Polytechnic Fair held in Moscow. Vasily Minin, a reviewer for a Moscow newspaper, wrote: “The physics section got many interesting devices from Siemens & Halske in Berlin, including an electromagnetic range-finder, an electric pyrometer, and an apparatus for detonating mines.... Meanwhile, the Caucasian Territory’s exhibit featured, alongside ‘historical Petrovian artifacts,’ a mineralogical collection that contained items from the Kedabeg copper smelter and products from their refinery.” On the same topic, Russkiye vedomosti [“Russian Gazette”] noted: “The Caucasus exhibit revealed a great many riches that Russia has yet to start using.”

On display in Pavilion 14 of the Caucasus section were samples of oil and petroleum products from the Siemens Brothers photogen refinery at Imperial Springs, the full list of which included products entirely new to Russia, such as gasoline (specific gravity 0.682); ligroin (0.692); “separated” gasoline (0.716); light oil (0.760); straight-run gasoline (0.725); photogen (0.820); doubly-rectified photogen (0.818); solar oil for burning in lamps (0.867); heavy fuel oil for furnaces (0.875); vulcan oil for lubricating machinery (0.935); petroleum tar (0.968); oil tar for marine use; skin ointment; liquid cleanser for removing grease stains; bituminous varnish for iron and wood; and asphalt.

The long list of displays at the Siemens Brothers refinery exhibit demonstrated their wide range of expertise and showed that the first practical application of the deep refining of oil in Russia occurred at their refinery. An expert jury rated Siemens & Halske’s contribution to the development of Russian industry very highly. Werner, Wilhelm, and Karl Siemens were awarded a Certificate of Merit (First Class) for their “many practical applications of electric current,” and a Grand Gold Medal for their “collection of crude oil and petroleum products.” Friedrich Siemens also received a separate Grand Gold Medal for “perfecting regenerators for glassmaking and steelmaking furnaces.” In addition, the director of the company’s refinery, Karl Masing, was awarded the Polytechnic Fair jury’s written commendation “for his diagram of the regenerative apparatuses for the combustion of residual oil, which are converted into steam and gas.”

After the Polytechnic Fair, the Siemens brothers’ oil business continued to grow. By 1875, according to data from the Learned Mining Committee, Tiflis Province already had 101 drilled wells in production, including 72 wells in the Mirzan, Shirak, and Eldar districts, and 29 wells in the Nabamberi area, and just 14 hand-dug wells

In addition, two refineries were already operating in the area of these fields: one belonging to the Siemens brothers, and the other belonging to Karl Masing, their former manager, who had started his own business. In 1875, the Siemens Brothers refinery produced 3,138 barrels of photogen (lamp oil) and 3,741 barrels of other products, while Karl Masing’s refinery, which had just begun production, turned out 30 barrels and 13 barrels, respectively.

In 1878, the tax-farming system for Tiflis Province oil fields was replaced by a leasing arrangement, with an annual fee of 10 rubles per 2.75 acres paid directly into the treasury. Initially, this spurred the development of oil production in the region. By 1880, according to data from the Learned Mining Committee, Tiflis Province had only 51 drilled wells, producing 8,608 barrels of crude; this was refined into 4,069 barrels of lamp oils and lubricants.

However, subsequent operations at the Siemens Brothers oil field were not very successful. In 1882, their 41 wells produced only 4,508 barrels of crude, while the refinery turned out just 1,724 barrels of kerosene and 895 barrels of lubricants. It became clear that additional financial investments would be needed to recapture their former position in oil production and modernize the refinery.

At the same time, the accelerated development of the oil business on the Absheron Peninsula and completion of a railroad linking Baku and Tiflis opened the way for delivery of cheap Baku crude to Georgia, and the more expensive Imperial Springs oil could no longer compete. In the second half of 1883, the Siemens brothers decided to focus all future development on electrical manufacturing and sell off their oil business.

The Fight to Abolish Oil Tax Farming

The year 1861 marked a turning point for Russia. With the abolition of serfdom and the beginning of the period of “Great Reforms” initiated by Emperor Alexander II, Russia embarked upon a path of accelerated modernization. The old administrative system of feudal serfdom faded into the past, and a new epoch of economic development began. The socioeconomic progress of the Russian Empire required the achievement of a higher-quality national economy and industry, as well as substantial growth in gross indicators of industrial production.

Despite the dramatic changes taking place in Russia at this time, the tax-farming system, a rudiment of the feudal economy, continued to dominate Russian oil fields. The brothers Ludwig and Stanislav Perschke, noted researchers in the economics of the Russian oil industry, remarked: “The tax farmer, and equally the treasury, being interested during their brief administration only in the ephemeral present-moment maximum gain from the business, have absolutely neglected all considerations of strategic sense, and have not concerned themselves with improving methods of oil production or retaining obsolete oil wells and backward equipment and technology.”

Another aspect of the tax-farming system that exerted a stagnating effect on the Russian oil business was that the tax farmer, holding a monopoly, could dictate price terms to producers; under these conditions, most independent oil producers, who generally used credits granted by the tax farmer, were forced by economic pressure to sell crude to the farmer at his dictated price.

Beginning in 1862, the Absheron fields were farmed by Ivan Mirzoyev, a well-known entrepreneur in the Caucasus, who had entered into a corresponding agreement on December 18, 1862. For a term of four years, until January 1, 1867, he gained control over oil and salt fields located in Baku Province (the Baku, Shamakhy, Lankaran, and Nuxa Districts and most of the Shusha District), Derbent Town (in full) and the Kitag-Tabasaran and Zaqatala Districts (in full).

According to the agreement, Mirzoyev had at his disposal “all property at springs and lakes, as well as warehouses.” He was required not only to maintain “everything in a serviceable condition, but to strive to improve it, if possible, by increasing the production of oil and salt and making production more convenient, by preventing wells from clogging, and clearing them of kir and water.” If he “wished to open exploratory shafts, new oil wells, or basins in these forms, he was required to notify the Treasury Board, and if he so wished, or the importance of the work required it, a mining engineer could be appointed at the tax farmer’s expense.”

Ivan Mirzoyev’s tax-farming terms consisted of the following: an annual payment of 162,200 silver rubles. A mandatory price was set, at which he was required to sell oil and salt. He could open new permanent warehouses and stores only within the limits of his farm. He was given the right of unrestricted export to Persia at reduced prices, but for domestic customers, he was permitted to reduce prices only for the first three years of the agreement. Violation of this obligation would subject him to a fine equal to twice the difference between “the lawfully established price and the willfully established one,” and he would be taken to court for theft of treasury property.

The agreement also established a relationship between the tax farmer and local residents. Oil from the Baku and Surakhany hand-dug wells was produced by residents of Balakhany, who were assigned to the Balakhany oil field. They were required to carry oil on their oxcarts to Balakhany storage cellars and thence to Baku tax-farm stores for the duration of the first quitrent year. For production and carriage, Mirzoyev paid these residents at a rate approved by the governor general of the Caucasus. Other work was outside the scope of the residents’ obligation and was paid by voluntary agreement. Upon expiration of the mandatory obligation to produce (for a six-month term) and carry (for a one-year term), Mirzoyev organized the work through hiring at will. It is curious that tax-farmer Mirzoyev maintained a guard of 12 policemen at his own expense to maintain order in the fields.

It 1863, during his first year as a tax farmer, Mirzoyev increased oil production to 40,830 barrels of crude, and thereafter increased oil production steadily, to 88,350 barrels in 1868, and then more than doubling that figure in 1869, to 202,350 barrels. Overall, taking the January 1, 1863 production of 28,820 barrels at the Absheron oil fields as a baseline, he increased oil production by nearly sevenfold, to 184,455 barrels, in the ten years ending January 1, 1873.

While expanding his operations on the Absheron Peninsula, Ivan Mirzoyev simultaneously turned his attention to the promising Grozny District. In early 1864, using a design of the Baku inventor Dzhevat Melikov, he built a small refinery in Grozny Gorge. Yevgeny Yushkin described the enterprise in his book, Beginning of the Grozny Oil Industry in Sketches [Nachalo Groznenskoy neftepromyshlennosti v ocherkakh]: “Fifty sazhens [350 feet] from the wells there were two small buildings with distilling vats and condensers, operated using oil and water from wells. Oil was piped from the wells into a 3,000-pood [360-barrel] covered rock basin for settling; the oil was pumped by hand to a 900-pood [108-barrel] covered wooden tub for final settling, after which it flowed by gravity to a refinery having seven stills with a total capacity of 1,880 vedros [6,118 gallons] in its two buildings, in a batch with a total volume of up to 1,335 vedros [4,344 gallons].” Some 4,325 barrels of crude were refined every month at the refinery. Photogen and kerosene were subsequently delivered to customers on oxcarts in plane tree barrels.

The following year, Mirzoyev expanded his tax farm by acquiring the Grozny, Mamakayev, and Karabulak oil springs from the Tersk Cossack Host effective June 15, 1865, for a ten-year term at an annual fee of 13,615 rubles.

According to an inventory drawn up that same year, there were 16 hand-dug wells on the bottom and eastern side of Grozny Gorge, nine of which had cribbing, while the remaining seven had one empty barrel each to prevent clogging by dirt embankments. The hand-dug wells produced about one barrel daily. Using a primitive gate driven by human muscle, the oil was hauled out of the wells in leather buckets called kops or kaps, which were leather bags of 180-pound capacity on iron hoops with a load weight on one side, giving the bucket the tilt necessary to excavate the oil.

The expansion of Ivan Mirzoyev’s oil production in Baku and Grozny was due primarily to an increase in the number of oil wells. Whereas there were 218 wells on the Absheron Peninsula in the first half of the 1860s— broken down by oilfield district as follows: Balakhany 102, Binagadi 65, Bibiheybet 27, Surakhany 19, and Bakhchi 5—by 1871 this figure had reached 239 wells.

Yet, despite efforts to expand oil production and the modest successes of entrepreneurs such as Ivan Mirzoyev, the stifling effect of the tax-farming system on the Russian oil business meant that in 1871, the United States accounted for nearly 81% of world oil production, producing 36 times more oil than Russia, which lagged far behind.

Leading Russian industrialists, including Vasily Kokorev, Pëtr Gubonin, and Gadzhi Tagiyev, joined in an active struggle to abolish tax farming, along with major government figures and officials, such as Nikolay Romanovsky, Gertsog Leykhtenbergsky, Caucasus Governor General Grand Prince Mikhail Romanov, and Minister Mikhail Ostrovsky, as well as many leading scientists and members of the technical elite.

Table 1. Russian Oil Production, 1863–1872 (in barrels and tons)

Source: Stanislav and Ludwig Perschke, The Russian Oil Industry, Its Development and Current Status in Statistical Data [Russkaya neftyanaya promyshlennost, yeyë razvitiye i sovremennoye polozheniye v statisticheskikh dannykh]. Tiflis (Tbilisi), 1913, pp. 4, 5.

In 1867, the governor general of the Caucasus, Grand Prince Mikhail Romanov, ordered the formation of a special commission to address this problem, and mining engineer Ivan Shteyman, head of the Bureau of Mines of the Caucasus and Transcaucasus Territory, was made its chairman. State Property Minister Mikhail Ostrovsky later remarked: “In 1867, the Caucasus governor general and grand prince charged a special commission with collecting detailed information on oil fields and presenting ideas for eliminating the tax-farming system and replacing it with another method of development more appropriate to the benefit of the treasury and industry.” The commission’s materials and conclusions were set forth in a document entitled, “Ideas of the Commission, Instituted with Permission of His Imperial Majesty the Governor General of the Caucasus, for Discussion of Issues Concerning the Development of the Oil Industry in Caucasus and Transcaucasus Territory,” which would later form the basis of legislation abolishing oil tax farming.

The commission noted: “The most important causes of the unsatisfactory condition involve the absence of legal provisions appropriate for the development of a private oil industry and in the widespread application of the tax-farming system to the production and sale of oil.” The commission concluded that “by eliminating tax farming, the government will open up an enormous profitable field for honest industry. The most important thing should be the government’s duty, and that is: only the removal of all economic obstacles on the path to development of any industry whatsoever. The rest will depend on the skill of private individuals to look after their business and their entrepreneurship.... The tax-farming system has forced the oil industry into a closed cycle in which the privileges granted to tax farmers to maintain revenue have prevented the entry of anyone else’s entrepreneurship, free competition in trade, and even conditions favorable for the discovery of new sources.”

The commission’s conclusions were approved by the capital government, but it would not be until February 1, 1872, almost five years later, that “supreme” [i.e., imperial] approval was obtained for the two government documents abolishing the tax-farming system on the Absheron Peninsula: “Rules of the Oil Industry and Excise Tax on Photogen Production,” and then on February 17, 1872, “Rules on the Cession into Private Hands of Treasury Oil Fields of Caucasus and Transcaucasus Territory, Now Subject to Tax Farming.”

The First Auctions on the Absheron Peninsula

Under the new 1872 Rules, the system of ceding oil fields to tax farming was abolished effective January 1, 1873. And that meant only one thing: the oil business, which until then had been strongly associated with progress the world over yet had pulsated fitfully in the snares of the feudal system only in Russia, would henceforth follow the capitalist track in Russia as well.

The principal feature of the 1872 Rules was the following: Effective January 1, 1873, the system of ceding oil fields to tax farming was abolished, and oil-bearing parcels of land were transferred to private hands at public auction for a one-time fee. The first paragraph of the Rules determined that “Chief oversight of private oil fields throughout the Empire shall be within the jurisdiction of departments of the Ministry of Finance and shall be concentrated in the Mining Department. The duties of the local mining administration shall include: a) observation of the adoption of steps undertaken in the performance of work to protect the health of workers, and also to prevent explosions, fires, collapses, and destruction; b) observation of the conduct of underground work plans and the extraction of only oil and kir on oil industry parcels; c) collection of statistical information on oil industry performance.”

The Rules permitted unhindered oil prospecting on all free treasury lands of the Caucasus by “persons of any status, both Russian subjects and foreigners.” Applicants were permitted to lease no fewer than 2.75 acres and no farther than 560 feet around the application post. As stipulated in the lease, an industrialist was required to begin oil development within two years of receiving the deed to the area. For the use of such leases, the industrialist was required to pay rent of 10 rubles per 2.75 acres. The maximum lease term was set at 24 years.

Soon after receiving the text of the “Rules of the Oil Industry,” the Main Administration of the Caucasus Governor’s Office formed a special commission in Tiflis to handle the first oil auctions on the Absheron Peninsula.

Four auctions were held during December 1872. Entrepreneurs Vasily Kokorev and Pëtr Gubonin acquired six parcels (165 acres) in Balakhany containing 48 hand-dug oil wells for 1,323,328 rubles (with an opening bid of 365,296 rubles). Former tax farmer Ivan Mirzoyev acquired four parcels (110 acres) in Balakhany containing 30 hand-dug oil wells for 1,222,000 rubles (with an opening bid of 134,791 rubles). In addition, three parcels (82.5 acres) in Balakhany containing 18 hand-dug oil wells went to the entrepreneurs Benkendorf and Muromtsev for 120,834 rubles (with an opening bid of 17,040 rubles). Entrepreneur Stepan Lianozov acquired one parcel (27.5 acres) in Balakhany containing six hand-dug oil wells for 26,220 rubles (with an opening bid of 1,310 rubles). One parcel in Surakhany containing 21 hand-dug oil wells went to entrepreneur Ivan Ter-Akopov for 22,950 rubles (with an opening bid of 2,290 rubles). Finally, the two entrepreneurial teams of Tagiyev and Sarkisov and Zubalov and Dzhakeli acquired one parcel each in Bibihey bet containing 18 and 9 hand-dug oil wells, respectively, for 9,095 and 18,950 rubles, respectively.

From an economic standpoint, the results of the first auction demonstrated the correctness of the chosen policy for the Russian government. Whereas the state budget had collected a total of 5,966,000 rubles over the first 51 years of oil field exploitation, the treasury immediately received 2,980,307 rubles, half of the collected amount, from the first auction and was assured of a stable source of income in the future.

However, at the same time, the Russian government, having abolished the feudal oil tax-farming system, had simultaneously imposed a burdensome excise tax on lighting materials, i.e., it had enacted a time-tested indirect tax on a consumer good, kerosene.

Furthermore, it should be noted that the tax-farming system in oil fields of the Russian Empire was not abolished at a single point in time, but over the course of a complex process that lasted for more than 20 years. The jurisdiction of the 1872 Rules covered only the Caucasus and Transcaucasus, while the tax-farming system in Turkestan Territory was not abolished until a decree of June 10, 1892, “On the Application of Rules on Private Industry in Free Treasury Regions to the Transcaucasus Region.” And finally, in 1894, Emperor Alexander III (1845–1896) approved “Rules on Oil Fields on the Lands of the Kuban and Tersk Cossack Hosts.”

On the Way to Real Entrepreneurship

As a result of the first auctions in December 1872 on the Absheron Peninsula, at the beginning of 1873 an active process of converting Russian oil fields from a semifeudal state to a capitalist form of industrial development was launched.

In that year of 1873, which was so noteworthy for the Russian oil industry, intensive drilling of oil wells began on the Absheron Peninsula, and their number grew rapidly. Whereas there had been only one drilled well in 1872, there were 17 in 1873 and 50 in 1874.

These early days have been dubbed “the great oil fever.” According to eyewitness accounts of the events, areas of oil production became completely unrecognizable. Seemingly overnight, a forest of derricks sprouted from the earth, the land whined with steam engines, and everything around was transformed.

In June 1873, in an area belonging to the Khalafi Partnership, a gusher occurred from a depth of 98 feet, erupting continuously for four months, and no one knew how to quell it. Several oil lakes formed around the gusher (named the Vermishev gusher, in honor of one of the founders of the partnership). The gusher’s appearance served as a concrete demonstration of the colossal riches of the Baku lands.

Oil production on the Absheron Peninsula was further increased as a result of a new method of well bailing. This new kind of bailer was a tub used originally to produce oil from hand-dug wells, but more elongated, with a considerably smaller diameter than when used previously in hand-dug wells, so that it could pass through the bore of a well casing with a bottomhole valve that opened inside. As the bailer was lowered into the well, the valve opened and the bailer filled with oil, but as it was raised, the valve fell, closing the opening, and the oil was raised to the surface.

By the spring of 1873, more than 80 refineries had been built around Baku, and by the end of the 1870s, their number had jumped to 200. The Baku sky, despite endless winds, turned black with soot, because the countless large and small refineries used the same crude as fuel when distilling oil, and they burned it in the same primitive way, on a furnace bottom. In the Black City outside Baku, an eyewitness wrote: “a continuous rain of black soot impregnated the soil, all buildings, and even darkened the southern sun.”

As proponents of abolishing the tax-farming system (including Dmitry Mendeleyev) had predicted, the oil industry’s conversion to new market conditions caused a substantial rise in the volume of crude hydrocarbon production and considerable development of the refining sector. In the first year following the new legislation, oil production rose by a factor of 2.6 over the previous year, reaching over 475,000 barrels.

