Baku (Baki), Azerbaijan (40°23’North, 49°52’East) is the capital of the Republic of Azerbaijan, which is located on the southern shore of the Apsheron Peninsula, bordering the Caspian Sea; Iran is situated to its south and Russia to its north. Azerbaijan, formerly part of Russia, gained its independence after the collapse of the Soviet Union on August 30, 1991.
Baku has been called the “region of eternal fires” due to the sacred act of fire worshipping that began some 2,600 years ago. The presence of natural gas flares around the Caspian basin, that were believed to have divine power, led to fire worship. Zoroastrianism, one of the world's oldest religions, first began in Azerbaijan and had fire worship as a central ritual. Zoroastrianism spread with the Persian Empire as far as central Asia and northern India in the 5th century BC. By the 7th and 8th centuries AD it had been supplanted by Islam.
History of Oil Production in Baku
Baku is one of the oldest known petroleum-producing cities; some of the first petroleum discoveries occurred during the 8th century and early forms of exploitation began as early as the 9th century.
The early discovery of oil and production of oil-based products established Baku as one of the largest and most prosperous cities of the Middle East during medieval times. Baku’s prosperity continued to grow throughout the centuries as the importance of oil in society increased.
The Gulistan Treaty, signed in October of 1813, ended the 9-year Russian-Persian war peacefully and marked the beginning of the Russian petroleum industry. Under this treaty, Persia (present day Iran) was forced to hand over several territories to Russia, including Baku. Russia took advantage of Baku’s fertile land and quickly moved to develop the region's rich oil resources.
Crude oil was initially dug from shallow pits and sold in the market unrefined and unprocessed, mainly for domestic lighting. Crude oil production exceeded local demand, and much of the oil was exported to Persia. The number of pits increased rapidly; in 1829 there were only 82, but by 1872 Baku had 415 active pits producing oil.
The Modern Oil Era of Baku
The modern oil era began in the mid-19th century when technological advances in petroleum refining processes enabled expansion of the uses for petroleum in society. Baku’s abundance of “liquid gold” initiated a market that became the region’s primary source of economic growth and wealth. Petroleum deposits were discovered in 1859 in the United States. Unlike in Baku, the oil recovered was distilled and refined before it was sold in the market. This advance in the United State’s petroleum industry placed pressure on Russian industries to compete. Wilhelm Eichler, a chemist from Moscow, succeeded in developing a refining process that allowed the Russian market to advance. This development allowed Russian petroleum companies, principally the Transcaspian Trading Company, to drive out American competition from Russian markets.
In 1863, Javad Melikov built the first refinery in Baku’s rich oil fields, marking the beginning of an oil industry that would dominate the world market for decades. In 1871, the Transcaspian Trading Company built its first well using a drill. The aid of machinery further contributed to the exponential growth of the industry by allowing for easier extraction and greater production of petroleum. By the end of the 19th century, Baku's fame as the "Black Gold Capital" spread throughout of the world. Skilled workers and engineers flocked to Baku and by 1900 Baku had more than 2,000 wells producing commercial quantities of oil.
The Nobel brothers of Sweden are remembered for their valuable contributions that revolutionized the oil industry. Robert and Ludwig Nobel had the most influential role; their brother Alfred Nobel, a brilliant chemist and famous philanthropist who founded the Nobel Prize fund, played a minor role in his brothers’ business. In 1875 Robert acquired a small refinery in Black Town (named for the enormous clouds of soot released into the air by the refineries) along with a few nearby oil properties. At this time, refined oil was still transported in barrels. Robert, realizing how inefficient this process was, funded the construction of the first pipeline in Baku. The amount of money the Nobel brothers saved in one year due to savings in transportation costs paid off the expenses of the pipeline and encouraged other companies to follow suit. In 1879 the three brothers created a shareholding company and became the main owners. The logo of the Nobel Brothers' Petroleum Company depicted the Surakhani Fire-worshippers' Temple, with its flames fueled by gas from the oilfield nearby, a tribute to the regions deep history with oil and gas. The Nobels are also regarded as early pioneers of deep drilling. They improved the Pennsylvanian drills that were used in the United States. Their drills enabled deeper exploration and thus the extraction of more oil.
By the turn of the 19th century, Baku was the global center of the international oil industry, producing more than half of the world's supply of oil. Much of the technology we use today was developed in Baku. Local Russian and European engineers,led by the Nobel family, gave Baku the sophisticated and cultural air that it enjoys to this day.
During World War I, the Armenians defended Baku’s oil supply for Russia from German and Turkish invasions. In 1920, when the Bolsheviks captured Azerbaijan, all private property - including oil wells and factories - was confiscated. The Republic's entire oil industry was subsequently directed toward the purposes of the Soviet Union, including a tremendous output of oil for the World War II effort.
Since becoming independent in 1991, Azerbaijan has attracted significant international interest in its substantial oil and natural gas reserves. Foreign investors are helping the country to develop its rich oil and natural gas reserves in the Caspian Sea basin. Completion and expansion of new pipelines should allow Azerbaijan to become a significant energy exporter over the next decade. This development has not come without a cost in that serious environmental problems are associated with oil production in the region.
Asbrink, Brita. The Nobels in Baku: Swedes' Role in Baku's First Oil Boom, Azerbaijan International, Summer 2002.
Azerbaijan Country Energy Profile, Energy Information Administration, U.S. Department of Energy.