The Power Beneath the Caspian: Baku’s Oil and Its Impact on Tsarist Russia
Long before Pennsylvania or the Middle East became synonymous with the oil industry, Baku already drilled its first oil wells. In the late nineteenth century, the port of Baku on the Caspian Sea supplied more than half of the global oil output and stood at the center of a new energy era. Later on, oil would be replacing coal as a major fuel source that would power lamps, factories, and new technologies that would reshape modern life. Despite its enormous influence, Baku’s story is often overlooked in favor of the better-known narrative of the American oil boom in Pennsylvania.
It was in Baku, in 1846, that the first mechanically drilled oil well was completed. From that early experiment grew an industry that attracted investors, engineers, and workers from across the Russian Empire and beyond. The city’s oil-fueled factories and railways reshaped the imperial economy and helped modernize Russian industry. More than a decade later, in 1859, Edwin Drake drilled the first successful oil well in the United States at Titusville, Pennsylvania, proving that oil could be produced on a large scale and marking the beginning of America’s own oil boom.
Yet the same forces that brought prosperity to Baku also exposed the city’s deep structural flaws. Bureaucratic inefficiency, dependence on foreign capital, and widening social inequality took root alongside rapid development. This article examines how the oil industry transformed Baku and imperial Russia, the challenges it created, its vital role during the First World War, and the reasons for its eventual decline.
Oil was not a new discovery in Drake’s time, it was an old source taking on a new meaning. Oil had long seeped naturally to the surface in various parts of the world, and ancient civilizations in Mesopotamia and China had already found uses for it—from medicinal remedies to waterproofing materials.
Initially, the Baku oilfields were under direct control of the Russian state, which lacked both the technical knowledge and administrative capacity to manage them efficiently. The state monopoly hindered growth through an unproductive lease system and poorly run enterprises.
Only after the 1872 privatization reforms, when oil-bearing lands were sold at public auction, did Baku’s oil industry take off. This shift toward private enterprise marked a turning point, attracting local entrepreneurs and foreign investors. By the 1880s, Baku had surpassed the United States to become the world’s largest producer and Europe’s principal supplier, transforming the city into the “Black Gold Capital” of the Russian Empire.
Once private ownership replaced state control, the oil industry entered a period of remarkable expansion. The most famous foreign investors were the Nobel brothers and later the Rothschilds, who played a pivotal role in modernizing production. The Nobels introduced technical innovations such as advanced refining methods and built one of the world’s first oil pipelines, which dramatically reduced transportation costs and spillage. The Rothschilds, in turn, provided large-scale financial backing and access to Western markets, connecting Baku’s oil to European trade networks.
Unusually for the Russian Empire, the oil sector operated under relatively liberal economic policies, allowing for open competition and foreign investment. These conditions led to a rapid surge in output. By the mid-1880s, Baku had driven American kerosene out of Russian markets, and the city became a hub of industrial globalization.
Infrastructure expanded rapidly: railroads, refineries, and shipping facilities connected the oil fields to ports on the Caspian and beyond. Specialists from Germany, Sweden, and Britain arrived to implement new technologies, while thousands of workers from across the empire sought employment in this industrial frontier.
Baku’s prosperity, however, came at a profound environmental and human cost. The renowned chemist Dmitri Mendeleev, who visited the oilfields, sharply criticized the reckless extraction methods and “blind imitation of American practices.” Wells were often drilled hastily, resulting in frequent gushers that flooded the surrounding terrain with oil. Massive spills poisoned the soil, while the runoff coated nearby lakes and the Caspian Sea in layers of waste. Vegetation perished. The environmental toll was compounded by social inequality. Working conditions were harsh, with long hours, low pay, and dangerous environments being common. Wealthy oil magnates built mansions that towered over crowded workers’ quarters.
By the early twentieth century, Baku’s oil was indispensable to Russia’s economy and military. It powered vehicles, aircraft, locomotives, factories, and heating systems across the empire. Yet despite its importance, the industry’s infrastructure remained fragile and heavily dependent on foreign expertise and imported equipment.
When World War I erupted in 1914, Russia’s supply lines were cut off. The lack of imported machinery and spare parts led to sharp declines in refining and transportation capacity. Production fell dramatically, and the resulting fuel shortages crippled military logistics and urban industries alike.
Baku’s oil wealth, paradoxically, became a strategic weakness. The empire’s dependence on a poorly managed, foreign-supported energy system exposed its vulnerabilities. As the crisis deepened, shortages contributed to economic collapse, undermining the Tsarist regime and fueling the revolutionary movements that culminated in 1917.
After the First World War, Baku’s dominance rapidly faded. The twin blows of revolution and civil war devastated the oilfields, machinery was destroyed, skilled labor fled, and foreign investors withdrew. The industry’s infrastructure fell into disrepair, and production plummeted.
Later, when the Soviet government nationalized the oil industry, Baku lost its commercial autonomy and much of its international capital. Although it remained an important regional producer within the Soviet system, it never regained its nineteenth-century global prominence. The “golden age” of Baku’s oil was over, leaving behind a complex legacy of technological achievement, environmental damage, and political transformation.
Baku’s oil story is one of both progress and paradox. The city’s early innovations reshaped global industry and powered an empire, yet they also revealed the costs of modernization without sustainability. The 1846 well marked the dawn of the petroleum age; the 1872 privatization reforms unleashed entrepreneurial energy; and the Nobel and Rothschild enterprises made Baku a hub of international capitalism. But environmental devastation, social inequality, and political instability ultimately eroded the foundations of its success.
Baku’s rise and fall demonstrate how energy can drive both industrial growth and systemic vulnerability.