The data presented below convincingly show that in the first five years following the abolition of the tax-farming system on the Absheron Peninsula, the Russian oil industry was able to achieve unheard-of rates of oil production under conditions of free enterprise, with Russian oil production nearly quadrupling from 1873 to 1877.

Ancient fire-worshipers’ temple on the Absheron Peninsula near Baku.

Antique clay oil lamp, or chiragh.

Russian Emperor Peter I (Peter the Great, 1672–1725) whose 1700 decree formed the Mining Office, the first state department, which initiated radical transformations in Russian mining.

The first printed Russian newspaper, Vedomosti [“Gazette”], of which Peter I was the editor in chief, noting the discovery of oil on the Sok River in the Volga region (1703).

Jacob Bruce (1670–1735), first president of the Mining Board, made a major contribution to the development of mining in Russia.

Map of the oil-bearing areas of the Volga region (1773).

The great Russian scholar and encyclopedist Mikhail Lomonosov (1711–1765) devoted much attention to studies of petroleum.

Mikhail Lomonosov’s laboratory still (from the collection of the Russian State Historical Museum).

Russian Emperor Alexander I (1777–1825) authorized the annexation of the oil-bearing Absheron Peninsula to the Russian Empire.

Baku in the early 19th century.

Count Yegor Kankrin (1774–1845), Russian Minister of Finance, was an advocate of the tax-farming system for Russian oil fields.

The Viceroy of the Caucasus, Prince Mikhail Vorontsov (1782–1856), insisted on sending a sample of Russian crude oil as an exhibit to the Great Exhibition of the Works of Industry of All Nations in London in 1851.

Russian Emperor Nicholas I (1796–1855) paid considerable attention to the oil production of the Absheron Peninsula.

Russian Emperor Alexander II (1818–1881) liberated the Russian oil industry from the tax-farming system, a relic of feudalism.

Manual oil extraction at the Absheron Peninsula fields prevailed right up to the mid-1870s.

The great Russian scientist Dmitry Mendeleyev (1834–1907), creator of the periodic table of the elements, was an energetic advocate for expedited development of the domestic oil industry.

Title page of Dmitry Mendeleyev’s book, The Oil Industry in the American State of Pennsylvania and in the Caucasus (1877).

Table 2. Russian Oil Production, 1873–1877 (in barrels and tons)

Source: Stanislav and Ludwig Perschke, The Russian Oil Industry, Its Development and Current Status in Statistical Data [Russkaya neftyanaya promyshlennost, yeyë razvitiye i sovremennoye polozheniye v statisticheskikh dannykh]. Tiflis (Tbilisi), 1913, pp. 4, 5.

As for exports, the main foreign destination for Russian crude oil and petroleum products in those days was Persia. In 1880, Russia exported 21,579 barrels of crude oil and petroleum products to that country from Baku, including: 6,953 barrels of kerosene, 6,480 barrels of residual oil, and 8,142 barrels of crude oil.

The First Vertically Integrated Oil Company

The abolition of the tax-farming system and the promotion of individual and group entrepreneurship paved the way for the development of joint-stock companies in the Russian oil industry. The strong inflow of private capital into the industry created unprecedented competition. The forms of business organization that existed at the time—individual and family businesses, full and trust partnerships—were not well-suited to the changing economic environment. They could not adequately respond to rapidly changing competition in the emerging national kerosene market, nor could they fully support the growth of petroleum product production or overcome the technological gap between the Russian and US oil industries.

After witnessing the results of the first year of escalated competition among oil industrialists on the Absheron Peninsula, entrepreneurs Vasily Kokorev (1817–1889) and Pëtr Gubonin (1825–1894) decided to create a large joint-stock company capable of performing the full spectrum of oil production, petroleum products manufacture, and sales.

In late 1873, they began organizing this first joint-stock oil company in earnest. Explaining his position to prospective stockholders, Vasily Kokorev issued a brochure, “Explanatory Note on the Charter of the Baku Oil Company” (St. Petersburg, 1874), in which he convincingly justified the advantages of concentrating capital within a single company for successful industrial oil production, as well as the manufacture and sale of petroleum products.

The most salient arguments for creating such a company were: 1) the need to radically change the Russian oil business to satisfy mass demand for petroleum products and to displace American kerosene from the Russian market; 2) the geographic remoteness of domestic oil production on the Absheron Peninsula from the bulk of customers in Central Russia and the rest of the Russian Empire, which demanded the creation, under market conditions, of an effective business structure to manufacture and sell petroleum products; 3) the real ability of a vertically integrated structure to substantially accelerate the entire cycle of capital turnover and cost payback and to maximize the growth in the size and rate of return by reducing unit costs throughout the production chain in view of the concentration of capital and the availability of a unified infrastructure and controlled sources of raw materials.

The founding of the Baku Oil Company (BOC), the Russian oil industry’s first joint-stock company, on January 18, 1874 can properly be considered a milestone in Russian history. However, even from the start there were difficulties securing financing as the oil business was still a decidedly risky venture for the average (patriarchal) Russian entrepreneur. Yet these initial difficulties only encouraged the founders, and on July 9, 1874 the company began operating officially. According to the second paragraph of its charter, “The company shall gain lawful title to certain works, lands, ships, oil wells, basements, and warehouses, both belonging personally to business councilor Kokorev and also belonging to him jointly with state councilor Gubonin, by joint agreement of the owners and the company, according to an inventory to be presented at the first general stockholders meeting.” At the outset, the BOC’s fixed capital was 2.5 million rubles, and was backed by the issue of 20,000 shares having a par value of 125 rubles.

The BOC’s first report, for the period from July 1, 1874 through April 1, 1875, described all the company’s assets in detail. The oil production sector included: “Six groups in Balakhany, in an area of some 60 desyatinas [165 acres] with drillholes and hand-dug oil wells. Lands in Sabunchu, with an area of about 22 desyatinas [60.5 acres] with hand-dug wells and a basin. Oil basins and other buildings under construction by July 1, 1874.” By 1875, the BOC owned 10 drilled wells at the Balakhany oil field that were 161 to 245 feet deep with daily flows of 72 to 1,200 barrels.

The refining sector included: “A refinery with all accessory buildings, apparatus, machinery, and combustible gas coming from the land, valued at 1.2 million rubles. The value of the new division currently under construction and supplies on hand is taken as 13,669 rubles.”

The BOC’s transportation sector included a small fleet based at Zykh wharf, consisting of six schooners, the steamer Artelshchik, and five barges. It also had its own anchorage at Baku, with a sailing schooner and barge for carrying residual oil. In 1875, BOC built the sailing schooner Vasily, a ferry boat, and five barges at Tsaritsyn, and purchased the steam schooner Transzund.

The company’s sales sector was comprised of a Baku office, 11 agencies, and four commission offices. The agencies, along with the major buildings and warehouse facilities, were located in Moscow, Saratov, Samara, Tsaritsyn, Kazan, Simbirsk, Sarapul, Perm, Nizhny Novgorod, Yaroslavl, and Astrakhan. The BOC’s commission offices were operated out of Rybinsk, Penza, Vologda, and Vyatka. In Moscow alone, the BOC built six warehouses on leased land with an area of 5.5 acres 4,900 square feet and a total capacity of 423,500 gallons. In addition, the Moscow agency operated a retail petroleum products store that was very popular among Muscovites.

The company’s board was located in St. Petersburg. It was headed by the proactive manager Nikolay Ignatyevsky, and it included the financial and mining specialists R. Kraft, I. Milyutin, and K. Gusev. Later, I. Gorbov and D. Polivanov joined the board.

The BOC managed to achieve impressive results after only three years, and the company soon became the leader of the Russian oil industry. Whereas in 1874/1875, the company reported production of 115,969 barrels of crude oil and 35,702 barrels of kerosene, it reported respective figures of 285,749 barrels and 62,482 barrels in 1875/1876, and 450,690 barrels and 108,475 barrels in 1876/1877.

In the spring of 1876, the noted Russian scientist Professor Konon Lisenko, of the Mining Institute, visited the Baku Oil Company’s fields and refinery and soon became a scientific and technical consultant to the BOC.

After touring the Baku Oil Company’s facilities, Professor Lisenko noted that the Baku Oil Company’s Surakhany refinery had 25 stills holding 2,017 to 2,148 gallons each and five stills holding 677 gallons each; the former were designed for processing lighting gas, and the latter were for lubricants. Combustible material in the form of gas was collected in 44 iron cisterns and fed from there into pipes marked with a dotted red line that were routed through the refinery’s various buildings. The refinery had a large cooper’s shop, metal shop, and blacksmith’s shop. In addition, the Baku Oil Company had a cooper’s plant near Baku itself.

An important phase in the company’s development took place at this very same refinery, with the organization of lubricant production. This development was primarily due to the work of mining engineer Aleksey Doroshenko, the manager of the Surakhany Refinery. The refinery installed a process line for making lubricants from residual oil, which had previously been regarded as waste and was usually simply burned. The production process for making lubricants at Surakhany Refinery consisted of the following: residual oil was heated to 572°F, after which superheated steam was passed through it, entraining the oil fractions in flow through a metal pipe into a condenser, where they separated from the water. Later, mining engineer Semën Kvitka remarked: “Generally speaking, while the oil industry is forever indebted to R. I. Ragozin for organizing the production of lubricants, Aleksey Semënovich Doroshenko earned his share of respect and gratitude from Baku residents for organizing the business in Baku.”³⁶

The expansion of oil production and increases in petroleum product refining volumes required BOC management to continually take steps to further improve production, develop infrastructure, and introduce modern equipment and new process solutions.

On February 17, 1879, the BOC placed in service a kerosene pipeline from Surakhany Refinery to Zykh dock. The company then built the tanker Surakhany in Sweden at Crichton Yard (Abo), designed to carry 5,500 tons of kerosene worth $75,000 (approximately 94,000 silver rubles). All this had a substantial effect on improving the efficiency of the company’s transportation sector and its successful sale of petroleum products, both in Russia and abroad.

The company’s investments in infrastructure and equipment paid off and by 1888 the BOC was producing more than 1.3 million barrels of crude oil. A year later, it produced 1.7 million barrels. However, starting in 1890, the BOC slipped to second place in Russia in terms of oil production volume, behind the Nobel Brothers Petroleum Production Partnership.

On the whole, however, the BOC’s successful operation as the first vertically integrated company became a convincing example for many Russian oil industrialists. Moreover, it was this initial phase of joint-stock creation in the oil industry (1874–1879) that laid the groundwork for the future development of the industry, including the monopolies that emerged during the late 19th century.

The Nobel Brothers’ Big Risk

As mentioned above, the Russian oil industry underwent a changing of the guard by 1890, with the BOC passing on its title of the number-one oil producer in Russia. Part of this was due to circumstances within the Baku Oil Company, including the death of Vasily Kokorev in 1889. But equally important was the initiative and actions of the ambitious Nobel Brothers Petroleum Production Partnership.

The initial phase of the company’s formation was described in the Nobel Brothers Petroleum Production Partnership brochure, published in June 1882 in St. Petersburg: “The eldest brother, Robert E. Nobel, went to the Caucasus to fulfill a special assignment from his second brother [Ludvig], the St. Petersburg mechanical factory owner. In 1874 he began prospecting for oil, both on the Absheron Peninsula and on Cheleken Island. Upon discovering abundant sources in both places, he immediately began building a refinery, which he placed in service in 1875.”

The “special assignment” Ludvig entrusted to his brother Robert in March 1873 was to purchase massive quantities of walnut wood for the manufacture of gun stocks at the Izhevsk Works. Robert was ultimately unable to make this purchase but, by a twist of fate, he instead found himself on the Absheron Peninsula, where his gaze fell upon the various petroleum and photogen (kerosene) enterprises. He already had some experience trading kerosene in Finland, and decided to take a risk. He spent all 25,000 rubles of his “walnut” money to purchase a small parcel of oil-bearing land and a photogen refinery with eight “Tatar” vertical stills, each having a capacity of 9.6–10.2 barrels, from the Dutch De Boor brothers. The new business, Robert thought, had decent prospects, since the Russian market was still largely dominated by foreign-made petroleum products. American kerosene imported to Russia in 1872 alone totaled 215,318 barrels, while Russian kerosene production was at the unacceptably low level of some 48,000 barrels per year.

In her monograph, The Nobel Corporation in Russia [Nobelevskaya korporatsiya v Rossii] (Moscow, 1970), the noted Russian historian and Doctor of History Irina Dyakonova notes that the abolition of the tax-farming system in Absheron Peninsula oil fields on January 1, 1873 established a favorable environment for the development of an oil business, and the Nobel Brothers took full advantage of it.

Mining Institute Professor Konon Lisenko, who visited the Absheron Peninsula in the spring of 1876, also reflected on this in his “Review of the Current State of Oil Production and the Use of Oil as a Fuel,” writing: “The method of drilling wildcat wells used by Mr. Robert Nobel with great success deserves special attention... its advantage lies in the speed of work and the ability to drill a small-diameter hole to a comparatively greater depth.... Baku has several factory owners who want to develop oil processing on a rational basis. Among these I would include Robert Nobel, who hopes to introduce full processing of oil at a refinery that was under construction, but commissioned after my visit, with the inclusion of paraffin production from materials containing it in sufficient quantity.” Further evidence of Robert Nobel’s innovative activities include the Department of Trade and Manufactures of the Russian Ministry of Finance’s decision in 1875 to grant him proprietary rights to the original design of a free-falling drilling tool with extensible cutters and a method of removing cuttings using water injected under pressure into the hole.

In December 1875, in a letter to his younger brother Alfred, Ludvig wrote: “Robert has returned to Baku from the east coast of the Caspian Sea. He found marvelous oil on Cheleken, lying at a depth of 10 sazhens [70 feet]. Now he has the crude material he needs.... His future successes depend on it. For my part, I did what I could in the sense of financial aid and technical support.... The main thing now is to conduct the business sensibly, on a large scale.”

The first step in expanding operations at the Nobel Brothers’ refinery was to install two additional distilling vats and introduce kerosene purification technology. In another letter to Alfred, Ludvig wrote: “The refinery is finally complete and has begun operating. Its production is significant, comprising 0.5 million poods [60,044 barrels] a year in its current form. If we double the amount of equipment (the equipment is inexpensive), then we will be able to double or even quadruple that figure once production lines are completed. Almost any way things turn out, we will be able to produce 2 million poods [240,175 barrels] of kerosene per year—everything relies on transportation and warehouses. But this is where the big problem lies. As for quality, we have achieved marvelous results: while only 30% of heavy and low-grade kerosene can usually be made from Baku crude, we can make 40% light kerosene from the same crude, on a par with the best American samples. We will be able to enter the market with a product that will give our company a shining reputation.”

In July 1876, based on the results of a trip to the Absheron Peninsula, Ludvig Nobel began working on an analytical memorandum, “A Look at the Baku Oil Industry and Its Future.” Essentially, the memorandum contained a comprehensive program for radically transforming the Russian oil business. Ludvig Nobel began by considering the experience of the US oil industry, stressing that it was “the production of lamp oils [that] nevertheless proved a tremendous use of the wealth for America, yielding more than $100 million in net revenue.” He tried to identify the peculiarities and differences in oil production in the United States and Russia, and broke the entire industry down clearly into its major components: “Crude oil here is given out nearly free of charge, as it was temporarily in America, too.... Everyone understands that the business must have a tremendous future, but with the shortage of transportation routes holding back the entire business and in the absence of capital, enterprise, and skill to establish the business, I cannot foresee when the development of the Baku oil industry will actually begin.” Ludvig Nobel’s main proposals called for abandoning the use of animal-drawn vehicles to transport oil (it was stored in wineskins and drawn on oxcarts) and instead constructing oil pipelines from fields to refineries; constructing iron tanks for storing crude oil and petroleum products; more widely using residual oil (mazut) for heating and gas production; radically improving the quality of kerosene; introducing bulk carriage of oil in railroad tank cars and on inland and seagoing ships; and creating a diversified structure for storing and selling petroleum products in Russia. This program was received by most Russian oil industrialists with a fair amount of skepticism and excessive caution, so Ludvig Nobel decided to carry it out himself.

In the fall of 1878, Ludvig contracted Bari, Sytenko & Co. to build Russia’s first oil pipeline on the Absheron Peninsula for his enterprise. It was 5.6 miles long, with a pipe diameter of three inches and a capacity of 9,607 barrels of oil per day. By the end of 1878, only 101,012 barrels of oil had been pumped through the pipeline, but in 1879, it carried 670,451 barrels.

The installation of the pipeline had a drastic effect on the Nobel Brothers’ business: Whereas the company exported 750 barrels of kerosene from Baku in 1876, by 1879 the figures were 66,220 barrels of kerosene and 56,042 barrels of residual oil.

The Nobels also turned their attention to the technical modernization of the refinery as well. In 1877, they installed the first steam pumps for moving crude and residual oil to pressurized tanks that fed the distillation vats, and introduced the technique of cooling hot residual oil in the still using a cold-oil circulation system. This allowed the number of distillation cycles to be increased to 6–10 per day. In 1878, the refinery installed a large tube-type residual oil cooler, enclosed in a 2,400-barrel tank, which the workers nicknamed “Ivan the Great.”

However, the tremendous yield of crude oil and petroleum products could not be delivered to the domestic Russian market by sea or inland waterway in barrels. And here, Ludvig turned to the experience of the Astrakhan merchants, the Artemyev brothers, who had reconfigured their wooden sailing ship the Aleksandr in 1875 to deliver bulk oil along the Volga. In January 1878, Nobel contracted with Sven Almquist, director of the Motala Shipyard in Sweden, to construct the world’s first steam-powered oil tanker, the Zoroastr, named after the Persian philosopher Zarathustra. The Zoroastr had a load capacity of 4,083 barrels of kerosene stored in eight holds, and the ship’s engines were rated at 290 horsepower. In late 1878, it completed its maiden voyage on the Caspian Sea under a Russian flag.

Ludvig Nobel also looked to the experience of the Baku Oil Company and soon followed their lead in creating his own joint-stock company. On May 18, 1879, the family business obtained imperial approval of the charter of the Nobel Brothers Petroleum Production Partnership, which created a joint-stock partnership with fixed capital of 3 million rubles. The capital was distributed as follows: Ludvig Nobel 1.61 million rubles, Alfred Nobel 115,000 rubles, Robert Nobel 100,000 rubles, Peter Bilderling 930,000 rubles, Alexander Bilderling 50,000 rubles, Ivan Zabelsky 135,000 rubles, Fritz Blumberg 25,000 rubles, Mikhail Belyamin 25,000 rubles, A. Sandren 5,000 rubles, and Benno Banderlich 5,000 rubles.

A fundamentally new phase in the history of the Nobel Brothers Partnership and the activities of Ludvig Nobel began soon thereafter. Ludvig was tasked with achieving a leading position in the Russian oil business and turning the company into a vertically integrated enterprise, extending its activities from the oil well to the sale of end products to consumers.

