Once Neftesindikat’s export successes became obvious and indisputable, this aspect of its operation was codified. A VSNKh order dated September 12, 1923 determined that “the Syndicate is the monopoly for the sale of oil, both on the domestic and foreign markets, reporting directly to the USSR VSNKh as represented by the Main Administration for Fuel [GUT].”
With every passing year, the volume of Soviet oil exports rose exponentially. Whereas the Soviets exported 1.2 million barrels of petroleum products in 1921–22 to only five countries, by 1922–23, over 2.4 million barrels of Soviet oil was being exported to 13 countries. Thus, the battle for “a place in the sun” on the European and world markets intensified.
The success of Neftesindikat’s operations enabled the USSR to obtain considerable hard-currency income, which the country needed badly at the time, thus cementing the importance of crude oil and petroleum products exports in the minds of the Soviet political leadership.
Aleksandr Serebrovsky’s Trip to the USA
A significant contribution to restoring and accelerating the industrialization of the Soviet oil industry was made by the engineer Aleksandr Serebrovsky (1884–1938), an outstanding production organizer.
In 1911, he completed the full curriculum of the Brussels Polytechnic School and received a degree in mechanical engineering. Upon returning to Russia, he worked in various engineering jobs. In May of 1920, the RSFSR Council of People’s Commissars (CPC) sent him to the Absheron Peninsula to head Azneft, one of the newly created conglomerates of nationalized enterprises.
At that time, the oil industry of Soviet Russia was in an extremely serious position: its 1920 oil production total of 4.243 million tons was significantly less than the prewar volume of 10.147 million tons produced in 1913.
Serebrovsky warmly welcomed the transition from war communism to the New Economic Policy, since the NEP’s initial phase gave society certain hopes for positive change, including the accelerated recovery of the domestic oil industry. The basic principles of the NEP proposed giving limited independence, based on cost accounting, to commercial entities, which defined a type of “corridor of economic freedom.”
Serebrovsky’s strategy for restoring and modernizing the Russian oil business focused on the creative use of advanced foreign know-how, primarily American, on the assumption that Russia had the necessary technical and production culture to adopt American innovations in the oil industry. He was striving, through the use of the latest American technologies, to realize his strategic plans of converting Azneft into one of the most competitive oil companies in the world.
His business trip to the US in the second half of 1924, which lasted several months, played a decisive role in the realization of these plans.
The organization of his visit was one of the first successful transactions of the Soviet-American joint-stock company Amtorg (American Trading Corporation), which was created on May 27, 1924 and registered under the laws of the state of New York. This company was headed by Isay Khurgin (1887–1925), an experienced trade representative who simultaneously occupied the post of authorized representative of the USSR People’s Commissariat for Foreign Trade in the US.
Aleksandr Serebrovsky first set foot on American soil on July 29, 1924. The very next day, accompanied by Amtorg employees, he visited the central office of the Standard Oil Company of New York located on Battery Square in downtown Manhattan. During the negotiations, Walter Teagle, a Standard Oil executive director, showed great interest in cooperating with one of the highest directors of the Soviet oil industry and agreed to allow Serebrovsky to visit the company’s main oil fields and refineries without restrictions. Moreover, hoping to deepen and develop business relations, Teagle even expressed willingness to help the Soviet representatives purchase modern oilfield equipment. All this pointed to a sea change in the American oil giant’s steadfast position over the preceding two years, and in their subsequent relations with Soviet Russia, Standard Oil decided to pursue the convincing example set by their main competitor, Sir Henri Deterding of Royal Dutch Shell.
Aleksandr Serebrovsky’s main obstacle in acquiring American oilfield equipment, however, was the question of payment. At the time, Azneft did not have the necessary foreign currency resources and was totally unable to get credit from foreign banks. Nor could Standard Oil’s Teagle even give guarantees to equipment suppliers; in the American framework, this was viewed as granting Azneft long-term credit. According to Teagle, the question of payments could be decided only by the elder John D. Rockefeller, the founding father of Standard Oil Company, who in those years only involved himself in the corporation’s business in exceptional cases. (Incidentally, at that time the company was the largest in the world: its market capitalization on January 1, 1924 was $1,037 billion, while that of Royal Dutch Shell was only $826 million.)
The Russian oil representative decided to take a chance and wrote a letter to Rockefeller requesting a personal meeting; to everyone’s surprise, Rockefeller consented. Serebrovsky described this meeting in his memoirs: “The old man almost always lived at one of his country estates. Having traveled about a hundred versts [66 miles] from New York, we turned into a park enclosed by a fence with beautiful gates. The house was rather simple, as were all its furnishings, comfortable and adapted to the habits of the old businessman. The old man received me in his room, where he was relaxing after work. He was trying not to seem aloof or untidy, as I was told. He showed the ability to smile and said that now was the time in his routine for relaxation, but that he knew me as a pleasant person to talk with and was certain that he would get even more relaxation from our conversation. He was very well-informed about things in Baku... and about our resources. He emphasized several times that they were willing to support Soviet industry on the condition that we be his allies.... I proposed two arrangements. First, he would give a letter of guarantee to his bank to pay our supplier invoices from future earnings on petroleum products.... Rockefeller thought for a long time, and then looked at me attentively and unexpectedly agreed. Second, he would give a letter to suppliers in which he would recommend us as buyers well known to him and recommend that we be given the same discount on invoices as Standard Oil. Rockefeller accepted this much more readily. It was around five in the afternoon, and tea was served. The old man poured tea for me, offered me cookies with jam, and then invited me to take a stroll. He walked quickly and for a long time, half an hour, and we went around the entire forest park. I was hardly able to keep up with him, and my leg ached. The two of us dined, and then he went to look at his mail, leaving me to spend the night since I did not ask to go to New York.... In the morning I was awakened before dawn. The old man was going on a stroll before breakfast and wanted to talk along the way.... After breakfast I bid him farewell and left.”
Serebrovsky later found out one of the reasons why Rockefeller agreed so quickly to the Soviet proposals. It turns out that the oil magnate had noticed that one of the low-cut boots worn by the Azneft director had a small patch on it, and he told his financial director: “This man can be trusted in debt. He is not a spendthrift, does not drink wine, does not smoke, and I like him.” According to Rockefeller’s relatives and close associates, he was very stingy and was impressed by modest and thrifty people.