The negotiations, which Krasin pursued right away, ran into a virtually insurmountable obstacle almost immediately. Henri Deterding, head of Royal Dutch Shell, as well as the leaders of several other firms including Petrol Grozny Ltd., expressed their willingness to take some of the Baku and Grozny oil fields in concession, and even to begin construction of a paraffin refinery and oil pipelines. However, they all demanded that the Soviet state not grant them just the lands defined in the “Basic Provisions,” but also those that they had bought from the former emigrant owners after October 1917.
On June 30, 1921, the Council of Labor and Defense adopted a resolution creating the Concession Committee of the Supreme Council for the National Economy, headed by Pëtr Bogdanov (1882–1939), who monitored the progress of negotiations in London as well. Despite the involvement of this new committee, after eight months, People’s Commissar Krasin still could not agree with a single major foreign oil company, even in principle, on the basis of the “Basic Provisions of Oil Concessions” received from Moscow.
In October 1921, however, hope seemed to appear—negotiations began with the Foundation Company, one of the biggest American construction companies, which had long cooperated with leading oil concerns, and was studying the possibility of participating in new projects after having completed a refinery in Mexico.
On October 19, 1921, Leonid Krasin reported to Moscow as follows: “Colonel Abbott, representing the Foundation Company, visited me yesterday on the Continent and informed me that his company is interested in building a paraffin refinery and Grozny–Black Sea oil pipeline, and construction on credit with payment in proportional deduction of the oil carried is possible. An indispensable preliminary condition, however, is the performance of engineering studies by the company’s American engineers, otherwise financiers and politicians would not be drawn to the project. I asked him to draw up a preliminary estimate for the dispatch of several American specialists, with second-level technical staff to be provided by us. I will send you the figures when I receive them. I accord the highest importance to this matter as the first serious business contact with extremely prestigious Americans. Please review the question as a matter of urgency and wire instructions. In case of a favorable decision, I believe a trip to America is possible in the immediate future.”30
Krasin received an answer 11 days later in the form of a specific decision by the RSFSR Council of People’s Commissars: “We agree to allocate up to $100,000 to pay for studies by the Foundation Company, provided our workers and specialists participate and all study requirements are communicated. We consider it hugely important to attract American capital to construction of a paraffin refinery and oil pipeline in Grozny. Please advance this matter with maximum speed and energy.”
However, information on the negotiations underway in London leaked into the local press, and subsequent negotiations suggested that the representatives of the Foundation Company had come under strong pressure from some third party. First, the American company unexpectedly abandoned its own proposal to build a paraffin refinery and oil pipeline, and then it limited its prospective activities to simply drawing up plans for those facilities. By early December 1921, the company broke off talks entirely.
On December 8, 1921, after receiving news of this from Krasin, the members of the RCP(b) Politburo discussed the turn of events and answered him the very same day, expressing their dissatisfaction in a rather harsh tone: “The Politburo is perplexed at your telegram of 12/8/21. 1) The question of oil concessions, previously formulated by you and discussed with your participation, was decided favorably by the CC. 2) At that time, you were also instructed to move the oil concession matter forward as energetically as possible. 3) We have received no specific proposals on oil concessions from you, so there can be no question of practical hindrance of the matter. 4) Now your telegram gives material for further discussion and includes no specific proposals. 5) The Politburo affirms its previous decision ordering you to move this matter practically forward as energetically as possible.”31
Meanwhile, on December 31, 1921, the first All-Russian Congress of Oil Workers opened in Moscow, drawing a more than representative group of industry workers. Among those attending were Mikhail Lyadov, head of the Central Oil Industry Administration of the Supreme Council for the National Economy; one Shteyngauz, head of the Central Shale Fuel Administration; Aleksandr Serebrovsky, manager of Azneft; Iosif Kosior, manager of Grozneft; and prestigious oil specialists Ivan Strizhov, Ivan Gubkin, and Vasily Frolov.
The congress’s resolution on the first agenda item, adopted on January 5, 1922, read: “Management of such a profitable business as the oil industry of Baku and Grozny must be a matter for the state itself; the granting of concessions to the operational fields in these districts must be recognized as unconditionally wrong.”
Despite such objections, Soviet representatives continued carrying out concession negotiations in London, and also began talks in Berlin with a group of German financiers led by the head of the well-known Deutsche Bank. The RCP(b) Politburo soon gathered again (also on December 31, 1921) to review reports from the Concession Committee. Concerning one report on oil industry concessions by State Planning Committee Chairman Gleb Krzhizhanovsky and Concession Committee Chairman Pëtr Bogdanov, an intermediate resolution was adopted deferring a final decision indefinitely, as had been done in the past: “d) The question of granting a concession to oil areas is deferred, requiring a precise formulation of an opinion opposite to that of the CC commission. Concrete proposals from Comrade Krasin in connection with negotiations shall be sent to the Politburo upon receipt; e) Comrade Smilga is directed to conduct negotiations with the Deutsche Bank without the right to make any final decisions without the Politburo; f) Comrade Smilga is asked to familiarize himself in advance with the status of negotiations being carried on by Comrades Krasin and Stomonyakov and to continue them in full contact with them. All materials must be delivered to Comrade Smilga.”32
On February 18, 1922, a session of the RCP(b) Politburo reconsidered this issue, and adopted the following resolution: “On oil concessions: a) The Supreme Council for the National Economy is directed to send Comrade Smilga a telegram reporting the dispatch of materials and departure of requested experts, stating that specific instructions will be given after Comrade Krasin’s arrival in Moscow, and recommend that Comrade Smilga speak with Comrade Krasin if there is a possibility of arranging a meeting with him in Berlin, but to continue negotiations for now; b) It is recommended that the People’s Commissariat for Foreign Affairs take the most energetic steps for the immediate departure of oil concession experts Ramzin, Strizhov, and Shibinsky for Berlin.”