The Executive Board’s report to the April 1883 general stockholders meeting of the Partnership stressed: “The Partnership’s objective was first, to displace American kerosene from Russia, and then to begin exporting kerosene abroad. The entire enterprise was organized in full accordance with the requirements of that objective.... The Partnership’s industrial operations to date have been accompanied by ever-greater successes. Sales have grown increasingly every year. The high quality of the Partnership’s products, and the reputation it has earned as a result, command high prices compared to those of similar products from other Baku entrepreneurs.”³⁷

As for oil field development, the Nobel Brothers Petroleum Production Partnership bet on the development of machine drilling. Whereas Robert Nobel drilled the first well manually at Sabunchu in April 1876, by 1878 the company had seven wells, all drilled mechanically. By 1882, of the 271 drilled wells in all of Russia, the Partnership had 25 of them. The company’s first gusher was drilled in mid-1879, and others followed in 1880 and 1881.

Each year, the Nobel Brothers Petroleum Production Partnership continued to consolidate its position as a leader in the domestic oil industry. In just a short time, the company managed to turn itself into the leading Russian enterprise in the new field. Whereas in 1879 the company produced 38,548 barrels of proprietary crude and made 37,227 barrels of kerosene (including from purchased crude), by 1888, proprietary production had risen by more than 80 times, to 3.1 million barrels (13.4% of total Russian production), and kerosene production had grown by more than 40 times, to 1.5 million barrels.

Laszlo Sandor’s Shugurovo Failure

News of the oil riches of the Absheron Peninsula continued to inspire fortune seekers, even those located in the very center of the Russian Empire. Thus, when encouraging information about petroleum reserves in the Volga region surfaced, it attracted the attention not only of Russian business people, but also certain foreign entrepreneurs who sought the petroleum “bird of happiness.” Notable among these was a US citizen of Hungarian descent, Laszlo Sandor. He had previously acquired a respectable amount of capital supplying Pennsylvania kerosene to light St. Petersburg, which allowed him to prospect for oil in 1870 by drilling wells on the territory of the Bugulma-Belebey Rise. And, unlike the cautious Volga entrepreneurs, Laszlo Sandor was prospecting for oil on a large scale.

Hoping to attract the necessary funding to continue his work, he published a book in London in 1873 with the intriguing title The Sandor Petroleum Regions of the Center of European Russia [Shandorovskiye neftyanyye rayony tsentra Yevropeyskoy Rossii], in which he pointed out that competition against American oil—at the time American kerosene still dominated the Russian oil market—would benefit the Russian oil industry, but only once a deposit close to the main regions of Russian domestic consumption and convenient water arteries was brought into operation.

On the basis of work already done by Russian geologists, Laszlo Sandor concluded that such a deposit might exist in a completely new oil-bearing province, which he had earlier given the grandiloquent name of “Sandor” and which was located along the Volga only about 62 miles from the Kama River: “I cannot be absolutely, precisely certain of the ultimate success of the matter, but the first results have exceeded my most optimistic expectations,” he wrote in his book.

Laszlo Sandor proposed that this oil-bearing province could be expected to play a much larger role for the Russian Empire than the traditional Absheron Peninsula region. His visit to the Baku oil fields gave him the impression that they were almost as rich in petroleum as the American oil fields in Pennsylvania. However, Sandor noted in his book: “Transportation between Baku and the capital of the Russian Empire is very difficult and unreliable, since the route from Baku to Astrakhan, which passes, in particular, across the mouth of the Volga, frequently dries up almost completely, and transportation from Astrakhan to Saratov involves similar complications.” As such, transportation of oil up the Volga from Baku was a very expensive undertaking: significant amounts of steam and horse power were required, and burlaks³⁸ as well. He felt that the route from Saratov to St. Petersburg was easier.

Laszlo Sandor believed that a serious obstacle to efficient and profitable oil production on the Absheron Peninsula was the lack of sufficient construction timber in the South of the Russian Empire. Wood was required both for drilling derricks and for producing oil barrels, and was readily available in the Saratov, Samara, and Kazan provinces, from which large quantities were exported, especially to England. Sandor also thought that shipping the iron barrel hoops, potash, and sulfuric acid required for oil production down the Volga to Baku was overly expensive. In contrast, the bold American entrepreneur felt that the “Sandor petroleum province” did not suffer any of these shortcomings.

Sandor rented around 350,000 acres of land from various private landowners and serf communes for his oil prospecting work, which began in the valleys of the Sheshma and Sok Rivers. At the village of Shugurovo in the Bugulma District (the former Nadyr Volost), on the right bank of the Sheshma River, two wells were drilled 1,400 feet apart on a line parallel to the course of the river on the slope of the bank (close to the location of a present-day petroleum bitumen plant). The wellheads were located 119 feet above the Sheshma water level—Well 1 was 833 feet deep, and Well 2 went down 140 feet. In Sarabikulovo, Sandor located a well on a shelf, in an area reminiscent of a spacious terrace artificially constructed for this purpose. This well reached a depth of 669 feet. Wells were also drilled in the Sok River Valley (two wells on the right bank of the Volga, opposite Samara). In order to bring his exploration to a definitive result, Laszlo Sandor ordered one of the wells drilled as deep as possible. The well selected for this purpose was Shugurovo Well 1, in which work continued until April 1877. A weak emission of gas began at a depth of 797 feet and the cuttings removed from the well were saturated with oil. However, when the well was deepened to 833 feet, gas emission intensified, accompanied by a loud noise. Concerned that oil might explode in a gusher, Laszlo Sandor stopped further drilling.

At the end of his report to the Mining Department in April 1877 on the results of his oil prospecting, Laszlo Sandor wrote: “All my investigations were crowned with complete success.... Rich, inexhaustible underground basins of liquid petroleum are contained in the valleys of the Sok and Sheshma Rivers, to the northeast of Samara, and also in the Samara and Bugulma Districts. There are huge numbers of fields of oil-saturated earth at the villages of Shugurovo and Sarabikulovo.”

After studying Sandor’s report, Fëdor Raselli, director of the Mining Department, sent mining engineer Yakov Weitzenbreyer and engineer Aleksey Sivkov to the region to study the issue firsthand. In their report of June 4, 1877, they confirmed the signs of oil in the region where Sandor’s work had been carried out: “We feel that the sulfur gases that come out in many places here, as well as the seepage of petroleum onto the ground surface and the large deposits of asphalt encountered everywhere here, serve as reliable signs that these places are an area of rich underground oil basins.”

Unfortunately, Sandor’s work was not continued: a shortage of funding prevented him from drilling to a greater depth and reaching the desired deposits of Devonian petroleum. However, despite the ultimate failure of his undertaking, Laszlo Sandor’s undeniable achievements include the first wide-scale deep exploratory drilling in the Volga-Urals region and his identification of the region as promising for the industrial production of oil. He should also be credited with substantially expanding the production of bituminous rocks close to Shugurovo and even establishing a tar factory that was rather large-scale for its time and whose production was in demand by the local population.

The Fight against the Kerosene Excise Tax

By the mid-1870s, it was clear that the quantity of oil produced exceeded the capability of Russia’s domestic market to absorb it—or in terms of economic theory, supply began to outpace demand. Many economists attributed this to the system of excise taxation of kerosene production, introduced at the same time the tax-farming system was abolished, on January 1, 1873.

The kerosene excise tax was not very effective and suffered from numerous imperfections from the very beginning. It was not just complicated, but artificially overcomplicated, which made it inconvenient for both the tax agencies and the oil industry. Worse, the kerosene excise tax brought little revenue to the Russian imperial treasury. During the five years it remained in effect, it provided the treasury with only 1,246,000 [rubles], while leasing of oil and gas sections on the Absheron Peninsula and the customs duty imposed on American kerosene totaled 20,879,000 [rubles], i.e., almost 17 times more.

The amount of excise tax depended on the capacity of the distilling vat. It initially seemed to government bureaucrats that such a method of calculating the quantity of kerosene would simplify the tax, as vats with capacities of up to 677 gallons were taxed at 4 kopecks per 3.3 gallons [per day], while larger vats were taxed at 10 rubles per vat per day. It was believed that oil distillation in vats with capacities of 9.6–12 barrels should take 30 hours, of which oil filling and distillation would take 17 hours and cooling 13 hours. Oil distillation in vats with capacity over 12 barrels would take several days. The kerosene yield was determined to be 40% of the volume of oil.

It was soon discovered, however, that the excise tax bureaucrats had misjudged the length of a complete oil distillation cycle. The kerosene yield from oil did not exceed 30%, and the production cycle in small vats did not match those of the large vats.

It also turned out that the refiners, in their natural desire to pay less excise tax, tried to distill as much kerosene per day as possible. This practice could not help but affect quality, as it pushed the production process outside its normal sphere of operations. Distilling vats at most refining stills were small, with capacities of 12–24 barrels of crude, while the refineries themselves consisted of three sections: distilling, cooling and purifying. The vat itself was cemented into a base in which a furnace was constructed, and workers added buckets of oil from time to time. The resulting kerosene was drained off into containers and transported to the port. With such technology, the Baku kerosene was not of high quality. It burned poorly and produced a lot of soot, so housewives, especially those in the cities, preferred American kerosene.

But even such a primitive kerosene production “process” was very often violated. Once factory owners understood the flaws of excise taxation, oil distillation was accelerated in an attempt to outperform the excise tax standard and thus remain profitable, but in so doing an even lower quality of kerosene was produced. Owners contrived to carry out four to 10 cycles per day. Under forced distillation, vats often overheated, so that heavy fractions were distilled while the light ones could not be captured in the condenser and escaped into the air. Frequent explosions and fires also resulted, from which the workers suffered the most, and corruption among excise tax bureaucrats was rampant. Ultimately, the Russian oil industry was driven into a corner, and the flawed kerosene excise tax became a quagmire preventing its further development.

At the suggestion of Actual State Councilor Staroselsky, the governor of Baku, people working in the oil industry elected a committee to prepare specific proposals for overcoming the industry’s stagnation. As a result, the committee pointed out that one of the key reasons for the crisis was the unequal distribution of excise tax among refiners, noting in particular that the existing system made any technical improvements in refining equipment impossible and reduced kerosene production. The committee’s main conclusion was that the excise tax on produced kerosene had to be eliminated for the industry to develop.

In turn, the Imperial Russian Technical Society (IRTS) took up this most important cause. On January 21, 1876, the IRTS established a committee “On the Oil Excise Tax and Development of the Oil Industry” under the chairmanship of Prince Nikolay Romanovsky, honorary chairman of the IRTS. This committee, which included prominent Russian scientists and industrialists, contributed significantly to the development of the domestic oil business. At the committee’s February 11, 1876 meeting, during a discussion of the report by IRTS secretary Fëdor Lvov, Baku Oil Company founder Vasily Kokorev declared: “The liberation of the oil industry from the excise tax and from any constraint connected with it is a step that could really promote its development and one to which the oil industry has a right.”³⁹ Then he stated his profound views regarding the need for complete refining of oil and its residues: “The oil question is an issue of state importance: in addition to photogen used for lighting, oil provides lubricants and dense, so-called residual oil. An enormous fortune’s worth of lubricants are now being imported from abroad, whereas our manufacture of them should be an extension of photogen production, utilizing everything that can be recovered from the primary material—that is, crude oil—and it would be completely unjust to impose an excise tax on this byproduct.”

In May 1876, the IRTS board sent Professor Dmitry Mendeleyev of St. Petersburg University on a trip to the International Exhibition of Arts, Manufactures and Products of the Soil and Mines in Philadelphia with the specific task of studying the state of affairs in the American oil industry, including finances, and of objectively determining once more the cause of the oil business crisis in Russia. Konon Lisenko, a professor from the Mining Institute, was likewise sent to the Absheron Peninsula for an onsite study of the “grave consequences of the oil excise tax.”

Professor Lisenko observed that Baku refiners saddled with the excise tax were unconcerned with either improving oil distillation units or developing other valuable petroleum products on a par with kerosene (e.g., asphalt made of kir). He came to the firm conclusion that the photogen excise tax in the form that it was imposed by the February 1, 1872 regulations was a millstone around the neck of the nascent oil industry.

In his turn, Professor Mendeleyev in the United States focused particularly on the taxation system in the American oil industry. An excise tax had also been introduced there from 1862 through 1869, both on crude oil and petroleum products. This was done to cover some of the colossal expenses of the American Civil War. The oil excise tax did provide the US government with an impressive total of $9,000,000 per year, but despite that the country’s leadership abolished the excise tax first on exported kerosene, and then on all petroleum products. Moreover, the government began to protect the export of kerosene by returning the customs duties collected on the tin cans in which the kerosene was exported abroad and not collecting customs duties on iron cans (barrels) that were reimported to the United States. The oil excise tax was totally repealed in 1868, during the Reconstruction period.

After returning from America, Mendeleyev compiled a detailed report on his business trip in the form of a corresponding memorandum, which he laid on the desk of Finance Minister Mikhail Reytern. Then, on December 18, 1876, he gave a detailed report at the general meeting of the Imperial Russian Technical Society.

On the whole, both scientists handled their tasks brilliantly, and their books—D. I. Mendeleyev’s The Oil Industry in the American State of Pennsylvania and in the Caucasus [Neftyanaya promyshlennost v Severo-Amerikanskom shtate Pensilvaniya i na Kavkaze] and K. I. Lisenko’s Oil Production [Neftyanoye proizvodstvo]—provided convincing arguments for repealing the excise tax.

The IRTS committee concluded that the most important way to help the Russian oil industry would be to “liberate it from any excise tax for at least 10 years.” The Russian government understood this constructive viewpoint and based on the decision of the State Council dated June 6, 1877, which was approved by Emperor Alexander III on the same day, photogen products were exempted from excise and other taxes throughout the Russian Empire effective September 1, 1877.

This meant first of all, a victory for progressive public opinion in the battle against the fetters of excise taxation, and second—and this was more important—freedom for the oil industry from any taxes that would otherwise prevent it from growing stronger and moving forward along the path of free enterprise and fair market competition.

The Russian Oil Business Becomes Competitive

The repeal of the Russian excise tax on photogen (kerosene) production provided a powerful impetus to oil production across all key sectors. While oil production did increase during the five-year period of the excise tax, the accelerated development of the Russian oil industry began in earnest in 1877, with advancements in methods of oil production, transportation, refining and marketing.

Production and technical indicators also show significant progress in the Russian oil industry. The average depth of Baku oil wells doubled from 1878 through 1886, from 301 to 609 feet, with wells being drilled to depths up to 1,120 feet. Another telling sign of the industry’s growth was the eight-fold increase in the variety of petroleum products available on the market.

Table 3. Russian Oil Production, 1878–1888 (in barrels and tons)

Source: Stanislav and Ludwig Perschke, The Russian Oil Industry, Its Development and Current Status in Statistical Data [Russkaya neftyanaya promyshlennost, yeyë razvitiye i sovremennoye polozheniye v statisticheskikh dannykh]. Tiflis (Tbilisi), 1913, pp. 4, 5.

During the excise-free decade, the selling price of domestic kerosene dropped nearly 80%. The price of kerosene on the Tsaritsyn market (which was used to equalize prices elsewhere on the domestic Russian market) was 2.25 rubles per 36 pounds in 1877, dropping to 56 kopecks per 36 pounds in 1885 and 40 kopecks per 36 pounds in 1886. The reduction in the price of kerosene and its distribution throughout virtually all of Russia made it accessible to even the poorest families, who were able to replace the traditional kindling wood with convenient kerosene lamps.

By successfully competing with American kerosene, Russian kerosene began to dominate more and more new foreign markets each year and was readily purchased, both in Europe and Asia. Whereas exports in 1877 totaled only 552,404 barrels, subsequent years saw a steady rise in export shipments, and within 10 years more than 3 million barrels of Russian kerosene were being exported.

This decade of “oil freedom” in Russia was also marked by the emergence of a number of joint-stock oil companies, most of which had previously operated as trust partnerships. This led in turn to stronger competition not only in the oil industry as a whole, but in each of its sectors, i.e., the production, refining, and sale of petroleum products.

Thus, the S. & I. Jakeli & Co. Petroleum Industry and Trading Partnership was founded on July 11, 1880, with a fixed capital of 500,000 rubles, and it soon assumed a deserved place among the leading oil production companies on the Absheron Peninsula.

On July 1, 1883, Emperor Alexander III issued his approval of the bylaws of the Batumi Oil Industrial and Trading Company (BOITC). The founders of this company were the enterprising railroad engineers Sergey Palashkovsky and Andrey Bunge, construction supervisors of the new Baku–Tiflis–Batumi railroad line. Having the foresight to realize that the transportation of oil and petroleum products was the key link in sales operations, they focused their efforts on creating a fleet of railroad tank cars capable of transporting large volumes of Absheron oil from the fields to the seaports. The company’s success during its first years of operation demonstrated the wisdom of this decision. In 1884, BOITC handled 200,547 barrels of crude oil and petroleum products, or 44.5% of the total volume of 449,850 barrels exported from Batumi. Such success spurred the founders to go beyond transportation and participate directly in oil production and refining. They leased two parcels in Balakhany, on oil-bearing land belonging to Count Lazarev and Princess Gagarina, and commenced drilling operations. They built four 1,590-ton iron tanks in Batumi: two to store kerosene and one each for lubricants and residual oil (mazut). In short order, the company built a well-equipped enterprise for mass production of packaging for petroleum products, with a daily output of 12,000 tin cans. All of this required considerable resources, so the founders urgently appealed to St. Petersburg. On November 16, 1884, Emperor Alexander III issued his approval “On Permitting the Batumi Oil Industrial and Trading Company to Issue Bonds.”

Another vertically integrated oil company also appeared during this time. On October 2, 1883 imperial approval was issued for the bylaws of the Neft Petroleum Products Production, Transportation, Storage and Trading Partnership, having an equity of 2 million rubles. Founded in part by the well-known Russian industrialist Pëtr Gubonin (1825–1894), the company’s bylaws outlined its main areas of activity, including “acquiring, establishing, and leasing of refineries, oil pipelines, tanks, moorings, and warehouses for storing petroleum products; acquiring and leasing railroad tank cars, as well as seagoing and inland ships for bulk transportation of petroleum products; trading in petroleum products, and supplying them to steam engines on railroads, steamship lines, and to factories and other trade and industrial enterprises; and opening of offices and agencies everywhere to market petroleum products.” Within its first three years of operation, Neft enjoyed robust results: it received 483,000,746 rubles just for the use of its fleet of 1,050 tanker cars for transporting oil and petroleum products, and in 1886 the company recorded a net profit of 60,000,616 rubles.

The activity of the Caspian Partnership Oil Industrial and Trade Company is another example of successful oil entrepreneur ship. The company, founded by Pavel Gukasov (1858–1930), along with his brothers Akop, Arshak and Abram, began operations on January 1, 1887, with a fixed capital of 2.5 million rubles. Coming from a Tiflis merchant’s family, the Gukasovs had all received a very good education (Pavel, for example, had graduated from the Moscow Commercial Academy and then the Dresden University of Technology).

