On May 19, 1922, commenting on the collapse of the conference, the French newspaper L’Internationale stressed that “the failure of the Genoa conference is due entirely to the fight between Royal Dutch and Standard Oil. The conference participants are not interested in the question of rebuilding Europe; they need only Caucasian oil.” The German paper Neue Freie Presse, reporting along the same lines, wrote that: “It is extremely important for Great Britain to gain a monopoly over Caucasian oil, mainly because the English merchant marine is switching more and more to petroleum fuel.”
The day after the conference ended, May 20, Izvestia wrote: “One thing is clear: the question of Russian oil was at the focus of all the behind-the-scenes intrigue at the Genoa conference. And the conference was killed primarily by the tacit interference of America, which is to say, of Rockefeller, the head of its oil trust. The second act of this oil tragicomedy will play out in The Hague. All other issues, right up to the question of our recognition of foreigners’ private property, are only secondary sideshows compared to oil. That isn’t the point; the discussion is about oil and only oil—the insiders know this—and oil is our main trump card.... And while Royal Dutch Shell has not yet signed a contract with us, they will. They or another trust; in the end, we don’t care. But they are the supplicants, not we.”
The Hague International Financial and Economic Conference that followed took place from June 15 to July 19, 1922, drawing delegations from the same nations as had attended the Genoa conference two months earlier. The Entente delegations again stubbornly tried to force the RSFSR to recognize the debts of the tsarist government, return nationalized businesses to their former foreign owners, and grant restitution of nationalized property as the sole form of realistic compensation.
Guided by the principle of equality among nations, the Soviet delegation defended the same position as it did in Genoa. The Entente representatives were told of Soviet Russia’s willingness to discuss demands provided the country was granted credits for restoration of the economy destroyed by the anti-Soviet imperialist intervention of 1917— 1922 and blockade, and the question of the repayment of war debts was taken off the table. Once again, the Soviet delegation presented a list of businesses that could be granted to their former foreign owners under concession or lease arrangements. As for private property, there would be no discussion of any mass restitution, although the Soviet delegation stated a willingness to discuss compensation on a case-by-case basis.
Further negotiations showed a general reluctance by participating nations to grant credit to the Soviet government. The implacability of the former foreign owners regarding restitution of oil fields and businesses ultimately forced the Hague Conference to a dead end.
At the last session, on July 19, 1922, RSFSR Deputy People’s Commissar for Foreign Affairs Maksim Litvinov (1876–1951) reiterated the Soviet government’s willingness, in principle, to repay its prewar debts and realistically compensate those foreigners who previously owned property in Russia and would not receive satisfaction through concessions by offering them profitable participation in joint ventures. However, in the end, the total unwillingness of the Western representatives to budge on oil restitution, and their unwillingness to continue The Hague Conference on a constructive basis, forced it to adjourn without achieving any positive results.
Soviet political leaders learned serious lessons from the experience, however, which were reflected fairly quickly in tactical changes by Soviet representatives in establishing mutually profitable economic relations with leading Western countries. Within a year after the Genoa and Hague conferences, Soviet Russia had concluded economic agreements with 14 European countries, in which the delivery of Soviet petroleum products to the European market played a far from minor role.
The First Successes of Soviet Russia’s Oil Strategy
After years of civil war and several transitions to rule by different political forces, the Soviet Russian oil industry region was in a difficult position. By early 1921, only 960 production wells were operating on the Absheron Peninsula, versus 3,500 in 1913. The volume of oil refined had also fallen to 110,000–165,000 tons, down from 275,000 in 1918. The situation in the Grozny oil region and the Kuban region was no better.
These difficulties were magnified by an “oil blockade” of Soviet Russia created by the combined efforts of several Western governments and leading corporations.
In a prescient interview in the March 1922 issue of Ekonomicheskaya zhizn [“Economic Life”], People’s Commissar Leonid Krasin noted the beginning of the collapse of the economic blockade of Soviet Russia as a result of trade treaties with Great Britain and Germany. He added that: “The same fate also befell the oil blockade, which the former oil owners tried to organize when we exported oil reserves.” Speaking further about the issue of oil exports, Krasin emphasized the importance of “the creation of special export agencies, which will supervise the export of critical products abroad.”
Likewise, RSFSR State Planning Committee [Gosplan] specialists assumed, in early 1922, that “Russia can export petroleum products and crude oil worth about 160 million gold rubles at current prices in 1925, and up to 500–600 million gold rubles by 1932.... Thus, we must export the maximum possible amount of crude oil and petroleum products, both to obtain critically necessary hard currency and to improve our fuel supply.”
Still, there were plenty of skeptics on the other side, voicing their doubts at the top of their lungs. For example, in an article in the Financial Times of May 10, 1922, the noted English businessman Leslie Urquhart, who had worked for many years in Russia, expressed frank skepticism regarding the restoration of the Russian oil business: “1) The Russian oil fields cannot export crude oil abroad; 2) In order to restore production even to the low level of 1917, they will have to begin by drilling new wells, which has not been done for five years; 3) This operation will require outlays amounting to at least £20 million, not to mention major outlays required to bring the fields back to their former condition; 4) Even if the 1917 production level is achieved, all production will be absorbed by Russian transportation and industry. For many years, Russia will remain an oil importer, not an exporter.”
However, the pessimistic forecasts of Western specialists would soon receive a convincing answer. In the early 1920s, the Soviet authorities, having achieved notable successes in the domestic and foreign policy arenas, diverged from the policy of war communism, with its militarized foundations, and began to implement the New Economic Policy (NEP). The principal characteristic feature of the NEP was the use of a series of market methods of management in a government-controlled economy. The main objective of the NEP was to revive the damaged economy and as a result, to restore it more quickly. In the same period, the administration of the oil industry was restructured through the so-called “trust reform.” To manage the biggest businesses, the Soviets created trusts—Azneft, Grozneft, Embaneft—which operated on a self-sufficient basis. Furthermore, in early March 1921, a segment of the Baku-Batumi pipeline to Tiflis was restored, considerably accelerating the export of petroleum products. It delivered its first batch of kerosene on May 22, 1921.
On March 21, 1922, the RSFSR Council of People’s Commissars began requiring all customers to pay for petroleum products. Using the newly formed state trusts, the Soviet government attempted to fully control the domestic and foreign markets, not allowing excessive unraveling of market relations, and eliminating competition within the industry.