Saturday, April 18, 2015

Ludvig Nobel and the Baku Oil Industry

The 18th century saw a boom in the oil industry. The United States dominated the industry with its leading company, Standard Oil. But it faced competition from the other side of the world – Russia. The oil city of Baku challenged American domination of world’s oil supply. In this city, it saw the rise of another member of the Swedish family Nobel – Ludvig or Ludwig Nobel.

Born on July 27, 1831, Ludvig Nobel was the son of Immanuel and Adrietta Nobel. In 1837, the Nobels moved to Russia and Immanuel started his arm manufacturing business. Sadly, it did not become successful and became bankrupt within two decades. But his failure in business did not meant failure as a father. His sons, Alfred and Ludvig became successful. Alfred became a successful chemist and credited with the invention of dynamite. Ludvig on the other became a successful businessman. He revived his family business and started receiving contracts from the government. But their third brother, Robert seemed to lack his brothers’ successes. He attempted to start his own business but it failed. With this failure, he had to work for his brother Ludvig for a living. In 1873, Ludvig received a contract from the Russian army to manufacture rifles. Ludvig accepted it and sent Robert to Baku to purchase walnut lumber for rifle butts. When Robert arrived in Baku, he saw the city on the verge of an oil boom.

Baku in the 1870’s saw the rise of the large scale exploitation of oil. Even during the time of Marco Polo, Baku had beoame well-known for its oil that seeped out from its lands. In the early 1800’s numerous hand-dug oil pits operated. But in 1857, the first oil refinery opened in Baku. And with the rise of kerosene, oil suddenly became black gold. In the 1860’s refineries and mechanically dug oil wells began to rise in numbers when the Tsar allowed foreign investments to enter the region. Baku began to rise in prominence.

In 1873, when Robert went to Baku, word reached him about the growing oil industry in the city. The captain of the ship he boarded for Baku told stories of oil in Baku. The captain told Robert about his piece of land with oil and his refinery. Curious and possibly with his business mindedness, he decided to use the 25,000 rubles supposedly allocated for walnuts to purchase the captains land and refinery. Eventually, Robert’s gamble paid off, and he started to make money.

After two years, in 1875, Ludvig arrived in Baku to join with his brother Robert in the oil boom. He saw Robert’s profit and saw a potential in the oil business. The brothers then founded the Nobel Brothers Association, later known as the Tovarishchestvo Nephtanavo Proisvodtsva Braitiev (Nobel Brothers Petroleum Production Compay) or known as the Branobel. Ludvig brought drillers in order to assist in drilling new oil wells using steam engines in the Abseron Peninsula. Ludvig then increased production and the distribution reach of Branobel. By the following year, Branobel shipped their first kerosene to the Russian capital of St. Petersburg.

Ludvig proved to be a dynamic, innovative, calculative, and most importantly, efficient businessman. Under his guidance, Branobel became the first oil company to make the position of professional petroleum geologist, an important position in order to find new oil wells. As an employer, Ludvig showed great care to his workers. Unlike other businessmen or capitalist of his time, Ludvig’s treatment of workers became exemplary. He did not allowed child labor. He reduced working hours to 10 and a half hours, although long, other toiled in difficult working conditions for more than 12 to 14 hours. He also provided medical care and technical training. He also gave elementary education to the children of his workers. Other than that, he provided banking services to his workers. His workers then respected and vowed their loyalty to Ludvig and Branoble. They proudly labelled themselves as the Nobelites.

Besides better working conditions, Nobel showed his creative mind in improving Branobel and even the whole Baku oil industry. For example, back then, either in railroad or in barges, producers transported oil in barrels. But Ludvig found ways to improve and even to increase the volume of oil being transported. For railroads, Branobel began to use special railroad wagons called cistern cars, wagons outfitted with tanks to carry oil or kerosene. By sea, in 1877, he ordered the construction of the first oil tanker – the Zoroaster. And in 1878, it began its service to Branobel and had the capability to haul 750 tons of oil.

Besides tanker and cistern cars, Ludvig also borrowed ideas from other oil industries – most especially from the American oil industry. News of the pipelines in Pennsylvania got the attention of Ludvig. He saw it as a way to lessen expenses in transportation via wagon carriers and trains. And so, during the mid-1870’s, he ordered the construction of the first pipeline in Baku. But the construction of the pipeline faced enormous difficulty. Wagon drivers opposed the pipeline for its implications to their livelihood, it will knock them out of the oil business. Local officials also disagreed with the pipelines. Ludvig had to ask and convince the officials in St. Petersburg just to make the Baku officials agree to the planned pipelines. The pipeline opened in 1878, measuring about 12 km and powered by steam engines. With Ludvig’s initiatives and creativity, he made Branobel a major oil company in the Russian oil industry and even in the world stage.

But Branobel’s success caused a rift between Ludvig and Robert. Robert disagreed with his brother’s interference in a business that he started. He felt astray from his brother’s very active participation in the business. In 1879, they incorporated Branobel. Robert in dismay sold his shares to Ludvig and left Russia for Sweden. Ludvig then continued the business and aimed to compete globally.

Off course, Branobel faced serious competition from other ambitious and aggressive competitors. One centered also in Nobel’s turf – Baku. The Rothschild competed with the Nobels in the domination of the Baku oil industry. In the 1883, a Rothschild, Alphonse de Rothschild, financed the Baku-Tblisi-Batumi railroad. A year later, it bought the bankrupt company that operated it entered the Baku oil industry. It challenged the supremacy of the Nobels in Baku and also the domination of the European market. But other than the Rothschild, the other challenge it faced came from Russia’s rival in the oil industry – the United States. John Rockefeller’s Standard Oil controlled the majority of the oil refineries and wells and had a monopoly. Rockefeller also had a huge share in the global oil trade and he intended to keep it. When the Nobels and Rothschild threatened Standard’s control of the European market, Rockefeller attempted to stop them by or profit with them by negotiating. Rockefeller sent W.H. Libby to talk to Ludvig to allow Standard Oil to buy shares of Branobel. Ludvig, however, wanted to break Standard Oil’s domination of the world’s oil and declined the offer. As a result, Standard Oil began a war with Branobel. It set up offices in Europe and began dropping prices. Nobel did not back down and fought with Standard Oil for European oil market.

But the competition and stress of the prices took a toll in Ludvig’s health. His health went to a serious declines. Three years later in 1888, Ludvig Nobel passed away, leaving Branobel to the capable hands of his son Emmanuel who led the company through turbulent times until in 1920, when the Soviet government nationalized Branobel. Ludvig Nobel earned the admiration of many and led him to be known as the Rockefeller of Russia. He showed ingenuity, creativity, and energy which every great and successful businessmen should have in order to succeed.

See also:

Travin, Dmitry & Otar Marganiya. "Resource Curse: Rethinking the Soviet Experience" in Resource Curse and Post-Soviet Eurasia: Oil, Gas, and Modernization. Edited by Vladimir Gel'man & Otar Marganiya. Lanham, Maryland: Lexington Books, 2010.

Vassiliou, M.s (ed.). Historical Dictionary of the Petroleum Industry. Lanham, Maryland: Scarecrow Press, Inc., 2009.

Yergin, Daniel. The Prize: The Epic Quest for Oil, Money, and Power. New York, New York: Simon & Schuster, 1991.

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