The Caspian Partnership had started out as a trust with a small refinery in Baku. However, a decisive turn towards modern methods of production control and management, as well as the introduction of advanced equipment, soon brought tangible results for the Partnership. Within five years, the company was operating at three oil fields on the Absheron Peninsula, and by 1891 it was operating 18 wells in Balakhany, along with 18 steam engines (total power 236 horsepower) and 14 steam pumps, producing a total of 556,127 barrels of oil that year. At Sabunchu, the Caspian Partnership had 15 productive wells and was drilling six more, and was operating 21 steam engines with a total power of 295 horsepower, along with 28 steam pumps, all told producing a total of 2,127,839 barrels of oil that year. Also in 1891, a total of 6,897 barrels of oil were produced by a single drilled well operated at Romanino field. Overall, the company produced 2,690,883 barrels of oil in 1891, or 7.7% of the total oil production of the Absheron Peninsula. The company’s refinery also produced 652,078 barrels of lighting oils (various types of kerosene), amounting to 6.7% of the total production of kerosene at Baku refineries. This level of output was sustained over the next decade: in 1900 the Caspian Partnership produced 4,517,229 barrels of oil, amounting to 6.2% of the entire oil production of the Absheron Peninsula.

In addition to the aforementioned companies, other entrepreneurs made significant contributions to the development of the oil industry on the Absheron Peninsula, thus helping to secure Russia’s competitive position in world markets. These included such major companies as Mirzoyev Bros. & Co. Partnership, G. M. Lianozov & Sons Oil Production Partnership, Pitoyev & Co. Partnership, I. A. Yegiazarov & Co. Oil Industry Company, A. I. Mantashev & Co. Oil Industrial and Trading Company, Aramazd Petroleum Industry and Trading Company, Aral-Caspian Company, and the Ararat, Massi, Astkhik, and Syunik partnerships.

Russian Oil in the Eyes of a Briton

Oil producers around the world could not help but react to Russia’s appearance among the leading players on the European and world markets in the last quarter of the 19th century. Some companies, such as the American transnational Standard Oil Company, recognized Russia as a real threat to their monopoly on the world kerosene market and reacted immediately with strong competitive countermeasures, making use of all possible means and methods.

At the same time, there were also consistent proponents of mutually advantageous business cooperation with Russia, one of whom was the renowned British columnist Charles Thomas Marvin (1854–1890), a native of the city of Plumstead, Kent, who lived a short but rich life. As a correspondent for The Globe, he visited Russia several times, including its oil regions, went to Central Asia, became acquainted with the prominent Russian military figures General Mikhail Skobelev (1843–1882) and General Nikolay Ignatyev (1832–1908), and was a well-known expert on Russian-British relations.

Charles Marvin was also a prolific writer and his literary work was widely known. In 1878 he published the book Our Public Offices, Embodying an Account of the Disclosure of the Anglo-Russian Treaty of 31 May. During the Russo-Turkish War of 1877–1878 he published 20 pamphlets of various kinds, and in 1880 he published a book on Russo-Indian relations, The Eye-witnesses ‘Account of the Disastrous Campaign against Akhal Tekke Turcomans, which was even recommended in Russia for military libraries, and had commentaries written about it by General Mikhail Skobelev himself.

Charles Marvin’s first study on oil, The Region of Eternal Fire: an Account of a Journey to Petroleum Region of the Caspian, came out in 1884. In subsequent years he wrote several books on the problems of the Caspian and Central Asian regions. His most famous work, The Russians at the Gate of Herat, was written in 1885 and published soon thereafter with a total print run exceeding 65,000 copies.

The London Evening News wrote the following about him: “Charles Marvin has already published 12 books and pamphlets on Central Asia containing 300 printed sheets and over 100 maps and illustrations. This is not bad for an author who is only 30 years old, especially if you note that all of his books have come out since 1879, and that during this time he made four trips to Russia and also wrote hundreds of articles.” The Russian newspaper Kavkaz (Tiflis) echoed the British publication: “Charles Marvin is a remarkable traveler and a great writer on issues of the policy of Russia and England in the East.”

Charles Marvin made his first visit to the oil-bearing regions of the Transcaucasus for in 1883. His first impression was fairly reserved: “The train landed us at a demolished, small shanty station in the middle of the desert, placing us with our great apprehensions in the hands of a Tatar, the driver of a phaeton.” But his pessimism soon gave way to positive impressions and surprises: “Baku in fact literally enchanted me.” In subsequent books, he continually noted how Baku had grown and become more attractive. He called it the “oil breadbasket of Europe,” due to the active development of the oil fields. Charles Marvin naturally compared the volumes of production of Baku oil fields with Great Britain’s indicators, in particular, on the recovery of whale oil. The Briton stated with surprise that in the entire 1886 season, 44 whaling ships had recovered 20,307 barrels of whale oil, yet this “quantity corresponds to the entire daily standard output of just one oil well in Baku.” The British columnist also cited the words of a certain Captain Grey, who—no longer seeing the possibility of the return of advantageous prices for whale oil—was ready to “set up transporting bulk petrol.”⁴⁰

Marvin was astonished by the growing volume of oil production in the region and indicated that even the oil-bearing regions of the United States could not compete with the Baku oil fields. As if foreseeing the future oil triumph of Russia, he commented that “America’s song is sung. It has nothing in this regard that could parallel the current productivity of Russia. The wells of the brothers Nobel and Company have yielded enormous quantities of oil. Many of these wells have been closed down so as not to give away the oil, which is currently very cheap.”⁴¹

Incidentally, the British consul in Batumi also shared his impressions of Baku at that time: “The amount of oil wealth near the Caspian is so great, and the wells yield so much, that Baku merchants are capable of working and sending raw material to the market, and the issue of depletion should not create fear among people directly or indirectly involved in the Baku oil industry, at least not for many years to come. It is almost painful to observe the total lack of British merchants in Baku.”⁴²

And here Marvin was in total agreement, calling upon his compatriots to take a more active part in the development of Russia’s oil industry. The columnist stressed: “Currently the attention of all the European countries is focused on Baku. If England does not show rapid energy, then not only the Baku, but all oil trade in general will pass right through its hands.”⁴³

Marvin was especially interested in issues of transporting Russian petroleum products and oil. “The factor that has the most important impact on the past, present and future of the Caspian oil industry is the issue of transportation,” the British columnist stressed. The rapidly growing volume of oil and petroleum product exports from the Baku oil fields had already forced the Russian Empire to look for new means of transportation, and he thought that it was precisely in this area that England could become a major supplier to Russia of requisite equipment and transportation services.

To start with, Marvin urged the British companies to participate in the competition announced by the Russian government to build an oil pipeline 600 miles long, a massive endeavor for the time. The enterprise promised significant financial gains since the oil pipeline, whose capacity was to be 160 million gallons per year, was to be licensed under concession for 20 years. Considering that priority in this matter was given to European companies, England stood a good chance, especially given the prior experience of British firms in building pipelines in Russia.

Next, Marvin pushed for British companies to invest in the railroad sector. In one of his works, the British writer indicated that “what is really necessary for expansion of this export is an increase in the quantity of railroad rolling stock.” Moreover, the Russian government was already planning to build a 10-million-ruble tunnel through the Surami mountain pass to reduce transportation distance and lower its cost.

Finally, he argued that England should take an active part in creating a tanker fleet. The columnist noted that in 1885, ships had hauled 87 million gallons of kerosene, 33,433,220 gallons of oils, 115 million gallons of oil residue, 9 million gallons of crude oil, and 90,000 gallons of gasoline. Marvin believed the primary obstacle to exporting kerosene from Batumi was the rate of tanker vessel construction, which lagged behind oil production.

Citing the successful experience of the Caspian tanker fleet (by the mid-1880s, 100 tankers were already operating in the Caspian Sea), the columnist argued that this type of oil transportation also had a great future in the oceans. Transportation of bulk kerosene on European waters was soon made possible by the Black Sea Steamship Line Company. In June 1886, after surviving a storm in the Bay of Biscay, the Swedish-built steamship Svet delivered 1,875 tons of kerosene to the very heart of the British Empire, London. Charles Marvin wrote in this regard: “The arrival of the steamship with a cargo of over half a million gallons of kerosene stored in tanks, not in barrels... silenced those who doubted the possibility of carrying out this task.”⁴⁴

Marvin was likewise interested in the issue of the status and sales prospects of Russian petroleum products in Europe. In 1883, after displacing American kerosene in the domestic market, Russian kerosene gradually began to gain European and world market share. Charles Marvin was one of the active proponents of importing shipments of Russian petroleum products to the British Empire instead of American ones. He emphasized that the Baku “refineries produce the best lamp kerosene for only 3 farthings per gallon instead of a wholesale price of over 6 pence (eight times higher) for the same quantity of American kerosene in London!”⁴⁵ In addition, he lauded the Russian kerosene’s superior physical properties: it was essentially odorless, with a very clear color and higher ignition temperature (which was especially important for the British Crown Indian territories, with their hot climate).

“The highest grades of Russian kerosene have become famous so quickly that in the near future they will be valued above the American,” wrote Charles Marvin. “There is no place in Europe to which Russian kerosene could not be transported today.”⁴⁶ He urged British plants (in Birmingham, in particular) to produce lamps for Russian kerosene, since most lamps adapted for the transoceanic product were not suitable for use with the denser Russian counterpart.

The columnist also focused on the excellent properties of Russian lubricants, which were superior in quality to American and Scottish products. To confirm this, Charles Marvin cited the assessment of the prominent chemist, Boverton Redwood (1846–1919): “Russian lubricating oil is characterized by considerable fluidity compared to its specific weight; it does not thicken at low temperature and does not precipitate paraffin wax.”

He was also very impressed by Russia’s active use of residual oil or mazut as liquid fuel. This effective replacement for coal was used at that time by 250 bulk and passenger steamships, several hundred locomotives and more than 1,000 steam stationary engines.

In summarizing his discussions regarding the future of Russia’s oil regions, Charles Marvin wrote: “The obstacles that hampered the oil business and held up the striving of petroleum products to leave the Caspian coast are breaking apart, and the time is not far off when all of Europe will be flooded with cheap Baku kerosene.” The Briton, looking forward to the unlimited horizons of oil cooperation between England and Russia, stressed in particular that “a vast field is opening up for trade in supplying an enormous region with lamps, kerosene kitchens, oil pipelines, every manner of portable mechanisms, as well as bulk tank cars and tanks for storing kerosene and other objects, the need for which is caused by the developing oil field,” and that “England should not miss the chance to seize at least some of the trade sectors that will result from oil industry development in Baku.”⁴⁷

The appeals of Charles Marvin and his like-minded supporters for the active development of an Anglo-Russian energy dialogue did not fall on deaf ears within the government of Great Britain or among entrepreneurs in both countries, and by the beginning of the 20th century Great Britain had taken over first place on the export list of Russian oil industrialists.

Viktor Ragozin’s Oleonaphthas

The frenzied development of Russian industry, as well as railway, river, and sea transportation, required not only fuel, but also large quantities of quality lubricants. As a rule, foreign lubricants imported into Russia were of low quality and were actually made from substitutes. At best, they consisted of petroleum material mixed with vegetable oils and animal fat with gutta-percha added.

Russian engineers and entrepreneurs soon began to search for alternatives to foreign lubricants and throughout the country—in the Kuban, in the Crimea, in a series of provinces of central Russia—efforts were undertaken to create high-quality lubricants. Despite these efforts, however, production volumes remained relatively small, and it soon became clear that a fundamentally new approach was needed.

Such a breakthrough in the manufacturing technology of oils occurred in the center of Russia, in Nizhny Novgorod Province, when the Russian entrepreneur Viktor Ragozin (1833–1901) began producing lubricants on an industrial scale. A graduate of Moscow University, Ragozin began his first experiments in 1873 in a laboratory set up in his apartment in Nizhny Novgorod. The results of his work decomposing oil residue over the course of the two years gave him the knowledge and confidence to take his research to the next level.

In early 1874, Viktor Ragozin wrote a letter to Russian Finance Minister Mikhail Reytern, in which he laid out his plans for experimental research on obtaining lubricating oil under factory conditions using a new type of equipment. The matter reached Alexander II, and on November 6, 1874, the emperor issued his “Highest Order on the Performance of Experiments at Retooled Photogen Refineries,” which stated the following: “According to the most humble report of the minister of finance on the petition of Nizhny Novgorod merchant Ragozin to give him permission to build a temporary photogen refinery that would not have any distillation stills at all, but instead would have chambers of a special type in which oil would decompose from the action of heat; where the goal of this is to test a new method of preparing kerosene, in particular, lubricating oil from petroleum.”

In 1875, Viktor Ragozin built a pilot refinery in Nizhny Novgorod, located on the bank of the Volga beyond the steamship landing. It was here that he definitively developed the technology of preparing lubricating oil from residual oil (mazut) using superheated steam. At the end of the same year, he received a favorable review concerning the quality of his lubricants from the well-known Russian chemist Professor Fëdor Beilstein. This prompted him to set up a modern new refinery for large-scale industrial production of lubricants in the small city of Balakhna located 25 miles from Nizhny Novgorod.

The Balakhna refinery, put into operation at the beginning of 1878, was producing at least 12,000 barrels of lubricants a year using a technological process that was completely new at that time. The process involved first heating the residual oil to 572°F, then passing superheated steam through it; this steam carried the oil fractions with it into a condenser, where they separated from the water.

The lubricants produced using this method—Viktor Ragozin’s “oleonaphthas”—were exhibited at the 1878 Exposition Universelle de Paris, where they met with great success, winning a gold medal.

In the same year, large batches of Russian “oleonaphthas” were delivered to France for more than 700,000 francs. Just two years later, practically the entire French navy had switched to the exclusive use of Ragozin’s “petroleum oils.”

In Russia itself, these lubricants were evaluated for use on railway transportation. A commission led by the well-known tribologist Professor Nikolay Petrov gave them high marks. The use of the Balakhna “oil tar” reduced the consumption of coal by one-third, and increased the operating distance of railroad car axles by a factor of eight.

The growing demand for lubricants prompted Viktor Ragozin to expand his production facilities. In 1879, a new, large-scale refinery was put into operation in the village of Konstantinovo near Yaroslavl. In its first year of operation, it produced 68,450 barrels of spindle, machine, and railroad car oil along with a wide assortment of kerosene and other refined products. Initially, the V. I. Ragozin & Co. Partnership’s refineries produced four grades of lubricant: spindle, machine, and winter and summer variants of railway car oil. The list of finished products was soon expanded to include other grades of oil: cylinder oil, diesel fuel, etc. In 1879, the Konstantinovo refinery was producing 68,450 barrels of product worth 1.4 million rubles.

The V. I. Ragozin & Co. Partnership, which was formed in 1880, had scientific research laboratories in Moscow, Paris, and London, where chemical specialists carried out experiments and tested heavy refining products. Viktor Ragozin explained that: “Once I had set up the new processing of oil, I wanted to give my work a scientific foundation and consulted Russian and foreign chemists. I had Mendeleyev, Markovnikov, and Schulenberg from the College de France working in my laboratories. This work lasted for years.”

For Viktor Ragozin’s services to the domestic oil industry, the Scholarly Council of the St. Petersburg Technological Institute bestowed the honorary title of production engineer on him in 1888.

The Russian newspaper Neftyanoye delo [“The Oil Business”] wrote that “the Konstantinovo refinery occupies first place, in terms of both the quantity of refined product and the character of the fractionated distillates.” The influential American publication Engineering seemed to echo the Russian press indirectly when it said that “concerning lubricating oils, there cannot be any doubt that the Russian product has enormous advantages over the American one.... Russian oils withstand the very strictest tests and have remarkably high viscosity relative to their specific gravity.” Perhaps the highest form of praise came from the American oil industry’s use of the slogan “just like Russian lubricants” on the packaging of their products.

The success of Viktor Ragozin’s operations was very inspiring for other Russian industrialists as well. New refineries began to appear in Russia that were oriented toward the output of lubricants. In 1879, Russia had 19 such specialized refineries. All of this allowed a sharp increase in the export of lubricants. For instance, in 1881, exports to France alone amounted to 3.7 million francs, or five times more than just three years earlier.

By 1884, Russia was producing 407,098 barrels of lubricants from oil residues. Such an increase in domestic production had a dramatic effect in monetary terms as well: from 1864–1872, Russia spent 35 million rubles on imports of lubricating oil, while in 1897 alone the value of Russian exports of lubricants totaled well over 45 million rubles.

Unfortunately, due to growing competition on the Russian market for lubricants, Viktor Ragozin struggled to stay on top, making serious financial and credit policy miscalculations that led to a sharp deterioration in the company’s financial condition, which in turn prompted the company’s shareholders to remove him from leadership of the company. Subsequently, he went to work for the S. I. Shibayev & Co. Partnership for Production of Russian Mineral Oils and Other Chemical Products, where he found success in organizing efficient production of high-quality lubricants at a refinery in Baku. His Baku product went on to receive high awards at all-Russian and international exhibitions on more than one occasion.

The First Oil Exhibition

The results achieved in Russia by the end of the decade of “oil freedom” were very impressive and beneficial for the government, the scientific community, and Russian society as a whole. The country’s production of oil grew nearly eight-fold, from 2.5 million barrels in 1878 to 19 million barrels in 1887.

Thus, it was quite natural that an important event in the history of the Russian oil industry would occur in early 1888: The first international Exhibition of Lighting and Oil Production.

Organized by the Imperial Russian Technical Society, the exhibition’s Organizing Committee was headed by Actual State Councilor Pëtr Kochubey (1825–1892), who was also the chairman of the IRTS. The exhibition’s opening ceremony took place on January 21, 1888 at the Society’s exhibition complex on Panteleymonovskaya Street in Solyanoy gorodok, a part of what is now St. Petersburg. According to the Organizing Committee’s records, the ceremony was attended by most of the exhibition’s 540 participants, who had come from 40 different countries.

At that time there were no exhibitions anywhere in the world like the St. Petersburg Exhibition of Lighting and Oil Production. It was laid out in several well-designed and clearly organized halls, and consisted of three different parts, all united by the theme of light in the daily life of people.

The inscription outside the exhibit halls reads: “Fire is one of the oldest achievements in mankind’s heritage. Starting at the beginning of his conscious existence, having barely begun the struggle for survival, mankind noticed fire in nature and was able to take control of it for his own purposes.”

The historical exposition in the first exhibition hall presented methods of lighting from all countries, times, and peoples: from the lamps of Ancient Rome and the tar torches of the French Middle Ages, all the way to an electric lighthouse in New York—the Statue of Liberty—which had opened a year before the exhibition.

A St. Petersburg newspaper described the beginning of this exposition in very picturesque terms: “Before us, a fire-breathing mountain, a forest fire, peat burning within the earth, columns of flaming oil gushing out of the earth in a fountain; these gave the primitive savage the idea of the power of fire, which crushes the darkness of night, filling the cave, ravine, dugout, or hut where he lives and works with light that would replace the Sun, Moon, and stars.”⁴⁸

A prominent place in the displays was given to Ancient Roman lamps made of fired clay with images of Jupiter, Juno, Eros, and Mars, which were found in excavations close to Rome on the Appian Way and Via Latina, in Ostia, Pompeii, and elsewhere. These were followed by a sanctuary lamp with a monogram of Christ (a copy of a specimen surviving in the Vatican), dated to the first centuries of the Christian Era. An observer from one St. Petersburg publication noted with delight: “The exhibition, which is technical both in name and in content, has become an attraction for everyone interested in the history of human civilization. The organizers have made an attempt, completely in the spirit of Jules Verne, to present the path of development of lighting objects in visual terms, beginning with the pre-Christian Era.”⁴⁹

The exposition would not have been complete without Russian antiquities of the 15th—17th centuries. These included the Korsun chandelier: the Candle of Veliky Novgorod (a copy of an original surviving in the vestry of Saint Sophia Cathedral in Novgorod), and a copper chandelier in the shape of a cross from Mount Athos.

