On February 10, 1925, the USSR Supreme Council for the National Economy issued a decree, signed by its chairman, Feliks Dzerzhinsky, increasing the number of Neftesindikat employees abroad by three employees in France, six in Turkey, two in Sweden and Norway and two in Austria and Czechoslovakia. In addition, Neftesindikat opened new branches in Greece (six employees) and Finland (four employees).
Neftesindikat set up a joint company in Spain with Argus Bank of Barcelona, which had the exclusive rights to sell Soviet petroleum products in Spain, Portugal, and their colonies.
Trade with Persia also increased, and the export company Persazneft was created in July 1924. Persazneft was founded by the Russian-Persian joint venture Sharkom (which owned 34% of the company’s capital), Azneft (51%) and the USSR Trade Delegation in Persia (15%). Kerosene exports from Baku to Persia were already much higher in fiscal 1924–25 than the levels of 1913, and Persia soon became the USSR’s main trading partner in the East, accounting for roughly half of all Soviet foreign trade with Eastern and Asian countries.
In 1925, Soviet petroleum products enjoyed a roughly 8% share of the European market, and it seemed there would be a steady trend towards further growth. Starting in spring 1925, however, trade relations between the Soviet Union and transnational oil companies began to deteriorate significantly. Purchases of Soviet petroleum products by global oil monopolies, particularly of the most expensive commodities like gasoline, began to decline rapidly, while the role of independent companies and state-controlled Western European entities continued to grow. Soviet gasoline quickly reached a 10% share of the British petrol market, and it was sold without the involvement of the oil giants, which viewed Soviet gasoline as a threat to their monopolies and began actively using unfair methods of competition.
An extensive campaign was launched against Soviet petroleum products on the British market in late 1925 and early 1926 under the auspices of the British Association of Creditors of the Russian Empire, although the actual initiator of the campaign was the Royal Dutch Shell group. Articles on “predatory Bolshevik nationalization” and “oil stolen by the Soviets” reappeared in British newspapers. The Standard Oil Company, also wanting to prevent Soviet petroleum products from entering Western European markets, supported the anti-Soviet rhetoric of the British business leaders.
As a result of this campaign, exports of Soviet residual oil to Great Britain fell from 162,800 tons in fiscal 1924–25 to 50,800 tons in 1925–26. In 1926–27, Neftesindikat did not export a single ton of residual oil to Great Britain. Total residual oil exports from the USSR fell by approximately 10% in fiscal 1925–26. In the same fiscal year, however, Soviet petroleum products exports grew 7.8% in volume and 14.1% in value due to an increase in global prices.
However, the joint and coordinated efforts of Soviet diplomats and trade representatives in various European countries soon managed to calm the outburst of anti-Soviet rhetoric and the USSR’s position in world markets began to improve markedly. In December 1926, Neftesindikat signed a concession agreement with the Standard Oil Company of New York for the construction of a modern refinery on the Black Sea coast. Under the concession agreement, the Rockefeller-led company built a refinery in Batumi to produce kerosene and export it to Asian markets in India, Indochina, Indonesia, and other Asian and Far Eastern countries. The refinery opened on August 1, 1927 and produced 179,000 tons of kerosene during the first eleven months of operation, or 13,000 tons more than its designed annual production capacity.
Exports of petroleum products from the USSR surpassed 2.2 million tons in fiscal 1926–27, up by more than 25% from the previous year. Total residual oil exports increased by 45% immediately. The USSR exported 14.3% of its residual oil and crude in 1926–27, while the share of gasoline exported was much higher, at 87.8%. Gasoline exports continued to grow consistently, and Soviet gasoline accounted for 6.8% of European imports in 1925, 8.3% in 1926, and 11.5% in 1927.
As of October 1, 1926, the capacity of oil storage reservoirs in European countries set up with the participation of the USSR was 33,000 tons. Meanwhile, the USSR share of global petroleum products exports amounted to 4.5% in 1926–27.
Hailing the active marketing of ROP, the British journal The Petroleum Times noted in October 1926 that “the entrance of the Soviet Oil Syndicate [Neftesindikat], which controlled up to 40% of the known crude oil reserves at the time, into the market is a positive factor and is bound to have a significant targeted impact on the state of the British fuel business.” The journal added, “The English public believes in healthy competition.” It is no coincidence that standard gasoline prices fell by 3.5 pence per gallon in the country as soon as ROP was registered, which proved advantageous to hundreds of companies and millions of Britons. Moreover, The Petroleum Times noted that ROP automobile gasoline was of higher quality than other types, and it was also sold for a penny less than similar gas from other sources. Multiplying these savings by the 880,000 tons of petroleum products imported into the British Isles by Neftesindikat made the benefits of such imports even more apparent. By fall 1926, British consumers had already saved £800,000 using this gasoline.
In 1927, Soviet gasoline accounted for 10% of total gasoline imports to England, 18% to France, 15% to Germany, 30% to Spain, and 17% to Italy. Almost all the gasoline produced in the USSR was exported. Demand within the country was still very low in 1927 as the Soviet automobile industry was just starting to develop.
Not surprisingly, the battle between global oil monopolies and Neftesindikat entities took another turn for the worse in 1927, with Great Britain once again serving as the main battleground.
In the first half of 1927, the United Kingdom had imported 50 million gallons of petroleum products from the USSR, including 19.667 million gallons via ROP. Of the latter amount, automotive fuel accounted for 14.189 million gallons, kerosene for 3.414 million gallons, and gas oil for 2.062 million gallons. The remaining petroleum products were imported via British oil traders, including Lubricating and Fuel Oils Ltd., Harris & Dixon Ltd., Newcastle Benzol Company, Messrs. Cory Bros. & Co. Ltd., and others.
On May 11, 1927, England’s Westminster Bank provided the Soviet Union with a large loan that was to be used, among other things, to finance operations needed to develop the Soviet oil industry. The next day, however, London police seized the building of the Soviet company ARCOS (All-Russian Cooperative Society Ltd.), an event that received wide international publicity. This company had been operating legally in the UK since June 1920 as a representative of cooperative organizations conducting business inside and outside Russia.
The ARCOS affair had very serious repercussions for relations between the USSR and Great Britain, and even led to the temporary severance of diplomatic relations between the two countries. Analyzing the causes of this international conflict, French researcher Francis Delaisi concluded that the “police invasion” of the ARCOS business premises was “inspired by big oil interests.”
Meanwhile, across the globe, Neftesindikat had just wrapped up lengthy negotiations with Standard Oil of New York in June 1927. The US company had agreed to purchase a quarter of all petroleum products exported by Neftesindikat. This move did not go unnoticed by Royal Dutch Shell, the second key player on the global oil market, and on July 19, 1927, Sir Henri Deterding wrote: “Standard Oil of New York is transferring its sales organization in British India to the Soviet government in order to sell stolen oil there.” He continued: “Since this affects our direct interests, we shall retaliate and the retaliation will be fierce.” Deterding made it clear that his corporation would fight any attempt by the Standard Oil Company to sell Soviet oil in India.