The Nobels in Georgia: Oil, Pipelines & Geopolitics. Part II

In the 1870s, Russian industrialists Bunge and Palashkovsky began constructing the Baku-Astrakhan-Volga railway. Since the project was financially highly burdensome and the work was going quite slowly, Bunge and Palashkovsky contacted the French branch of the Rothschild family, which had been involved in the railway business for decades (the construction of the first railways in Europe were related to the Rothschild name). The family responded positively. Sensing the potential of these new sources of kerosene and oil, it was in the Rothschilds’ immediate interest to connect Baku to Batumi and use the latter as an extensive export route.

The Nobels, too, agreed to the idea. Ludwig wrote from Baku to his brothers Alfred and Robert in Petersburg: “From all the routes available for oil transportation from Baku, I recommend choosing the one through Georgia because of the friendship and mutual loyalty that has existed between the Georgians and Azeris for centuries. For us, foreigners, this factor is of considerable importance. Since all other routes involve much more danger, and because there are no such favorable conditions elsewhere except for both Baku and Tbilisi, I'm sure that we should choose exactly this route.” Finally, it was agreed to export hydrocarbons to Europe according to his plan, on the Baku-Tiflis-Batumi railway, for the completion of which the necessary 10 million US dollars were provided by the Rothschilds, who also distributed small credits for the creation of oil refineries in Batumi.

The Nobels were well aware they would not be able to cope with Europe’s biggest financial power. The Rothschilds’ interests were primarily in banking and investment, and less so in overall management. With the Nobels against such speculations, a clash in the two business ideologies was inevitable. The situation came to a head in 1881, when, after the assassination of Russian Emperor Alexander II, an imperial decree was issued prohibiting Jews from buying or renting any land in Russia. However, the law did not hinder the Rothschilds from carrying out their plans, and in 1883, the Baku-Tiflis Railway was opened. The Rothschilds also established the ‘Societé Commerciale et Industrielle de Naphte Caspienne et de la Mer Noire,’ better known by its Russian abbreviation – БНИТО (BNITO) for more effective competition with the Nobels.

With BNITO’s successes and its establishment as a number two on the Russian oil market, Batumi was transformed into a veritable business center. British ships converted into tankers transported kerosene and oil to Fiume and Marseille. The Rothschilds also owned the biggest factory in Batumi producing cases for oil and kerosene transportation. Their business activities were partly hindered by the imperial revocation of Batumi’s “porto franco” status in 1886. The city once again became a military port.

The Nobels avoided engaging in a life-or-death war with the Rothschilds. Alfred (living at the time in Paris) was well aware that his brothers could end up on the losing side, and on his initiative, a conference was convened in May 1884, in Paris, where the two families agreed to cooperate on vital business issues. It was in the Rothschilds’ direct interest to ship kerosene into Europe, which for decades had been a monopoly of the Rockfellers’ ‘Standard Oil’. This coincided with the Nobels’ interests too; therefore, their support for the enterprise was guaranteed. Ludwig also proposed selling part of the Branobel company shares to Rothschilds in order to buy with the received money ‘Batumi’s Oil and Trade Company’ from the Russian oil industrialists Bunge and Palashkovsky for 1.5 million Rubles. Ludwig also intended to build a new factory for the production of oil and kerosene transportation cases, and to lay a pipeline through the Surami Pass. Although the Nobels were quite confident in the success of the proposition, the Rothschilds refused. The ever ubiquitous Rockfellers, sensing disagreements between their two main rivals, entered the scene with the goal to further widen the gap existing between them by negotiating on the one hand with the Nobels, and maintaining close contacts with the Rothschilds on the other.

To effectively protect his company, Ludwig signed new contracts and reinforced his positions in Black Sea trade by bringing in a 286-feet-long tanker “Свет” (The Light) meant to ship 17,000 tons of kerosene to England. It was a huge blow to the Rockfellers’ Standard Oil’s positions. The company, which controlled 90% of America’s oil and kerosene export, considered England’s market as its monopoly. The Nobels’ product eventually took on 30% of England’s oil market, progress which was stunning considering the fact that several years before the percentage was only 4%.

It was also quite apparent for the Nobels that in order to successfully compete with such giant oil companies, it was vital to increase oil production output. Initially, additional transport cars were used, and several new refineries were built in Batumi, but it still could not provide the necessary output level. That is how the idea of constructing a pipeline came to the limelight.

The Surami Pass constituted the main hindrance for the pipeline. In 1883, Ludwig, during the works on the Baku-Tiflis Railway, offered to build the local authorities a pipeline. The authorities refused him the concession. The reason: the tsarist government feared the increased oil output and effective competition with the Rockfellers would make the Nobels put a higher price on still very cheap Baku oil. Ludwig founded in Baku the first syndicate and demanded to transport the oil through the four-kilometer-wide Surami Pass. The Russian chemist Mendeleev too was an ardent proponent of the project. Eventually, the construction began, but was only completed by 1903, constituting 835 kms of pipeline with 19 pumping stations. The construction was largely done by hand. Pipelines were connected with threaded clutches, and anticorrosive isolation was used for better protection. A telephone connection was also established long the main pipeline. Across the River Kura (Mtkvari), the pipeline was suspended on one of the railways’ bridges. Having the overall capacity of up to 900,000 tons of hydrocarbons per year, the construction of the pipeline consumed 400 tons of Alfred’s dynamite with the overall cost of the project reaching 12 million Rubles.

The Nobels built a large oil terminal in Batumi. Some of the tanks created by them are still visible today after nearly 120 years. With many residential houses built by them for the managerial staff, the main building served also as a headquarters of the consulate of the United Kingdom of Sweden and Norway in the Caucasus. One document dated June 5 1897, held in the National Archives of Georgia, attests to the approval by the local authorities of Gustav August Hager’s appointment as Vice-Consul of Sweden-Norway. Located on Leselidze Street in Batumi, the consulate was transformed in 2007 into the Nobel Brothers Batumi Technological Museum. Another interesting historical document is about the resolution of the Nobel Oil Society to open a third-grade private school in the “Black Town” (Baku) in 1886, as well as about the establishment of five scholarships in the name of Ludwig Nobel at the Baku Real School from 1890 onwards. The Nobels continued their activities and were constantly on business trips to Georgia until the end of the Tsarist rule in 1917.

Emil Avdaliani is a non-resident fellow at GeoCase (Twitter - @emilavdaliani)

By Emil Avdaliani

Oil freight train in Baku. Image source:

24 September 2020 17:01