Literally two steps away from the Russian exhibit, visitors were transported to the world of Central Asia. This exhibit presented a candle holder made of fired clay, which had been found in excavated ruins of buildings from the epoch of Timur in Samarkand, and charakhs (lamps) from Khujand and Samarkand made of cast iron and clay and covered with green glaze. A bronze candlestick with an ornamental design and a relief image of dragons was brought from China, and another was brought from Japan in the shape of a crane on a tortoise, along with picturesque silk lanterns and wax candles with a relief pattern.

The organizers of the exhibition understood that a demonstration of the importance of light in the history of mankind should not be limited to just exhibits, no matter how unique they might be. Thus, they commissioned the artist Pavel Grigoryev to paint pictures exclusively for the exhibition, illustrating key moments in the history of lighting based on documents surviving in the Imperial Public Library. Visitors were presented with a series of majestic canvases whose subjects included fire worshippers in Baku in 500 years BCE; vestal virgins (protectors of the fire) in Ancient Rome; Kamchadals starting fire by rubbing wood; the Colossus of Rhodes; and a night patrol with a lantern in Ancient Egypt.

The second section of the exhibition had a clear scientific and educational orientation, one aimed at making the technology behind various lighting methods accessible to the general public. Educational exhibits from Russia’s higher and secondary educational institutions invariably attracted the attention of visitors. The organizers also commissioned educational exhibits expressly for the exhibition: lamps of the French inventors Argand, Carcel, and Franchot, housed in glass shells to demonstrate their internal structure: one depicting the constant flow of lighting oil and a circular burner (end of the 18th century); one with a clock mechanism and a pump (19th century); and a moderator lamp with a spiral spring and an equalizing moving flow tube (19th century). Each exhibit was also accompanied by a large-scale sketch of the lamp to explain the various parts of the design.

The third section of the exhibition was devoted to the commercial and industrial sector, and provided an opportunity for Russian and foreign entrepreneurs to promote their companies and products. Competition among the exhibitors was fierce, with each company presenting various collections of petroleum and products made from it, pointing out in detail their consumer and technical characteristics, e.g., specific gravity, flash point and ignition temperature, color, rate of outflow, the results of fractional distillation, specimens of waste, etc.

For example, the V.I. Ragozin & Co. Partnership presented lubricants of excellent quality, as well as kerosene and products of heavy refining, including oil and gas tar. The refining plant of the Russian-American Petroleum Production Partnership (Kuskovo, Moscow Province) presented their crude oil and an assortment of products refined from it: gasoline, kerosene (American and Russian); oils of various thicknesses: lubricants, perfume oil, gas oil; oil residues, tar, artificial asphalt, sulfuric acid, and much more.

An expert committee headed by production engineer Stepan Gulishambarov felt that the most successful exposition at the exhibition was that of the Administration for Mining in the Caucasus, which presented information on the potential for the oil industry in the entire region. Their display included a geologic collection of rocks forming the Absheron Peninsula, samples of oil from the North Caucasus, a structural model of a well, geologic maps and drawings, and photographs of gushers on the fields of the Nobel Brothers Petroleum Production Partnership.

Also included at the exhibition was a separate building for kerosene lamps, including a special section for filling them with kerosene. Special attention was devoted to showing the latest designs of portable kerosene lanterns for agriculture. An important requirement placed on all designs by the exhibition jury concerned safety from fire, including the design’s reliability and absence of cinder, soot, and unpleasant odors when burning. Another big draw at the exhibition were displays concerning lighthouses, which were considered the latest manifestation of progress in lighting technologies at that time.

Military visitors were invariably attracted to the displays of instruments from the Main Hydrographic Administration of the Maritime Ministry. In particular, the optical apparatus with gasoline burners for lighting buoys, a lamp with pressure pistons, Argand lamps, Captain Seleznëv’s differential regulating apparatus, the beacon apparatus of the Upper Nikolayevsky lighthouse in Kronstadt, and the best spherical reflector of its time.

A section that was very popular with the public was the one presenting machines and mechanisms intended to produce and use electricity: dynamo machines (designed by Siemens & Halske, Schuckert, and the Bogdanov and Kon electrical shop), gas, kerosene, and oil engines, tachometers, and a rheostat. A novelty was the Otto system’s two-cylinder gas engine, especially equipped for electrical lighting.

As for Russian and foreign specialists, there were many new products and ideas for them to discover at the various exhibits, particularly those featuring equipment for producing crude oil and petroleum products and new drilling instruments. Booths were also available for comparative testing of lubricants and other objects of oil production. Furthermore, the exhibition opened up numerous new possibilities for Russian industrialists to learn more about the European oil market and petroleum products.

Overall, the Exhibition was deemed a great success and was discussed for several years in the Russian scientific and engineering community after the closing ceremony on April 13, 1888. Commenting on its results in an article in the journal Zapiski Imperatorskogo Russkogo tekhnicheskogo obshchestva [“Transactions of the Imperial Russian Technical Society”], Pëtr Kochubey, chairman of the Society’s governing board, noted that: “It is difficult to assess the importance of this exhibition, which without doubt went beyond the merely scientific or industrial. Russian industry demonstrated to the whole world its readiness to cooperate, its readiness to adopt all the best achievements. One would like to hope that Russia will soon be able to occupy its deserved place among the advanced powers producing and trading products of oil production.”

Likewise, leading scientific and technical publications concluded that, at the 1888 St. Petersburg Fair, Russian industry was able to demonstrate not only its high potential in the world’s oil contingent, but also its leading role in several technical and technological advancements in the industry. By all accounts, this exhibition should be considered one of the outstanding events in the development of world petroleum science and technology of the last quarter of the 19th century.

Medals from Two Emperors

In terms of domestic production, one company in particular took the lead both in terms of technical achievements and sheer output—the Nobel Brothers Petroleum Production Partnership. While inspecting the Absheron Peninsula in October 1888, Emperor Alexander III visited Nobel Brothers’ fields and was greatly impressed by the scope of the operations and by the exemplary organization of oil production. It was not on a whim that he expressed certainty that the company would soon make itself known in other countries as well, and a month later, the head of the company, Emanuel Nobel, was awarded a high medal: the order of St. Stanislav, 3rd degree.

Further acknowledgment of the company’s growing authority in the industry came during the 1889 World’s Fair in Paris, where the Nobel Brothers Petroleum Production Partnership was awarded not one, but two of the highest medals—the Grand Prix. The Nobel Brothers Partnership became the only Russian company to receive two medals: one in class 41, “Mining and Metallurgy,” and one in class 45, “Chemical and Pharmaceutical Products.”

As head of the company, Emanuel Nobel set himself the goal of following the course set by his father, which was aimed at doing everything possible to consolidate the company’s position inside the country and to gain a solid position on the world market. First, to silence critics who thought of him as a “representative of foreign capital,” he became a Russian citizen in 1889. Yet, the first two years of his leadership were still a serious challenge for Nobel. He was judged by everyone, and was constantly compared to his father. But soon the company’s personnel, which numbered many thousands, came to feel that the helm was in good hands. Further evidence of the growing trust in Emanuel’s abilities is provided in a 1890 letter from his Uncle Alfred, “the dynamite king,” who, after having assessed the results of the first two years of Emanuel’s activity, exclaimed that: “I do not like compliments, but I must say that I am struck by how you have managed to cope with the most important matters. Well done, my nephew!”

Emanuel truly was worthy of such compliments. A talented manager who carried on his father’s work, he did all he could not only to turn the Nobel Brothers Petroleum Production Partnership into a leader in the Russian oil industry, but also to bring it onto the world market, where it would compete with such companies as America’s Standard Oil.

The company’s output likewise speaks to Emanuel’s success as a manager. In 1890, the Nobel Brothers Petroleum Production Partnership produced 5.4 million barrels of oil and refined 2 million barrels of kerosene, of which it exported more than 1 million barrels of kerosene, or more than 2.5 times more than in 1887 (408,300 barrels).

Table 4. Russian Oil Production, 1889–1892 (in barrels and tons)

Source: Stanislav and Ludwig Perschke, The Russian Oil Industry, Its Development and Current Status in Statistical Data [Russkaya neftyanaya promyshlennost, yeyë razvitiye i sovremennoye polozheniye v statisticheskikh dannykh]. Tiflis (Tbilisi), 1913, pp. 4, 5.

In 1893, the company participated in the Chicago World’s Columbian Exposition, dedicated to the 400th anniversary of the discovery of America by Christopher Columbus. In the US, the Nobel company was awarded an honorary diploma and a bronze medal at the Columbus fair. The Nobel Brothers Petroleum Production Partnership also received high awards at international exhibitions in Lyon (1894) and Antwerp (1894).

The company’s achievements were also given significant recognition at the All-Russia Industrial and Art Exhibition in Nizhny Novgorod in 1896. The Nobel Brothers Partnership was awarded the highest medal at the Exhibition, giving it the right to depict the state coat of arms “for exemplary plant organization, constant striving to perfect the production of excellent-quality petroleum products on an extremely large scale, using all materials and waste, introducing safe kerosene, organizing transportation and sale inside the Empire and in other countries, and caring for employees and workers.”⁵⁰ Moreover, the Ludvig Nobel machine-building plant was awarded this same high medal “for extensive and good organization of work, perfecting implements for burning oil, the high quality of machines, and a considerate relationship with workers.”⁵¹ Incidentally, the machine-building plant’s exhibit also presented wind engines of an original design, along with other machines and equipment. The operations and production of the Nobel Brothers Partnership impressed a correspondent for the journal Tekhnicheskoye obrazovaniye [“Technical Education”] so much that in June 1896 he wrote that the company’s activity “clearly stood out as a bright spot against the solid dark background of our plant and industrial life.”

On July 18, 1896, Emperor Nicholas II visited the company’s pavilion and examined the extensive exhibit. The monarch’s delight with what he had seen in the company’s pavilion was soon embodied in the lines of an imperial decree. For his great contribution to the development of domestic production, Emanuel Nobel was awarded the high rank of councilor of commerce, which gave him the right to wear a special uniform and sword.

In 1899, the Nobel Brothers Partnership reached the height of its oil production; more than 11.2 million barrels, or around 18% of total Russian production and 8.6% of world production. By this time, the company had 135 shareholders, 1,300 field workers operating 304 wells, 195 steam engines, 220 pumps, and five pipelines extending 38 miles. Its average output per well was 65,568 barrels, compared with the national average of 46,474 barrels. The company exported 2,201,933 barrels of kerosene, amounting to 26.6% of total Russian exports. The company’s share of total domestic Russian kerosene consumption was 50.1%. In 1899, it produced 23,177 barrels of gasoline, more than all other producers combined. The Nobel Brothers Partnership operated 105 oil storage facilities with 482 tanks between them having a total capacity of around 507,000 tons, and also had 1,237 railroad tank cars at its disposal, and a fleet of 21 tankers and 47 tank barges.

At the turn of the century, the Nobel Brothers Petroleum Production Partnership participated in the 1900 Exposition Universelle de Paris. The company’s separate pavilion in Trocadéro Park became one of the Exposition’s main attractions, exhibiting the Russian oil industry leader’s major achievements over the past 20 years.

The company’s technical and technological novelties were lauded in issue no. 5 of the journal Trudy Bakinskogo otdeleniya IRTO [“Working Papers of the Baku Department of the IRTS”] for 1900: “The Nobel Brothers Petroleum Production Partnership was able to give a very clear picture of the oil industry, not only in Baku, but in the world. Next to an excellent map of the temple of fire worshippers in Surakhany is a one-eighth-scale derrick, whose entire mechanism is put into motion by hand. A collection of drilling samples illustrates the strata in the Baku oil region, and an extensive series of glass cylinders containing various products shows the scope of the oil industry. The network of apparatus and the model of a loading schooner are very carefully made. Numerous photos, tables, books, and brochures illustrate the company’s numerous successes.”

Naturally, the achievements of the Nobel Brothers Petroleum Production Partnership were singled out with the award of the main medal, the Grand Prix of the 1900 Exposition Universelle.

The Nobel Brothers Petroleum Production Partnership’s title as leader of the Russian oil industry was solidified by its impressive results in the following years. In 1901, the company produced over 9.6 million barrels of oil in its fields and refined 2.5 million barrels of kerosene, of which 1.5 million barrels were exported.

The Rothschilds and the Russian Oil Business

Russian industry continued to make great strides, and in the last quarter of the 19th century, the output of industrial production grew at a mean annual rate of 8%. In addition, the opening in 1883 of the Transcaucasus Railway, connecting the Baku oil region with the Black Sea port of Batumi, created the shortest and cheapest possible route for Russian petroleum products to reach foreign markets. In light of such developments, Russia started to present significant interest for foreign investors. It was at this time that a company belonging to the Paris banking house of the powerful Rothschild family began to play an important role in the development of oil exports in Russia.

As fate would have it, the main placement of a bond issue for the Russian Batumi Oil Industrial and Trading Company (BOITC) was taking place in France. Before long, practically all of these bonds were under the control of the Paris banking house of the Rothschild family, which at that time was already weighing its options regarding entry into the Russian oil business.

At that time, Baron Alphonse James de Rothschild (1827–1905) had been heading the banking house for 16 years. He was a major financier who played an important role in French and world politics. It was he, for example, who organized the payment of France’s reparations after its 1871 defeat in the Franco-Prussian War, thereby keeping the government of Adolphe Thiers in power.

A growing sales crisis in the Russian oil industry facilitated implementation of a strategic plan developed in Paris to strengthen the bank’s positions in the Russian market. The bank instructed its authorized representative in Russia to take active steps to broaden the production and sales capabilities of the Batumi Oil Industrial and Trading Company and appointed French managers to take the helm.

On July 18, 1885, Emperor Alexander III approved a Committee of Ministers resolution “On Increasing the Fixed Capital of the Batumi Oil Industrial and Trading Company and Renaming It as the Caspian and Black Sea Oil Industrial and Trading Company (KChNTO)” The new KChNTO inherited a large fleet of railroad tank cars, four iron tanks having a holding capacity of 9,607,038 barrels each in Batumi, a plant that produced tin plate linings for wooden crates and wooden crates for filling and capping kerosene and gasoline in Batumi, a small refinery in Baku, and four operating wells in Balakhany having a mean daily output of around 600,450 barrels.

In government circles, the activity and growing influence of KChNTO raised concern. On April 10, 1889, Mikhail Ostrovsky, minister of state properties, wrote a letter to Minister of Finance Ivan Vyshnegradsky, in which he noted that: “Rothschild has had a steadily growing influence on the oil industry in the Absheron Peninsula, influence which has given him almost monopoly control over its future, and he holds many local people working in the oil industry in his powerful hands.”

Nevertheless, Rothschild’s presence in the Russian oil industry was seen by many as a welcome benefit. For instance, A Survey of Factories and Plants in the Baku Province [Obzor fabrik i zavodov Bakinskoy gubernii], published in Tiflis in 1890, contained a diametrically opposed assessment of the Rothschild family’s Paris banking house’s first years: “Many people were impatiently looking forward to Rothschild joining the Baku oil industry, in hopes that, with his capital, he would give a stronger impetus to the entire oil business. At the time, Rothschild’s capital was very tempting to many people.... And the appearance of this trading house really did significantly enliven the oil industry. By making broad credit in the tens and hundreds of thousands of rubles available to many entrepreneurs, he helped them out of an extremely difficult situation, and he even saved several from complete ruin.”

The clear organization of the production and sales cycle at the Caspian and Black Sea Oil Industrial and Trading Company allowed its foreign exports of kerosene in 1888 to reach 1,921,408 barrels, accounting for 58.6% of all Russian exports. The retooling of the company’s refining enterprise with modern equipment likewise led to an increase in its output. In 1888, its refinery produced 300,220 barrels of kerosene, while in 1890, 564,413 barrels of kerosene were being produced there, amounting to 10.8% of the total volume of production on the Absheron Peninsula.

At the end of the 19th century, the company’s fixed assets included 99 drilled wells, 130 steam engines, 78 boilers, 84 steam pumps, 28 iron tanks having a total volume of 19.7 million cubic feet, and a six-inch oil pipeline 5.3 miles long, through which more than 3,362,463 barrels of oil was pumped every year. Its fleet of railroad tank cars numbered 100 units. In 1899, the company’s fields produced 3,905,982 barrels of oil. Its refinery in Keshle (near Baku) refined 950,256 barrels of kerosene and 2,053,504 barrels of residual oil. In addition to the Absheron Peninsula, the company began to operate on oil-bearing lands in Terek Province and the Kuban.

During this period, the post of chairman of the Board of Directors of KChNTO was held by Maurice Ephrussi. The company’s directors included: mining engineer Konstantin Skalkovsky (1891–1896), former director of the Mining Department, Prince Georgy Gruzinsky, and financier Arnold Feigl. For a long time, the company’s technical director in Baku was production engineer David Landau, father of the 1962 Nobel Physics Laureate Lev Landau (1908–1968), and a member of the USSR Academy of Sciences.

The turn of the century was also marked by all-Russian and international recognition of the Caspian and Black Sea Oil Industrial and Trading Company. It received a gold medal at the 1889 Exposition Universelle de Paris. In 1896, at the All-Russian Industrial and Art Fair in Nizhny Novgorod, the company was awarded a gold medal for “production of petroleum products of very good quality on an extensive scale, and for organizing trade in them on Russian markets.” Finally, the company’s exhibit at the 1900 Exposition Universelle de Paris received the highest award: the Grand Prix.

The company also took steps to increase the efficiency and influence of its business in the Russian domestic market. To this end, the Rothschild family’s Paris banking house joined with the St. Petersburg International Bank to create a new Russian subsidiary—the Mazut Company.

In a letter of June 26, 1897 to the Department of Trade and Manufacturing of the Russian Ministry of Finance, the St. Petersburg International Bank identified the following goals for the new company: “The Mazut Company proposes continuing the work of the Polyak and Sons house involving the transportation, storage, and sale of acquired oil and petroleum products. Moreover, this company plans to expand this line of work, both by enhancing its means of transportation and by setting up its own refineries for refining oil. In the future, the founders also foresee that developing the work of the companies might, depending on the state of the oil market, necessitate expanding the area of operations, without, however, going outside the borders of the Russian Empire.”

