Baku Had Its Origins as a ‘Nobel’ Venture

The Nobel brothers, Robert, Ludvig and Alfred – the latter is the inventor of dynamite and the father of the Nobel Prizes – were Swedish inventors, engineers and investors who operated mostly in Russia, where they filled a technological void from about 1860 until 1900.

Specifically, they had a machine factory in St. Petersburg and were producing oil in Baku, Azerbaijan – and the combination helped them to make a fortune.

In the Beginning

The oil in Baku started flowing in 1875, and in 1879 the brothers founded their oil company, Branobel, with the main activities in Baku – where any farmer who put his spade in the right place could become an oil baron.

The full name of the company was Petroleum Production Company Nobel Brothers Limited. The original Russian name, ratified by the tsar, was “Tovaristjestvo Neftjanovo Troizvodstva Bretjev Nobel.” The headquarters was in St. Petersburg.

The brothers expanded the operation – from the oil well and refinery to distribution with pipelines and tankers – and they set up petroleum storage sites around Russia and the rest of Europe.

The brothers also learned a lot from the United States, where the technology was way ahead of Russia. They often sent engineers to Pennsylvania to collect as much information as possible.

It was a breakthrough for the European energy market when the Russian steamer “Sviet” arrived in London in 1885, fully loaded with oil.

The brothers also invented new technology. A powerful engine for drilling and extracting oil was needed, and the brothers modified the steam engine and steam boiler to be adapted to use oil.

The distillation of the crude oil left a worthless residue, called masut. Ludvig Nobel then designed a new oil burner – and masut, with its high fuel value, came to be used in industry, steamships and railway operations.

Its economic importance for Russia’s industrialization was enormous.

A Growing Influence

In 1888 Ludvig died in Cannes on the French Riviera.

After his death, his sons Emanuel and Carl took over. Emanuel managed Branobel and Carl managed the machine factory in St. Petersburg.

One of Carl’s great achievements was to build an internal combustion engine that could run on oil – not on paraffin, as was previously the case. The factory displayed their new invention at the world exhibition in Chicago in 1893.

After Carl died in 1884, his younger brothers, Gösta and Emil, ran the machine factory.

In the autumn of 1888, Tsar Alexander III and Maria Fjordorovna, their family and ministers visited the Nobels in Baku. The tsar, who otherwise was always surrounded by both visible and invisible police, went around Nobel’s factories without a single policeman.

(On the return journey, however, the tsar’s procession was attacked by dissatisfied workers and about 20 travelers were killed.)

Emanuel acted on Tsar Alexander III’s invitation to become a Russian citizen – the only one in the Nobel family – and he later received the title of “His Excellency.” Emanuel remained unmarried and he became increasingly like a Russian prince, with a weakness for grand dinners and jewelry.

The greater part of Baku’s pipeline system was, by the turn of the century, owned by Branobel. Almost 60 percent of the oil transported on the Volga came from the Nobels’ factories. Branobel’s fleet was greatly expanded; boats and barges were adapted for the rivers and canal systems:

  • On the Black Sea, boats went from Batum, Novorossisk and Rostov to Russian harbors.
  • Via the Caspian Sea, oil was carried into Russia and on to Europe.
  • Oil was transported to Vladivostok and China, as far as Shanghai, by train and camel.

In the strong competition between the European oil companies, the Nobel brothers had a great advantage, and by 1916 Branobel had a dividend of 40 percent and was producing a third of Russia's crude oil, 40 percent of the refined oil and supplying two thirds of domestic consumption.

Comes the Revolution

Then, in February 1917, the Russian Revolution began, and the tsar abdicated his throne. In June 1918, the new Soviet regime nationalized all privately owned industry.

The Nobels were wanted capitalists, and as Emanuel was a Russian citizen he was forced to flee with his family. The Nobels traveled – disguised as peasants – by horse and cart for several weeks, helped along the way by their companies’ sales agents.

On Nov. 26, 1918, they reached Berlin. Back in Sweden, Emanuel renounced his Russian citizenship. He died in 1932.

The younger brothers, Gösta and Emil, stayed on, trying to save Nobel’s assets in St. Petersburg. Gösta attended a meeting in Moscow with the new Soviet central oil committee. The Bolsheviks’ intentions were to write a constitution for the oil industry with the state as owner and with the previous owners as technical advisers responsible for operation and deliveries to the state.

All the representatives for the oil industry refused to accept the proposals.

On Nov. 30, 1918, the two brothers were detained by the secret police, the Cheka. They were imprisoned, but, following negotiations, they were freed on condition that they would not escape.

Not long after, however, they sat on a train in a pitch-dark compartment filled with Red Guards. They made it to Sweden with the help of friendly Finns, and on Dec. 22, 1918, they arrived in Stockholm, where the rest of the whole Nobel family was gathered for Christmas.

The Final Years of Branobel

An industrial empire had been lost – not just their oil company and the machine-building factory, but also assets in companies in which they were part owners; oil companies, depots, tankers, shipping companies and oilfields.

The Nobels had no oil or funds for their European partners – all was left behind in Russia – and consequently, they had to sell the assets they had in Europe.

However, new opportunities arose.

In January 1919, American company Standard Oil had bought 11 exploration concessions in the still independent Azerbaijan, and was interested in more. The company inspected the Branobel plants in Baku and a price for half of Branobel’s shares was negotiated.

A preliminary contract was signed in Paris on April 12, 1920. The reward for Standard Oil to produce oil at low production costs and sell to the Mediterranean countries was so great that they ran the risk of buying a company that the Nobels perhaps no longer owned.

On April 28 the Bolsheviks arrived in Baku by train. The political situation was uncertain, but Standard Oil was pressing on with the deal – and in New York, on July 30, 1920 the final contract was signed. Half of Branobel’s shares were sold to Standard Oil and the Nobels’ fortune was secured.

After Ludvig’s two youngest sons, Emil and Gösta, died in 1951 and 1955, respectively, the Branobel oil company, established in 1879, was finally liquidated in Stockholm in 1969.

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Division Column-DEG Jeffrey Paine

Jeffrey Paine is DEG President for 2014-15.

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