Origins and Evolution of the Oil Industry in Azerbaijan

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The Absheron Peninsula, where Baku is located, has always been famous for its 'eternal fires', produced when underground gases rise to the earth's surface and ignite. Members of the ancient Zaroastrian religion would worship such fires. Despite local knowledge of the value of Azerbaijan's oil reserves more than 2000 years ago, the first reliable information about oil extraction in the Absheron peninsula dates to the 7th and 8th centuries, when it was extracted using primitive methods.[1]

In the 9th century Arabian historian Masudi-Abdul-Hussein identified two main sources of black oil and white oil (kerosene) on Absheron, and later in the 14th century famed Venetian traveller Marco Polo indicated that oil from Baku was being exported to Near Eastern countries. In 1647 Turkish traveller Evliya Chelebi travelled to the city and noted that from ancient times the political and economic life in the region had been closely tied to oil. And in 1837 the first oil distillery on the Absheron Peninsula began operating in Balakhani.[2]

Eleven years before the first American oil well was drilled in Pennsylvania, the first oil well in the world was drilled in Absheron (Azerbaijan) in 1847, using a primitive percussion driling mechanism. The very first oil refinery was also built in Baku in 1878, laying the groundwork for the first Oil Boom period.[1]


Baku's First Oil Boom (1885-1920)

The rapid development of the oil business on the Absheron Peninsula during the late 19th and early 20th centuries made Baku the main industrial centre in the Caucasus.[3] At the turn of the 19th century, approximately half of the world's total oil output was produced in Azerbaijan.[4] and Baku soon came to be known globally as the 'Black Gold Capital'.[5] This prompted a massive inflow of skilled workers and specialists into the Azerbaijani capital.[6] The city's oil barons sought out the best scientific advice from figures such as Russian chemist Dmitri Mendeleev, and innovative new techniques such as rotary drilling and and gas lift were tested for the first time in Azerbaijan.[2] While initially 'blow outs' accounted for a large proportion of oil production in Azerbaijan, this percentage fell from 42% in 1887 to only 10.5% in 1890. Blowouts were considered a very uneconomical and environmentally harmful process. The oil producing regions at this time were clustered around Baku at Sabunchi, Surakhani and Bibi-Heybat. Until the early 1900s, the Sabunchi region produced 35% of Baku's oil and the Bibi-Heybat region another 28%.

With the arrival of key investors such as the Nobel brothers and the Rothschilds at the beginning of the 20th century, the inflows of capital led to a significant increase in oil production and the rapid growth of service industries supplying the sector.[7] This period of growth left a powerful mark on the architecture of Baku, thanks to the administrative, social and municipal institutions established and the luxurious palaces and residents built by the oil barons.[8]

The Nobel Brothers

The Nobel family are among the most prominent foreign investors in the Azerbaijani oil industry throughout its history, and they played a key part in the first oil boom period. Brothers Robert and Ludwig established the Nobel Brothers Oil Extracting Partnership, contributing a great deal to technological advances in the sector. In 1887 the brothers bought the first oil tanker in the Caspian Sea for transport, which eventually grew to an entire fleet. In 1878 they also built a pipeline which reduced transportation costs five fold, and pioneered the use of iron reservoirs for storage of oil.[8]


  1. 1.0 1.1 Analysis of Azerbaijan Oil and Gas SectorUSAEE, retrieved 25 July 2012.
  2. 2.0 2.1 Azerbaijan's Oil History: A Chronology Leading up to the Soviet EraAzerbaijan International, summer 2002.
  3. Baku Baron Days: Foreign Investment in Azerbaijan's OilAzerbaijan International, summer 2004.
  4. AzerbaijanBaker and McKenzie, retrieved 25 July 2012.
  5. The History of Oil in AzerbaijanAzerbaijan International, summer 1994.
  6. The Caspian Oil ReservesStanford University, winter 1993.
  7. Azerbaijan's Oil History: A Chronology Leading up to the Soviet EraAzerbaijan International, summer 2002.
  8. 8.0 8.1 Azerbaijan's Oil History: A Chronology Leading up to the Soviet EraAzerbaijan International, summer 2002.