On March 3, 1898, the charter of the Mazut Petroleum Industry and Trading Company received imperial approval, and the company soon became one of the key players transporting and selling crude oil and petroleum products on the Russian domestic market. In the Caspian Sea alone, it was operating 13 of its own high-speed tankers, and a large fleet of steam tugboats and oil tank barges delivered kerosene and residual oil along the Volga. In short order, Mazut opened offices along the Volga in Nizhny Novgorod, Samara, Tsaritsyn (Volgograd), and Astrakhan, and also in the Baltic States, Belarus, and Poland. In 1903, just five years after it was formed, the Mazut Company concluded an agreement with the Nobel Brothers Petroleum Production Partnership, the leader of the Russian oil industry, and did so on an equal footing. This agreement, which was given the name “Nobmazut” (and, incidentally, bore clear-cut traits of a cartel), was intended to carry out a coordinated trade policy on the country’s domestic markets. This soon resulted in a sharp increase in the cartel’s share of sales of petroleum products in Russian regions.

The First Grozny Oil Gusher

In addition to developing oil production on the Absheron Peninsula, the Russian government also undertook a series of measures to organize oil prospecting in other regions of the country. Systematic geologic study of the Grozny region in the North Caucasus was begun in the spring of 1890 by mining engineer Afanasy Konshin, who pointed out in his report: “In the Grozny petroleum area it is already now possible to mark several dozen points to start drilling where reliable oil strata should be encountered at a moderate depth.” Deposits that he pointed out as promising for industrial development included Grozny, Mamakayev, Benoyev, Dylymov, Chanty-Argun, Isti-Suy, Voznesensk, Bragun, and others.

Geologist Konshin’s encouraging forecasts did not escape the attention of several entrepreneurs. In 1892, a drilling crew hired by retired Lieutenant Colonel Aleksandr Rusanovsky began hand drilling an initial well with a diameter of 9 inches, and went down to a depth of 209 feet. However, the drill site had been poorly chosen, without consulting specialists, and the well turned out to be a dry hole. A second well, with a diameter of 2.5 inches and a depth of 342 feet, produced the same disappointing results.

Despite these inauspicious beginnings, the Grozny region did prove to be a boon for the Russian oil industry. The accelerated development of the oil business in Grozny was associated in large part with the activities of Ivan Akhverdov (1850–1902), an entrepreneur from Vladikavkaz who had purchased the right to run oil-bearing lands on a tax-farming basis at the beginning of 1893. From the very first days at his Alkhan-Yurtovsky (Yermolovsky) site, he strove to make maximum use of the lessons learned from developing oil fields on the Absheron Peninsula.

Having visited this field, production engineer Konstantin Tumsky noted in his book The Grozny Oil Business [Groznenskoye neftyanoe delo] that: “In July 1893, we had an opportunity to familiarize ourselves with the situation of the Grozny oil business, thanks to the kindness of the owner of the fields, Mr. Akhverdov, the director Mr. Gankin, and the engineer [Lev] Baskakov. Travel from the Grozny station of the Petrovskaya branch of the Vladikavkaz Railroad to the oil fields (lying at 43°22’ north latitude and 63°10’ east longitude) is easy and takes only one hour. Drilling was subcontracted to Mr. Muravyëv, a drilling master from Baku. For drilling a 35-sazhen [245-foot] well at the site using his own pipes, tools, machines, and workers, it was agreed that he would receive 11,000 rubles. Further deepening requires new efforts. Percussion-rod drilling is used, as is usual in Baku. The company I. A. Akhverdov & Co. started the first drilled well No. 1 at an unnumbered site at the Alkhan-Yurtovsky (Yermolovsky) village, and steam-powered drilling was begun on June 28, 1893. The well was begun with 14-inch pipes. Below 47 sazhens [329 feet], water and petroleum gases began to appear, and from a depth of 61.5 sazhens [430.5 feet] signs of petroleum appeared from Karagan sandstone.”

Finally, on October 6, 1893, the long-awaited event occurred: from a depth of 430 feet, the well produced the first gusher in the Grozny fields. According to eyewitness accounts: “Once the fountain had quieted down, it gushed 10 sazhens [70 feet] above the top of the pipes, with some interruptions.” Mining engineer Lev Baskakov immediately sent a telegram to Ivan Akhverdov in Vladikavkaz with only one word: “GUSHER.” The first flowing well in Grozny was exploited for almost two decades, until 1902, and it produced a total of around 89,000 tons of oil.

The news of the first Grozny gusher was pivotal in spurring the government to abolish the feudal tax-farming system at the fields of Tersk Region. On May 22, 1894, the “Rules for Oil Fields on the Lands of the Kuban and Tersk Cossack Hosts” were approved. These rules created reasonable terms for the development of oil entrepreneurship on a competitive basis.

On the threshold of this, retired Lieutenant Colonel Aleksandr Rusanovsky founded the first joint-stock company in the Grozny District, the Grozny Petroleum Industry Company, whose charter received imperial approval on January 25, 1894. The company’s fixed capital was 800,000 rubles, and it began operations on September 24, 1894.

On August 27, 1895, Well 7 on Parcel 977, which was leased by the merchant Ivan Akhverdov, produced a powerful new gusher at a depth of 462 feet; for the first three days, it produced 120,088 barrels of oil per day. According to eyewitness accounts: “The gusher was of such fearsome force that the roar could be heard and odor of gases could be smelled at a distance of 15 versts [9.9 miles]. A column of oil gushed from the twelve-inch pipe to a height of up to 30 sazhens [210 feet]. The lack of storage facilities to collect the oil led to the flooding of an enormous territory, including pastures and approach roads, and the formation of large lakes of oil. The derricks of Wells 3 and 6 were hidden under the level of the petroleum.” A correspondent of the newspaper Terskiye vedomosti [“Tersk Gazette”] described the event as follows: “By September 6, the dam no longer held and crumbled. The oil gushed through the two-sazhen-wide [14-foot-wide] breach that formed, and flowed rapidly across the steppe to the Neftyanka River, threatening to go out into the Sunzha River and spoil the water.... The breach in the dam was closed and major reinforcements were made to the embankment; the work involved 200 carts and 400 workers.” The newspaper Kaspiy [“Caspian”] provided further details of the event: “The height of the dam had already reached 4 sazhens [28 feet] and its strength decreased in proportion to the increase in height. On the day before the catastrophe, ominous signs had already appeared in the form of small streams seeping through it, and on September 5, at about 3:30 in the afternoon, the embankment gave way and an enormous stream of oil gushed through the breach that had formed; an enormous waterfall of oil raged, forming a rare sight.... The noise close to the oil fall was so loud that one had to shout to be heard. The oil fall flowed for five hours, weakening slowly.”

Nevertheless, despite these formidable consequences, the gusher became a symbolic event for the promising oil-producing region. Mining engineer Yevgeny Yushkin, who was an eyewitness to the event, wrote: “August 27, 1895 was the beginning of an era for the Grozny fields. The gusher in Akhverdov’s Well 7 demolished all recent doubts about the vitality of the Grozny oil business.” Well 7 continued to flow uncontrollably until the end of 1898, and over three years produced up to 7,205,279 barrels of oil (around 1.1 million tons).

These successes allowed entrepreneur Ivan Akhverdov to take his business to the next level. On April 12, 1896, the charter of the joint-stock company I. A. Akhverdov & Co. Grozny Oil Industrial Company was approved and its fixed capital was 8,812,500 rubles. The new company leased an additional 82.5 acres on the land of Alkhan-Yurtovsky (Yermolovsky) village for a term of 24 years. By the end of 1896, the company was producing nearly 68% of all Grozny oil.

News about the mighty Grozny oil gusher quickly spread through the country. And an ever-increasing number of new joint-stock companies and partnerships quickly began to form in Tersk Region to develop oil fields.

Even the Ukrainian entrepreneurs I. Mantsev, B. Veyser, and D. Margolin decided to try their luck at producing “black gold” on the shores of the Terek River, and in June 1895 they founded the Grozny-Dnepr Oil Industrial Company, based in downtown Kyiv. The company’s fixed capital was 375,000 rubles. According to the results for 1896, 67.9% of Grozny oil was produced by the I. A. Akhverdov & Co. Grozny Oil Industrial Company, 17.9% was produced by the Grozny Petroleum Industry Company, and 1.2% was produced by the Grozny-Dnepr Oil Industrial Company. In 1897, Grozny had three refineries, and in that year they produced petroleum products valued at 750,000 rubles.

The large quantity of Grozny oil being produced demanded prompt resolution of the urgent problem of transporting oil from the oil fields. In September 1895, the first oil pipeline was put into operation at the Grozny fields; it had a diameter of 5 inches and was 7.9 miles long. By January 1898, the fields of Zavodskoy District were connected by five oil pipelines. The Vladikavkaz Railroad Company owned two pipelines with diameters of 5 and 7 inches and a daily capacity of 6,000 and 12,000 barrels, respectively. The I. A. Akhverdov & Co. Grozny Oil Industrial Company had a 9-inch diameter oil pipeline capable of transporting 18,000 barrels daily. One of the remaining two oil pipelines, which had a diameter of 5 inches and a daily capacity of 9,000 barrels, belonged to the partnership A. R. & Co., and the other, which had a diameter of 8 inches and a daily capacity of 18,000 barrels, belonged to the Moscow Oil Industrial Company. The annual combined capacity of the five oil pipelines was estimated at 23 million barrels.

The increased volume of oil production likewise accelerated the development of the refining sector in the Grozny region. On November 10, 1895, a refinery of the I. A. Akhverdov & Co. Grozny Oil Industrial Company was put into operation; it had been built by specialists from the British company Steward Ltd. The refinery comprised five kerosene stills having a volume of 720 barrels, and refined 2,400 barrels of oil per year. In addition, there were two gasoline stills, a pumping station, nine metal tanks, and a generating station on the refinery grounds.

In December 1895, the Uspekh partnership, headed by Grozny merchant Nikolayev, put into operation a refinery designed by engineer A. I. Isakovich. Incidentally, in 1897 this refinery became the first to carry out secondary distillation of the gasoline fraction.

The Vladikavkaz Railroad Company put a refinery into operation in the second half of 1896. It had been designed by the talented inventor Feliks Inchik using the principles of heat regeneration. After visiting the refinery in 1897, Moscow University professor Vladimir Markovnikov made the following assessment: “There is nothing like it in Russia, and such will hardly be found even in foreign countries. It gives the impression of an elegant mechanical toy: Once the spring is wound up, it does everything itself, and it is remarkably regular.” Shortly after the refinery was put into operation, it opened the first analytical laboratory in the region and the outstanding scholar Konstantin Kharichkov (1865–1921) was invited from Baku to serve as its director. Kharichkov, a candidate of natural sciences from St. Petersburg University, worked in Grozny for over 13 years, and during this time was able to convert the small laboratory into one of the leading Russian scientific research centers in the field of refining.

In 1901, the Kazbek Syndicate Company put the Nadezhda Refinery into operation. Four years later, Grozny refineries were refining a combined total of more than 3.6 million barrels of oil annually (more than 540,000 tons).

Springheads of Sakhalin Oil

Around the turn of the 20th century, the island of Sakhalin, off the Pacific coast of Siberia, attracted domestic and international attention after explorers regularly stumbled on oil.

The earliest official Russian record of Sakhalin oil dates back to June 6, 1880, when an affluent merchant named Ivanov petitioned the military governor of the Amur Region for the right to develop an oil spring he discovered: “I traced the flow of oil to the tip of North Sakhalin Island where the eastern shore projects into the Sea of Okhotsk. The source is between two mountains, the right called Uragan and the left—Murgun. The small river lying between the mountains is the Okha. These names were learned from indigenous travelers on the island.” An official inspecting Ivanov’s source in 1886 wrote that “there is an abundance of petroleum... around 25 versts [16.5 miles] north of the Nivkh village of Pomor as the crow flies.” Dutifully, the official sent several dozen pounds of oil to the Imperial Russian Technical Society in St. Petersburg. Ivanov’s heirs received the right to develop what would eventually become the Okhinskoye oil field, but they never broke ground.

Scientists finally peeked under Sakhalin’s frozen crust in 1889. Mining engineer Leopold Batsevich (1850–1905) prospected the eastern shore and drilled some shallow exploratory wells first at Ivanov’s field and later near the Nogliki settlement and Nabilsky Bay in north central Sakhalin. Since he did not reach below 70 feet, he did not hit oil, but saw enough signs pointing to significant oil fields to encourage a retired naval lieutenant, Grigory Zotov, to found the G. I. Zotov & Co. Sakhalin Oil Industrial Partnership, the first such company on the island. Zotov & Co. set out to develop mineral oil on the roughly 2,750 acres of land it leased about 29 miles from the village of Lyangri in the north of the island. However, due to financial difficulties, G. I. Zotov & Co. ceased to exist by the mid 1890s.

Nevertheless, oil’s northeastern frontier continued to inspire explorers with dreams of prosperity to come and engineers kept arriving with longer and longer drills. In 1892 and 1893, an engineer named Maslennikov led deeper exploration in news areas. His several wells, about 96 meters [315 feet] deep, found more oil but did not produce commercial flows. Russian prospectors were eventually joined by their international colleagues. In 1898, the German engineer Klee drilled the regions of Nutovo and Boatasyn Rivers. He was financed by the Sakhalin and Amur Petroleum Mining Syndicate, which was organized in London with generous initial capital of £1 million (about £90 million today).

Yet Sakhalin tantalized its would-be conquerors almost to the point of despair. The 1899 edition of the journal Sovremennaya tekhnika [“Modern Technology”] somberly summed up the results of the concluding decade: “We have known for several years now that the northern and eastern shores of Sakhalin Island have oil fields that extend for almost 400 versts [264 miles] to the north. However, our explorations have not been particularly successful. Thus far, oil produced from test pits and drill holes (down to 462 feet) has been meager in quantity and mediocre in quality.”

With the arrival of the new century, Sakhalin seemed to have finally yielded. On March 3, 1900, the Russian newspaper Neftyanoye delo glowingly announced “the discovery of rich oil fields on the island of Sakhalin. The prospecting was done by a foreign mining engineer, who is currently applying to the government for the right to exploit the fields.” In 1903, a well-equipped expedition of the British geologist Dr. William Norman-Bott performed further research and was able to vindicate Batsevich’s prediction: “The oil fields of Sakhalin are sufficiently dependable to justify large-scale drilling.” By the following year, the Russian Sakhalin Petroleum Company was created in Kharkiv with ambitions for large-scale development of the island’s oil. The company’s advertising brochure boasted of Sakhalin’s “petroleum reserves whose quantity exceeds that of all American deposits combined.” Meanwhile, members of the imperial family invested in the First Sakhalin Syndicate founded in St. Petersburg. The rush to unearth Sakhalin’s treasures was on.

After the end of the 1905 Russo-Japanese War, Russian Emperor Nicholas II retained the northern part of Sakhalin in the Treaty of Portsmouth, with the southern portion becoming a Japanese prefecture of Karafuto. The increased strategic and economic importance of the island and its resources lead the Russian state to assist in broadening and intensifying the development of the island. To do its part, the Geologic Committee of Russia performed a comprehensive study of Sakhalin’s oil fields between 1906 and 1909. The first expedition, headed by the Committee’s mining engineer Konstantin Tulchinsky, noted numerous oil shows in its book, Sketches of Minerals of Russian Sakhalin [Ocherki poleznykh iskopayemykh russkogo Sakhalina] (1907). Next year’s expedition, led by mining engineer Eduard Ahnert (1865–1946), made thorough topographical surveys of the island’s biggest river, Tym, and several northeastern bays. Ahnert’s test drilling increased the number of known oil fields from five to 18. The expedition’s findings supported an even broader drilling program undertaken the following year by the expedition of Nikolay Tikhonovich (1872–1952), a geologist of the Geologic Committee, which included a crew headed by mining engineer Pëtr Polevoy (1873–1936). The 1908 expedition remapped the entire Russian Sakhalin in great detail, identifying numerous uncharted rivers, mountains and dozens of new mineral deposits. On May 24, 1909, Pëtr Polevoy’s presentation of the results of the prospecting work received high marks from the Geologic Committee in St. Petersburg.

After thirteen years on the island, the Sakhalin and Amur Syndicate hit the jackpot in Nutovo River. Started on April 27, 1911, the Syndicate’s 12-inch riverbank well produced 180 pounds per day at a depth of 60 feet. When the depth reached 100 feet, the output reached 6 barrels per day. The Syndicate’s success attracted a new surge of entrepreneurs from the mainland. In 1912 alone, domestic and foreign companies submitted a total of 174 requests for allotment of petroleum production sites on Sakhalin.

However, after the outbreak of World War I in August 1914, all foreign companies soon left the island, and attempts of Russian entrepreneurs to begin further large-scale development of Sakhalin’s oil fields likewise came to a halt.

The First Trunk Petroleum Product Pipeline

One of the bottlenecks in the Russian oil industry was the lack of a developed pipeline infrastructure. This created serious obstacles to organizing the broader sale of petroleum products within Russia and in foreign countries.

Taking its cue from the positive results of American oil industrialists, who had put the first oil pipeline into operation in 1865, Russia constructed its first oil pipeline in 1878, five years after the abolition of the tax-farming system in the Transcaucasus.

The oil pipeline—built on the Absheron Peninsula by Bari, Sytenko & Co. for the Nobel Brothers’ company—was 5.6 miles long, had a pipe diameter of 8 inches, and could transport a daily capacity of 9,600 barrels. In its first few months of operation, 101,012 barrels were pumped through the pipeline; in 1879 the volume increased to an impressive 600,510 barrels.

The Nobel Brothers’ example was followed by the well-known entrepreneur Vasily Kokorev, one of the founders of the Baku Oil Company, for which Bari, Sytenko & Co. built a kerosene pipeline from the BOC refinery in Surakhany to the Zikh pier on the Caspian Sea.

It soon became apparent to other Russian entrepreneurs that pumping crude oil and petroleum products through pipelines cost less than half of what it cost to transport them by rail. Nevertheless, construction of the Transcaucasian Railway had been completed by 1883. On the whole, this did lead to an increase in the export of petroleum products to other countries, from 15,400 tons in 1882 to 940,000 tons in 1891. However, a large part of the profit from these exports went to the railroad’s owners. For example, out of a total of 15 million rubles earned in 1892 from the sale of Russian petroleum products, 11.2 million went to the board of the Transcaucasian Railway, while only 3.8 million rubles went to oil industrialists. This unprofitable scenario provided all the more reason for Russian oil industrialists to turn their attention to pumping oil through pipelines

The difficult operating conditions of the Transcaucasian Railway through the Surami Pass and railway’s limited capacity likewise prompted oil industrialists to look for other means of transporting their products. In 1893, nearly 11 million barrels of kerosene were stockpiled in Baku, waiting to be transported. In October 1895, the railroad track and several bridges on the Transcaucasian Railway were damaged by the flooding of the Kura River. Shipments of petroleum products were stopped for two months, resulting in large losses for oil industrialists.

Oil entrepreneurs, along with support from the scientific and engineering community, made numerous appeals to the Russian government regarding the need for an alternative to rail transport. They argued that pumping crude oil to Batumi and refining it there would promote “deeper” use of this raw material, i.e., production not only of more kerosene and residual oil, but also mineral oil and other valuable products. Their appeals were taken into consideration and on May 23, 1896, the Russian Imperial State Council decided to build a trunk kerosene pipeline from Baku to Batumi, to pass along the existing railroad route.

