Oil of Russia

And indeed, even under conditions of limited sovereignty, the “independent” Soviet republics of Azerbaijan, Armenia, and Georgia would not have long to live. In November 1921, at Lenin’s recommendation, the Politburo adopted a resolution: “1) That the Federation of Transcaucasian Republics be deemed in principle absolutely correct, and certainly subject to implementation...; 2) That the Central Committees of Georgia, Armenia, and Azerbaijan (through the Caucasian Bureau) be invited to raise the question of federation more broadly for discussion among the Party and worker and peasant masses, and that federation be energetically promoted and carried out through congresses of the Soviets of each republic.”²⁵

On March 12, 1922, a conference of representatives of the Soviets of Georgia, Armenia, and Azerbaijan in Tiflis created the Federal Union of Soviet Socialist Republics of the Transcaucasus (the Transcaucasian Federation). Subsequently, in early October 1922, a Plenary Session of the RCP(b) Central Committee discussed the question of combining all the Soviet republics into a single state. On December 30, 1922, the Congress of Soviets adopted a declaration forming the Union of Socialist Soviet Republics.

Once Soviet rule had been established throughout the Transcaucasus, an unimpeded path for Baku crude was opened to the world market. Soviet control over this key region brought immediate results: while 320,000 barrels of petroleum products were exported in the period from December 1, 1921 to May 1, 1922, the export volume jumped to 814,000 barrels in the period from May 1, 1922 to October 1, 1922.

Thus, by the early 1920s in the Transcaucasus, the leaders of Soviet Russia, using Caspian oil both as a priority goal and as an effective means of military-political reorientation of Azerbaijan, Armenia, and Georgia, had basically solved the main geopolitical problem of establishing and strengthening their dominant positions in the region.

Oil Concessions in the RSFSR: Plans and Reality

By the spring of 1921, it had become clear to the Bolshevik leadership that the beginning of the world revolution would be “somewhat delayed.” Accordingly, Soviet Russia was forced to consider substantial adjustments to its domestic and foreign policy. The latter became especially critical as the RSFSR found itself encircled by an “imperialist blockade.”

As oil was one of Soviet Russia’s key commodities, it naturally played an important role in the strategic plans of the Soviet leadership. In early February 1921, the RCP(b) Politburo focused on a review of the problems of the oil industry, primarily from the standpoint of the practical realization of the oil concession policy in the RSFSR. In a memorandum presented at the meeting, People’s Commissar for Foreign Trade Leonid Krasin (1870–1926) noted the most important point up front: “Salvation is possible only through a very strong and decisive policy, which should consist of granting, to three or four major syndicates competing on the world market, as well as the governments of Italy and perhaps France and Belgium as well, attractive enough areas in respectable parts of Baku District and especially Grozny District.”

A resolution of the Politburo of the RCP(b) Central Committee adopted February 5, 1921 read: “On oil concessions: a) Comrades Krasin and [Deputy Chairman of the Labor and Defense Council Aleksey] Rykov are directed to submit to the Central Committee Politburo within three days— over their own signatures and those of responsible specialists—a precise formulation of specifically how, when, and for what reasons a catastrophe looms in the operation of oil fields in Baku and Grozny, and to give their thoughts on why and to what extent granting concessions could prevent this catastrophe. The report of the specialists must be transmitted secretly to obtain the opinion of local Baku and Grozny executives and workers, a list of whom will be drawn up at an upcoming meeting of the Politburo.”²⁶

We should note that several days later, on February 14, 1921, the RCP(b) Central Committee Politburo continued their discussion of the status of the oil industry and steps to turn it around. As in the past, the problem of transportation was critical, so a decision was made to order 500 Canadian and 1,000 English tank cars. The situation was also dire with the tanker fleet: in 1920, the Caspian oil fleet consisted of only six motor vessels, 52 steamers, and 14 scows. Thus, oil shipments via the Caspian Sea and Volga basin were equated to “super-priority military operational” assignments and serious steps were thereby undertaken to increase the volume of seagoing and inland petroleum products shipments.

On the evening of March 8, 1921, speaking at the opening of the Tenth Party Congress, Lenin declared the importance of oil concessions: “The Central Committee, and I personally, have come to view these concessions as necessary, and we will ask you to support this view with your authority. This alliance with state-owned trusts of other leading countries is absolutely necessary for us because our economic crisis is so deep that we cannot revive the damaged business by our own efforts without equipment and technical assistance from abroad.”²⁷

The position of the Soviet head of state was reflected in a resolution, which read: “1. The Congress approves the policy of Soviet authorities aimed at establishing normal trading relations between the Soviet republic and other countries by the execution of trade treaties and agreements. 2. The Congress also approves the Council of People’s Commissars decree of November 23, 1920 on the general economic and legal terms and conditions of concessions.”²⁸

Four days later, relying on the opinion of the Party’s majority, Lenin sent a telegram to Krasin in London: “The Party Congress has approved the line I proposed on concessions in Grozny and Baku. Expedite negotiations on this and on any other concessions. Send frequent updates.” People’s Commissar for Foreign Trade Krasin was in London at that time as the RSFSR’s official representative in Great Britain and had already signed the first Soviet-British trade agreement.

Nine days later, on March 28, 1921, Krasin received a directive that not only implied the complete acceptance of his February proposal on helping the Baku and Grozny oil fields find a way out of the acute crisis, but also gave him a certain freedom of action: “Basic provisions of oil concessions: 1. The concession term to be set at 25 years with the right of early buy-out after 15 years. 2. The following areas are to be offered for concession: a) the entire Bibiheybet oilfield area in the Baku District, not including offshore parts of Baku Bight; b) the entire western half of the Old Grozny oil area, approximately up to the meridian of Mamakayev Gorge; c) 80 desyatinas [220 acres] in the area of Solënaya Gorge in one section; d) the entirety of the Chermoyev lands in the New Grozny District. 3. Payment for concessions to be made by proportional deductions from gross productivity. The proportional deduction is to be about 3% for Bibiheybet, and about 40% for Grozny District. The annual minimum production, beginning from a specific date stated in the contract after the acceptance of the concession, is to be set at 90 million poods [10.8 million barrels] for Bibiheybet, and 50 million [6 million] for Grozny. 4. A condition for the concession of Bibiheybet, over and above the proportional deduction, is the delivery of necessary equipment for electrification of fields in Baku District and laying of a 10-inch oil pipeline from Petrovsk to Moscow. A condition for the concession of Grozny, over and above the proportional deduction, is the delivery of equipment for a paraffin refinery with a refining capacity of 100 million poods [12 million barrels] of crude oil and laying of a 10-inch oil pipeline from Grozny to Moscow. Both the oil pipelines and the refinery and the electrical stations, upon construction, shall be at the disposal of the RSFSR government. 5. Raw and ancillary materials shall be provided to the concessionaire by the RSFSR government under a special agreement applicable to foreign market prices, taking account of the difference in the cost of transportation. (We regard the above terms as illustrative, to give an immediate basis for the beginning of specific negotiations; we emphasize in particular that we will make specific concessions provided the paraffin refinery and oil pipelines are built and equipment delivery is expedited.)”²⁹