Playing an important role in this was the eminent Russian political figure Sergey Witte (1849–1915), minister of finance, who had earlier occupied the post of minister of railroads. Witte was a firm supporter of developing the domestic oil industry in every possible way. For example, the “Instructions on Producing an Attestation of the Testing of Oil and Refined Petroleum Products,” approved by him on February 6, 1896, did much to improve the quality of domestic petroleum products and make them more competitive on the world market.

Management of the design and construction of the Baku–Batumi kerosene pipeline was assigned to the Engineering Council of the Ministry of Railroads, with design development headed by Nikolay Shchukin (1848–1924), professor at the St. Petersburg Technological Institute.

Before work began on the pipeline, the Russian Ministry of Railroads first sent him and production engineer L. Wartenburg to the US in the summer of 1896 to familiarize themselves with the state of American pipeline transportation and the various techniques for building oil pipelines.

After Shchukin and Wartenburg returned to Russia, they began to develop the design for the Baku–Batumi kerosene pipeline. At the time, nobody knew how to construct a kerosene pipeline of such significant length (more than 545 miles), much less how to construct one along a railroad route. After all, kerosene is very prone to leakage and evaporation, which makes it challenging, and dangerous, to pump, especially near passenger railcars and petroleum product tank cars, not to mention in the vicinity of numerous tunnels, bridges, and other railroad structures.

One of the most complex parts of the project was the design of the first section of the kerosene pipeline from Mikhaylovo to Batumi, on the western mountain segment of the route, which was the most difficult for transporting tank cars with petroleum products.

Nevertheless, Nikolay Shchukin was able to develop a very careful hydraulic calculation for the pipeline, as well as instructions that set forth very strict requirements regarding the quality of the pipes and their junctions.

The design was discussed by many major scholars of mechanics and hydrodynamics, members of the Engineering Council, and invited specialists. These included the engineer Nikolay Sytenko, who authored a book about calculating the strength of bridges and viaducts; transportation engineer Genrikh Merching, who wrote a book about the movement of kerosene and oil through pipes; Aleksandr Bari, who was head of the engineering company Engineer A. V. Bari Construction Office; Mikhail Lazarev, representing the Congress of Oil Industrialists in St. Petersburg; and many others.

The government decided that the pipes would be fabricated only at Russian plants located in Mariupol, Sosnovitsy, and Yekaterinoslavl. Pipes having a minimum length of 15 feet were accepted from the plants. At their ends, they had a V-thread that tapered toward the end. This type of thread, which assures sealing of pipe junctions, was borrowed from American analogs. Steel flange joints were also provided for a series of pipeline sections.

Preliminary work on building the first section of the kerosene pipeline—from Mikhaylovo to Batumi (141 miles)—began in September 1896. Drawings of the railroad route and bridges indicating pipe placement were carefully prepared, and designs for the boiler and pumping stations were completed. In the summer of 1898, pipes began to arrive along the route and the pace of work significantly accelerated. Whereas only 27 miles of pipe had been laid from September 1898 to February 1899, by June 1899, 89 miles had been laid. Over 31 miles of this route, pipes had been screwed together and lowered into the ground, while over the remaining 58-mile section, they had been screwed together and left on the surface. By July of the same year, earth-moving work had ended, and the construction of boiler stations and buildings for service personnel had been completed. In November, the last batch of pipes was received.

Pumps for the pumping stations were provided by the Worthington Company (US). They were piston-operated, direct-acting pumps with a compound-type steam engine having valve steam distribution and double steam expansion. Two 110-kilowatt operating pumps and one backup pump were installed at every Mikhaylovo–Batumi kerosene pipeline station. In addition, tanks holding 8,125 tons of kerosene each were installed at the Samtredi and Kobuleti stations. A 1,080-ton tank was built for unloading kerosene from the tank cars at the Mikhaylovo station, along with a 10,800-ton storage tank; and a 15,300-ton tank was built at Batumi.

To avoid large kerosene leaks in case of an accident, the pipeline was outfitted with check valves every one to two miles along the pipeline. If the pipeline pressure dropped by 15%, an automatic device shut off the pumps.

March 14, 1900 is a special date in the history of the Russian oil industry. On that date, the first (and most important) section of the Russian Baku–Batumi trunk kerosene pipeline was completed, after a construction period of more than three years. A ceremony was held at Mikhaylovo Station on July 15, 1900 to celebrate the commissioning of this kerosene pipeline section. The ceremony was attended by Infantry General Grigory Golitsyn, head commander of civilian affairs in the Caucasus; Colonel Ivan Svechin, governor of Tiflis; Ludwig Perschke, director of the Excise Tax Administration of the Transcaucasus; transportation engineer Yevgeny Vedeneyev, head of the Transcaucasian Railway and kerosene pipeline construction manager, and other officials.

On June 12, 1901, Emperor Nicholas II approved the decision to completely finish construction of the Baku–Batumi kerosene pipeline. On June 16, 1901, the Ministry of Railroads decided to build the next section of the kerosene pipeline from the Ag-Taglya station (13 miles from Tiflis in the direction toward Baku) to the Mikhaylovo station, a distance of 87 miles. Directed by transportation engineer Aleksandr Dombrovsky, the construction work was finished within three years, and on December 30, 1904, this section of the kerosene pipeline was put into operation.

Construction of the final and longest (319 miles) section of the kerosene pipeline, between Baku and Ag-Taglya, was directed by the engineer A. Pavlichinsky. Here, the extensive experience acquired over the past seven years of construction was put to full use. Most of the equipment installed at pumping stations in this section of the kerosene pipeline was produced by Russian companies. A 110-kilowatt two-cylinder diesel engine was set up at each of the four kerosene pipeline stations located in areas without water. Operating the pumps with diesel engines turned out to be much less expensive than using steam engines, since the efficiency of the former was 28%, whereas the latter only had an efficiency of 10%.

By the beginning of the summer of 1907, all major work had been completed and the entire 547-mile length of the Baku–Batumi kerosene pipeline, with its 16 pumping stations, was triumphantly put into operation on June 21, 1907. From its inception, the operation of the Transcaucasian kerosene pipeline was entirely stable and by the end of 1907, more than 1.1 million tons of kerosene had been pumped through it.

Russia’s investment in this massive addition to the infrastructure of the oil industry turned out to be a wise decision. While the construction of the Baku–Batumi trunk kerosene pipeline cost the Russian government over 21 million rubles, within its first five years of operation, the project not only completely paid for itself, but even generated a net profit of 6.5 million rubles.

Russia at the First International Petroleum Congress

By the end of the 19th century, the rapidly growing oil industry had captured the rapt attention of the world’s scientific community. Gradually, the sensationalized reports of mighty oil gushers that appeared on the pages of scientific periodicals gave way to the appearance of a series of significant technical works that would later form the basis for the field of petroleum science.

Specialized forums devoted to the issue of petroleum and its related products soon began to appear. The International Geologic Congress, which began meeting regularly since 1878, focused on the genesis of petroleum and the organization of efficient hydrocarbon prospecting.

In turn, the creation in 1882 in Russia of a specialized institution, the Geologic Committee of the Mining Department, gave a powerful impetus to the development of the scientific study of the country’s rich mineral resources. Research by the accomplished Russian geologists Grigory Gelmersen (1803–1885), Nikolay Koshkarov (1818–1892), Vasily Yerofeyev (1822–1884), and Aleksandr Karpinsky (1846–1936) generated keen interest from many scientific and engineering organizations around the world. In just its first ten years (1882–1891), the Geologic Committee had established an exchange of publications with 196 foreign geologic institutions and scientific societies, including organizations in Africa, Australia, South America, and other countries.

Recognition of the Geologic Committee’s fruitful activity is evidenced by awards received at various international exhibitions: the Chicago World’s Columbian Exposition of 1893, the Exposition Internationale de Bruxelles of 1897, and the Exposition Universelle de Paris of 1900, where the committee’s geologic maps and publications won certificates of merit and gold medals.

An important step in the development of Russian and world geologic science was the 7th session of the International Geologic Congress, which took place in St. Petersburg in August 1897. After the Congress ended, some of attending delegates visited the fields of the Absheron Peninsula, and obtained convincing proof of the enormous scale of the Russian oil business.

Starting in 1894, issues involving the study of crude oil and petroleum products were also being discussed at meetings and international congresses in applied chemistry. In Russia, the US, Great Britain, and Austria-Hungary, national public organizations were working to combine the creative efforts of their best scientists and engineers to develop the oil industry.

However, at this point in time there was not yet a worldwide representative organization capable of comprehensively examining all of the numerous facets of the industry—from prospecting and recovery to refining and sales. Without such an organization in place, specialists had significantly different interpretations of national legal frameworks and processes for oil production. For instance, there was no unified approach to petroleum product analysis and certification methods, which inevitably produced a great variety of obstacles on the road to the successful development of international trade.

One person who could not resign himself to this state of affairs was Pavel Dvorkovich (1857–1929), a talented Russian petroleum chemist. At the time, he was working at the Petroleum Storage Tanks and Transportation Co. Ltd., a British company, and was simultaneously the publisher of the Petroleum Review, a London newspaper. By the second half of 1899, he had published a series of articles in this publication justifying the urgent necessity of an international oil forum as part of the upcoming Exposition Universelle de Paris.

As arguments, Pavel Dvorkovich cited historical chronicles of the 18th century, mentioning that it was France that had been the first European country to become aware of the nascent oil industry. In 1745, King Louis XV had given a concession to the nobleman de la Sablonnière to develop the oil-bearing territory Pechelbronn in the province of Alsace. This successful entrepreneur drilled several productive oil wells and built a small refinery, which continued to operate until 1785. Broad recognition was also achieved by French mining specialists for their significant contribution to the development of drilling equipment and procedures. Their fruitful activities are associated with the appearance of the freefall drilling tool invented by the engineers Kind and Fabian. To increase the efficiency of percussion rod drilling, in 1845 the engineer Favelle first applied the principle of circulating liquid through the pipe’s internal cavity to remove cuttings through the annulus. Rodolphe Leschot’s invention started the spread of diamond core drilling.

The widespread discussion on the pages of the Petroleum Review about the possibility of holding the first Petroleum Congress bore fruit. Each month, support for this initiative came from more and more people in various countries who worked in the oil business. The president of the Galician Petroleum Association, Baron von Gorayski, offered to head its delegation, and the Society of Drilling Engineers in Vienna and the California Petroleum Association both confirmed their desire to participate in the Congress. Pavel Dvorkovich soon received a letter from William Moore, director of the French subsidiary of the well-known American Worthington Pump Company, expressing his willingness to provide a meeting hall in its corporate pavilion at the Paris exhibition to hold meetings of the Petroleum Congress from August 16–28, 1900.

On May 14, 1900, encouraged by his success, Pavel Dvorkovich sent a letter to the renowned Russian scientist Dmitry Mendeleyev. In that letter, Dvorkovich wrote: “Knowing what deep interest you have shown over the past 30 years in the success of the oil industry, I am certain that you will be glad to learn that the first International Petroleum Congress will take place in Paris in August. My colleagues and I would be extremely flattered if you would agree to accept the title of honorary chairman of this Congress. It is scheduled for August 16–28, so we hope that this time will be convenient for you to be present in person at the opening of the Congress.”⁵²

As it turned out, Dmitry Mendeleyev was already in Paris and, as the director of the Bureau of Weights and Measures, had already been actively participating in the work of the Exposition Universelle de Paris, at the request of Finance Minister Sergey Witte. However, he was forced to return to Russia for family reasons and was unable to participate personally in the work of the first Petroleum Congress.

The first world forum of oil industry professionals opened on August 17, 1900 in Paris. The first meeting was attended by 59 delegates from 20 countries. Senator Michel Lesueur was elected president of the Congress and Pavel Dvorkovich was elected secretary. The congress delegates unanimously elected Dmitry Mendeleyev honorary president of the Congress, and sent a salutatory telegram to him in St. Petersburg.

A large part of the forum was taken up by discussion of the state of affairs in the principal world centers of oil production. In addition, much attention was given to the broader issues of petroleum geology, including a lecture by Carl Engler, professor of Germany’s Karlsruhe Institute of Technology, on the chemistry and formation of petroleum.

The delegates also paid particular attention to talks concerning applied chemistry as it relates to the oil industry. Subjects of these talks included the chemistry of Russian petroleum, the composition of American petroleum, the variation of the characteristics of crude oils from Pennsylvania and Ohio, and the chemistry of Japanese petroleum. A presentation on the use of petroleum for air navigation proved to be a prophetic prologue for the coming innovations of the 20th century.

The delegates also unanimously supported one of the key talks, “On the Uniformity of Methods of Investigating Crude Oil and Petroleum Products,” given by the well-known British petrochemist Boverton Redwood.

The Russian delegation was at the center of attention at the Congress. In the lobby, the Russian delegation’s director, State Adviser Aleksandr Ivanov, gladly answered numerous questions about the prospects for development of the oil business in Russia, while mining engineer Nikolay Lebedev, an employee of the Caucasus Mining Administration, repeatedly displayed a geologic map of the Caucasus Territory that he had drawn up to serve as proof of Russia’s vast resources and potential.

Between meeting sessions of the Congress, the delegates familiarized themselves with the Exposition’s extensive exhibits, and their attention was drawn above all to the Russian exhibit. Russia was represented by more than 2,500 exhibitors housed in an area of 258,000 square feet. Prince Vyacheslav Tenishev (1845–1903), a well-known figure in the industry, served as general commissioner of the Russian section.

Prior to the opening of the Fair, the Russian Ministry of Finance had published a comprehensive book, Russia at the End of the 19th Century [Rossiya v kontse XIX veka], edited by V. I. Kovalevsky, that contained a detailed analysis of Russian economic, scientific, and cultural developments of the previous century. Chapter 3 of the book, “The Chemical and Oil Industry,” was written by Dmitry Mendeleyev and said, in part: “Owing to the measures insistently carried out by the government, Russia, which as late as 1876 had been ordering 55,000–66,000 tons of petroleum products per year from America, began to increase its production and refining of oil from the Caucasus; reduced the price of kerosene (lighting oil, oil) and other petroleum products to the lowest ever in the world; saturated the domestic market; began to provide the treasury up to 30 million rubles of revenue in the form of an excise tax on kerosene used by the country; and began to export, predominantly from Batumi, up to 990,000 tons (1898) of kerosene alone, not counting lubricants (more than 160,000 tons in 1898) and residual oil (around 55,000 tons in 1898).”

In the exhibit hall, the Russian oil industry was very heavily represented in the “Mining and Metallurgy” and “Chemical Production” groups. Mining engineer Ivan Lebëdkin, head of the Russian section, willingly gave explanations on the extensive exhibit to the delegates of the Congress.

The Nobel Brothers Petroleum Production Partnership, which was the standard bearer of the Russian oil industry, occupied a separate exhibition pavilion and presented an extensive exhibit of Russian petroleum, petroleum products, and oilfield equipment. Its exhibits included samples of Balakhany, Sabunchu, Romanian, Surakhany, Bibiheybet, and Cheleken crudes, natural gas condensate, three grades of gasoline, kerosene, gas oil, diesel oil, spindle oil, cylinder oil, viscosin, vaseline oil, solid oil, paraffin, residual oil, etc.

On August 18, 1900, the results of the international jury’s voting were announced, and it was no surprise that the highest award, the Grand Prix, was given to the two leading Russian companies, the Nobel Brothers Petroleum Production Partnership and the Caspian and Black Sea Oil Industrial and Trading Company, as well as to the Geologic Committee of Russia. A gold medal was also awarded to the Baku Oil Company, a pioneer of the Russian oil business.

In addition, exhibition gold medals were awarded to mining engineer Sigismund Wojslaw, Vladimir Shukhov, geologist Sergey Nikitin, and many other Russian exhibitors. In all, Russian participants at the 1900 Exposition Universelle de Paris received a total of 1,589 awards: 212 Grand Prix, 370 gold medals, 436 silver medals, 347 bronze medals, and 224 honorable mentions.

On August 28, 1900, the last day of the first International Petroleum Congress, resolutions were adopted on the basic directions of development of the industry, and a committee was selected to prepare for the next forum. The gold medal of the Congress was unanimously awarded to Pavel Dvorkovich for his contribution to organizing the forum of oil industry professionals and for his memorable scientific talk. Michel Lesueur, Congress president, gave a brilliant closing address, expressing the hope for future fruitful cooperation and the active exchange of scientific and technical ideas.

It is believed that this first forum of oil industry professionals gave a green light to the beginning of the gasoline era, and all the substantial developments in industrialized society that came along with it.

In the following years, Russian scientists and engineers continued their active participation at the International Petroleum Congresses in Liege (1905), Bucharest (1907), and Lviv (1910), which did a great deal to promote the development of petroleum science. In July 1905, at the second International Petroleum Congress in Liege (Belgium), audiences were very interested in talks given by the Russian delegates on petroleum and its products in world industry and trade, and on establishing uniform methods of analyzing petroleum products. In September 1907, at the third International Petroleum Congress in Bucharest, a lecture on the rightful place of chemistry and petroleum geology in the natural sciences was a true revelation for many delegates. At the fourth International Petroleum Congress (Lvov, 1910) a decision was adopted to create a special international committee to establish uniform methods of analyzing petroleum products. This committee met for the first time in Vienna on January 17–20, 1912, drawing up a document that established common international techniques for analyzing and determining petroleum product properties. During the course of its work, the commission came to be known informally as the “International Petroleum Commission,” and included a large contingent of Russian scientists.

At the Focal Point of the Kerosene Wars

The end of the 19th century was marked by many striking events that would have a fundamental influence on the state of the world economy in the new century. In 1898, the Russian Empire surpassed the US for the first time in volume of oil produced, producing 75.8 million barrels of oil, which represented 51.6% of world production. In contrast, the volume of oil produced in the US was 62 million barrels.

In the following year (1899), there were 10 oil-producing countries in the world, and their total production was 19,492,000 tons of oil, as opposed to 13,259,000 tons in 1894. Russia now occupied the leading position in world volume of oil production, with a share of 9,957,000 tons (51.1%); the US came in second with 8,308,000 tons (42.6%), followed by the Netherlands (461,000 tons on the island of Borneo), Austria-Hungary (356,000 tons), and Romania (118,000 tons).

On the roads of the US and Europe, automobiles were no longer a sensation. Meanwhile, seas and inland waterways were furrowed by vessels equipped with oil heating systems, the precursors to the powerful fleets created in the 20th century.

Russia strove not to fall behind in this respect. The first domestic automobile was unveiled at the All-Russia Industrial and Art Exhibition in Nizhny Novgorod in 1896. In 1899, a factory in Riga began serial assembly of “self-propelled carriages” under the sonorous name “Rossiya” [Russia].

It was during this period that a sharp rivalry began between Russia and the US for control of the world oil market. This dramatic stage in the relationship between the two powers is covered in detail in Professor Aleksandr Vasilenko’s work, entitled “The Petroleum Factor in Geopolitics at the Turn of the 19th-20th Centuries,” which is included in the anthology The Eve of the Petroleum Era [Predvestiye ery nefti].

For John D. Rockefeller and his Standard Oil Company, the beginning of the 1880s did not presage any special concerns for its monopoly position in the area of trade in petroleum products. In Europe, Russian kerosene first appeared in small volumes in 1882, and American experts evaluated it as a very timid attempt by Russian companies to enter the European market. Data from the Mining Department indicated that in 1882, Russia exported 31,450 barrels of crude oil, 3,360 barrels of mineral oil and vaseline, 27,260 barrels of kerosene, 84,420 barrels of lubricants, and 12,000 barrels of residual oil. In the same year, the US exported 559,955,000 gallons of various petroleum products. If we consider that 1 barrel = 42 gallons, we may calculate that Russian exports amounted to a pitiful 1% of American exports.

In 1874, commercial adviser Vasily Kokorev (1817–1889) became one of the founders of Russia’s first vertically integrated oil company, the Baku Oil Company.

A share of the Baku Oil Company (1874).

In 1874, noted entrepreneur Pëtr Gubonin (1825–1894), together with Vasily Kokorev, founded Russia’s first vertically integrated oil company, the Baku Oil Company.

A view of the Baku Oil Company’s Surakhany Refinery (1870s).

Sketch of the still and mixer of the Baku Oil Company’s Surakhany Refinery (1870s).

The Mining Institute in St. Petersburg (18th century), many of whose alumni made great contributions to the development of the Russian oil industry.

Russian mining engineer’s badge (established in 1866).

Map of oil fields on the Absheron Peninsula (late 19th century).

Panorama of oil fields on the Absheron Peninsula (late 19th century).

In 1879, noted entrepreneur Ludvig Nobel (1831–1888) founded Russia’s second vertically integrated oil company, the Nobel Brothers Petroleum Production Company.

In 1875, entrepreneur Robert Nobel (1829–1896) entered the oil business and became one of the founders of the Nobel Brothers Petroleum Production Company.

Famous inventor Alfred Nobel (1833–1896), as one of the founders of the Nobel Brothers Petroleum Production Company, actively participated in the development of the oil business in Russia.

A view of one of the refineries of the Nobel Brothers Petroleum Production Company (late 19th century).

The first Russian tanker, the Zoroastr, owned by the Nobel Brothers Petroleum Production Company, made regular trips in the Caspian Sea beginning in 1878.

A view of the Konstantinovka Refinery (Yaroslavl Province), where V.I. Ragozin & Co. Mineral Oil Production Partnership’s industrially produced oil lubricants, which earned honorable mention for their quality in many European countries (late 19th century).

A share of V. I. Ragozin & Co. Mineral Oil Production Partnership (1880).

Emperor Alexander III (1845–1894), the first Russian monarch to visit the oil fields on the Absheron Peninsula in October 1888.

Casket containing samples of crude oil and petroleum products, presented by Russian oil industrialists as a gift to Emperor Alexander III in October 1888.

However, if the managers of Standard Oil had been privy to the content of the Nobel Brothers Petroleum Production Partnership’s general shareholders’ meeting in April 1883, they may have found their self-confidence seriously shaken. In its address to the shareholders, the Partnership’s Board said, in part: “Having on its side the undoubted advantage of the Baku oil sources over American ones... Russian kerosene has a broad field for distribution in countries bordering Russia.... The company’s goal was first to displace American kerosene from Russia, and then begin to export kerosene to other countries.... American kerosene has now been completely displaced from Russian markets, and in the past year the company had already begun to export its products to Austria and Germany.”⁵³

Production data from this period show that Russian entrepreneurs were already making great strides to change the existing state of affairs on the European oil product market. In 1884, the port of Batumi exported 449,808 barrels of crude oil and petroleum products, including 330,621 barrels of kerosene, 76,210 barrels of lubricants, 42,325 barrels of residual oil, and 652 barrels of crude oil. At the same time, deliveries to the Russian Black Sea ports of Odessa, Sevastopol, Kerch, and Kherson for domestic consumption comprised 209,138 barrels of crude oil and petroleum products, including 183,560 barrels of kerosene.

In the same year, 21,628 barrels of crude oil and petroleum products were exported from Baku directly to Persia, including: 14,014 barrels of kerosene, 1,008 barrels of residual oil, and 6,617 barrels of crude oil.

On October 31, 1886, Baku oil industrialists wrote a letter to Prince Aleksandr Dondukov-Korsakov, head commander of civilian affairs in the Caucasus, stating: “The Baku oil industry has reached such a degree of development that it could easily supply not only all of Russia, but also a large part of Europe with lighting and lubricating materials in the quantity that they need.”

This assertion proved true in the coming years. In 1890, Russia exported 4.9 million barrels, including 3.5 million barrels of Russian kerosene sold on the European market. At the same time, US exports were 523,295,000 gallons of kerosene, including 343,078,000 gallons to Europe. Simple conversion shows that in 1890, Russian exports already amounted to 41.1% of total American exports, and 43.9% of exports to the European market.

Not surprisingly, the American government was quite concerned about the increasing activity of Russian oil companies in Europe. Therefore, the government gave Standard Oil management its blessing to take extremely tough action against Russian companies in all aspects of sales activity, using the most diverse means, including unfair methods of competition.

To this end, the American company began creating a wide network of subsidiaries around the world. In Great Britain, it formed the Anglo-American Oil Company in London on April 24, 1888 with a fixed capital of £500,000. Trading of American kerosene in Germany passed into the hands of the company Deutsch-Amerikanische Petroleum Gesellschaft, founded on February 22, 1890 with capital of 9 million marks (40% of whose shares belonged to Rockefeller and his partners). On March 10, 1891, the American Petroleum Company was founded in Rotterdam, with a capital of 5 million florins, to trade kerosene in the Netherlands, Belgium, and Luxembourg; 51% of its shares were owned by Americans. Sale of American kerosene in Italy and Switzerland was carried out by the Società Italo-Americana del Petrolio company, founded in Venice on May 16, 1891 with a capital of 2.5 million lire, 60% of whose shares belonged to the Standard Oil Company.

In the face of such tough competitive countermeasures by the US, the rate of growth of Russian exports to Europe soon slowed. In 1892, Russia delivered 3.5 million barrels of kerosene to Europe, i.e., over four years, growth in exports to Europe expressed in absolute figures amounted to 384,282 barrels (or 10.8%).

The Standard Oil Company’s ongoing actions clearly worked toward the realization of its strategy to displace Russia completely, especially from the European kerosene market. Whereas in 1890 Great Britain imported 787,529 barrels of kerosene from Russia and 1,357,122 barrels from the US, by 1893 American imports had grown 60% to 2,209,619 barrels, while Russian imports, by contrast, fell 5.6% to 743,094 barrels.

It’s no wonder, then, that at the end of the 19th century Russia’s focus turned toward exporting kerosene to the Far East. However, as was the case in Europe, this region was already well-supplied by US companies. In 1887, official data provided evidence of the dominant market position of the US: its kerosene deliveries to the Far East were 9,782,459 crates, while those of Russia were only 899,903 crates. If we take into account the weight difference between the kerosene in a Russian crate (74 pounds) and that in an American crate (65 pounds), it turns out that in 1887 the US delivered 635,859,830 pounds to the Far East, and Russia delivered 66,592,822 pounds. Thus, in 1887 American kerosene exports exceeded Russian exports by a factor of 9.5.

Nonetheless, by 1888, Russia was already delivering 1.1 million barrels of Russian kerosene to the region, and by 1892 this figure jumped to 2.4 million barrels. In other words, over the course of just four years the increase in Eastern exports amounted to 1.3 million barrels expressed in absolute terms, or a 55% increase.

This trend is also confirmed by analysis of data on deliveries to the Pacific coast; in 1892, the US delivered 11,253,699 crates of kerosene there, while Russia delivered 8,647,683 crates. If these figures are compared on the basis of weight, it turns out that the US delivered 731,490,430 pounds, and Russia delivered 639,928,540 pounds. Thus, the Russian share of the total volume of kerosene deliveries to the Far East region reached the substantial value of 46.7%.

We should note that while deliveries to Europe in 1893 were 2.6 million barrels of kerosene, deliveries to the Far East were 3.4 million barrels.

To summarize the above discussion, it can be noted that over a rather short period the Russian oil industry made a dramatic breakthrough, and became a serious competitor to the US, both in the markets of Europe and in those of the Far East.

The increasing activity of Russian companies in the Far East did not go unnoticed in the US. In relation to the Eastern market, John D. Rockefeller’s strategy was spelled out quite frankly by one of his confidants: “Beginning today, a struggle must begin with the Russian rivalry in the Eastern hemisphere.... This matter must be addressed energetically and with unlimited capital; otherwise, our foreign business, amounting to an annual figure of 50 million, will be very strongly affected. If this business had been left to people with unlimited power or combined efforts, Russia would now be master of all Eastern markets. Without a system of oil pipelines, cheap shipping, and an improvement in production, we would not have been able to hold the European and Asian markets against Russia, not even for one year.”

The active measures undertaken by Standard Oil in the Eastern market yielded the desired results. By 1893, the US had delivered 18,674,661 crates of kerosene to the Far East, almost 7.5 million more than in 1892. As for Russia, it was able to achieve an increase of only 3.8 million crates of kerosene during that year.

The American challenge was soon followed by a strong response from Russia. The country’s rapid construction of the Trans-Siberian Railroad, with its Chinese Eastern Railway segment, and the railroad’s commissioning created favorable new conditions for a rapid increase in deliveries of Russian petroleum products. Whereas in 1897, Russian entrepreneurs exported 4.1 million barrels of kerosene to the markets of the Far East (for comparison, only 2.2 million barrels were sent to Europe), in 1901 they exported 6.2 million barrels, and in 1904 the volume of export deliveries reached 7.3 million barrels. That is, over seven years Russian Far East exports of kerosene had reached impressive figures and had grown by a factor of 1.8.

From the viewpoint of the administration of the US, the beginning of Trans-Siberian Railroad operation significantly strengthened the Russian presence in the Far East and struck a serious blow against the administration’s policy of “open doors” and “equal opportunities.” Such considerations played into the US’s support for Japan in its war with Russia. A weakened and distracted Russia would eliminate one of the US’s main obstacles to the realization of its geopolitical ambitions, including that of increasing American kerosene exports. US President Theodore Roosevelt conveyed this position clearly in his letter of January 18, 1903 to Secretary of State John Hay: “I want the Russians to know that I do not intend to give in. With every year I am more and more certain that the country will support me in the most extreme measures in this matter.”

A tight knot of complex contradictions between the great powers in the Far East caused the breakout of the Russo-Japanese War in 1904.

The major work of the Soviet historian Boris Romanov, Sketches of the Diplomatic History of the Russo-Japanese War [Ocherki diplomaticheskoy istorii russko-yaponskoy voyny], offers a detailed analysis of the reasons for the formation of the anti-Russian bloc and describes the tactics directed against Russia on the diplomatic and military fronts (in the chapter “The Anglo-Japanese-American Block (1901–1902)” and the section “The Anglo-American Agreement”). The book also touches on the complex foreign trade factors that contributed to the outbreak of the war.

Among these factors was the American Standard Oil Company’s actions leading up to the conflict. Early in the spring of 1904, Rockefeller’s company struck a serious blow against Russian kerosene export deliveries to Europe markets. The newspaper Neftyanoye delo reported: “To understand the fierceness of this struggle, it is sufficient to remember that the price of bulk retail kerosene in the main import ports of England fell from 5¾ pence per gallon in March 1904 to 2¹/₂ pence (that is, 43 kopecks per pood [36 pounds]), in June of this same year.... In March, the average quoted price for our boiler kerosene in Baku was 29.3 kopecks per pood [36 pounds]. Consequently, in Batumi it would cost 50.3 kopecks per pood [36 pounds], assuming constant expenses of 21 kopecks between Baku and Batumi (railroad freight: 19 kopecks, port charges: 1 kopeck, pumping and storage in Batumi, leakage and interest on freight: 1 kopeck). Comparison of these figures clearly illustrates the complete inability of our kerosene to compete with American kerosene.”

Nikolay Iznar, a well-known oil industrialist, noted in an article in the same newspaper: “At various times the necessity of keeping the market in its hands forced the Standard Oil Co. to lower prices drastically on export kerosene in New York. This reduction was sometimes so significant that, for example, in August 1904 a gallon of export kerosene was quoted at 4.8 cents, while at the same place a gallon of crude oil cost 5 cents, that is, 0.20 cents more than the refined product.”

Furthermore, in April 1904, the American financial company Kuhn, Loeb & Co., which was under the control of the Rockefeller group, opened a subscription for an initial set of Japanese bonds in the amount $25 million. A second offering of Japanese bonds was soon issued, this time for $60 million, followed by a third and a fourth. They were all successfully purchased in equal portions in the US and Great Britain.

Nevertheless, despite such anti-Russian actions carried out by the US, in 1904 Russia was able to export 13.5 million barrels of kerosene, which accounted for 30.7% of total world exports. Meanwhile, the US accounted for 55.9%, the Netherlands 8.4%, Romania 2.7%, and Galicia 2.3%.

Russian kerosene exports in 1904 broke down as follows: Europe received 6.2 million barrels and Eastern markets received 7.3 million barrels, with China alone receiving 880,845 barrels of kerosene, or 57.6% of American deliveries.

However, these impressive gains would not last long as the tragic events of August 1905 plunged the Russian oil industry into a deep crisis. As a result, Russia lost the European and Far East markets, and the volume of its exports of petroleum products was set back by several decades, putting an end to the high figures that had earlier impressed contemporaries.

The Tragedy of August 1905

The development of the Russian oil industry in the late 19th and early 20th centuries was clearly on an upward track; the industry exhibited rapid rates of growth in oil production and refining, becoming essentially a world leader. Volumes of Russian petroleum products exports to the world market grew steadily, despite crises in several countries in Europe, Asia, and the Far East.

As noted above, the world market for petroleum products in the late 19th and early 20th centuries was characterized by increased competition between the leading Russian oil companies and the American transnational corporation Standard Oil Company. At the same time, there was a clear tendency toward substantial consolidation of Russia’s competitive position on the petroleum products market, both in Europe and elsewhere in the world. For instance, whereas Russian kerosene supplied to Great Britain in 1897 amounted to only 14.2% of American kerosene exports to that country, by 1903 it had already reached 42.4%.

The Russian industry’s great potential was clearly shown by statistical indicators, especially from 1900–1904, compared to the performance of the American oil industry. The commissioning of powerful high-flowing wells by American oil industrialists in Texas in 1902 altered the rankings somewhat, but the potential of the Russian industry remained fairly high, and a return to a leading position on the “oil Olympus” was thought to be entirely possible.

Table 5. Russian and US Oil Production, 1898–1904 (in millions of tons)

Source: Dyakonova, I. A. Oil and Coal in the Power Industry of Tsarist Russia in International Comparisons [Neft i ugol v energetike tsarskoy Rossii v mezhdunarodnykh sopostavleniyakh]. Moscow, 1999, p. 166.

However, the events of only a few tragic days in August 1905, at the Absheron Peninsula fields, completely dashed any hopes for Russia’s restoration as leader of the world oil industry. To fully understand these events, it should be noted that an important aspect of Russia’s oil industry development was its highly multinational working class. In 1904, of the 147 oil production companies on the Absheron Peninsula, eight produced about 50% of all the oil. The peninsula’s major fields and refineries employed 50% of the entire work force in 1903, and by 1907 that figure was 55.2%. At the same time, the Russia-wide figure was 54%. The proportions of workers of various nationalities in 1903 were as follows: Azerbaijanis 41.2%, Armenians 20.5%, Russians 20.3%, Dagestanis 12.5%, and others 6.5%.

At the same time, it should be noted that a social component also began to manifest itself more and more distinctly in the operations of Russian oil companies during those years. On December 30, 1904, at Sabunchu, on the Absheron Peninsula, in a building housing the executive board of the Electric Power [Elektricheskaya sila] Joint-Stock Company, negotiations were concluded between authorized labor collectives and oil industrialists, resulting in the signing of the first collective-bargaining agreement in the history of the Russian oil industry.

This event ended a major oil field strike that had lasted more than two weeks and had involved over 40,000 workers from various occupations. The first collective-bargaining agreement, which the trade-unionists began to call the “residual oil constitution,” was a major achievement for the working class in the battle to improve working and living conditions. Under the terms of the agreement, the work day in the field was reduced to nine hours; regular night work, overtime and detachment work was abolished; days of three eight-hour shifts were introduced for drillers, bailers, stokers, and oilers; and a day off finally appeared in the work week. In case of illness, workers had to be paid half their wages for three months and treatment had to be provided at the business owner’s expense. The collective-bargaining agreement also reflected various demands of the workers, such as polite treatment by the administration, abolition of unauthorized searches, provision of quality drinking water, and common access to bathhouses.

The 1904 collective-bargaining agreement was a major victory for Russian oil workers. It seemed to everyone that this progress in the social sector had considerably lessened the level of tension in the working class environment, and nothing portended the complications that would soon arise in the oil fields. However, the events of the first Russian revolution of August 1905 burst forth on the Absheron Peninsula, writing the most tragic pages in the history of the domestic oil industry. The devastation that occurred over several August days on the Absheron Peninsula, when oil workers set industrial sites on fire in acts of deliberate sabotage, plunged the Russian oil industry into a deep, long-term crisis.

What was the main cause of the tragedy of August 22–25, 1905? Unfortunately, even a hundred years later, we still do not have an exhaustive answer to this question. In their study, “On the Question of the Causes and Nature of the Tragic Events of August 1905 at the Absheron Peninsula Oil Fields,” which appeared in the anthology, The Eve of the Petroleum Era [Predvestiye ery nefti], the Russian historians Sergey Khizhnyakov and Valery Osinov made one of the first attempts at an unbiased scientific analysis of the events.

In the absence of a definitive explanation, let us try to at least reconstruct a logical sequence of events from the available facts. At the Absheron Peninsula fields alone, there were over 5,000 Persian citizens (20%), and they formed the bulk of the unskilled laborers: bailers, who pulled the oil out of the ground and poured it into tanks; blotters, who gathered oil from the ground and water surface with rags; and carters, who hauled oil day and night from the fields to the Black City outside Baku. A step higher in the working hierarchy were the drillers, brakers, and carriers. And to these we should add a large number of Persians who, while not on permanent staff at the oil companies, were employed in all types of temporary jobs (collecting ditch oil, cleaning oil pits, etc.) for up to 8–15 days a month. By some estimates, this unskilled labor force comprised another several thousand workers.

Written sources from that distant time offer further information about the situation at the fields. In an article titled “Explanatory Note of Elected Representatives of Baku Workers” from Neftyanoye delo no. 20–21 for 1905, we find very remarkable eyewitness testimony of the tragic August events: “For the workers, this carnage was completely unexpected. In the first days, especially, it seemed so absurdly wild; we simply didn’t believe that all this was not a dream, but real life. It’s true, though, that since the December strike, leaflets were being distributed to workers containing warnings to Armenians, supposedly from Muslims, to leave the Muslims alone, otherwise they, the Muslims, would beat up all the Armenians.”