The Oil and the Glory

The Pursuit of Empire and Fortune on the Caspian Sea


About the Book

Remote, forbidding, and volatile, the Caspian Sea long tantalized the world with its vast oil reserves. But outsiders, blocked by the closed Soviet system, couldn’t get to it. Then the Soviet Union collapsed, and a wholesale rush into the region erupted. Along with oilmen, representatives of the world’s leading nations flocked to the Caspian for a share of the thirty billion barrels of proven oil reserves at stake, and a tense geopolitical struggle began. The main players were Moscow and Washington–the former seeking to retain control of its satellite states, and the latter intent on dislodging Russia to the benefit of the West.

The Oil and the Glory is the gripping account of this latest phase in the epochal struggle for control of the earth’s “black gold.” Steve LeVine, who was based in the region for The Wall Street Journal, The New York Times, and Newsweek, weaves an astonishing tale of high-stakes political gamesmanship, greed, and scandal, set in one of the most opaque corners of the world. In LeVine’s telling, the world’s energy giants jockey for position in the rich Kazakh and Azeri oilfields, while superpowers seek to gain a strategic foothold in the region and to keep each other in check. At the heart of the story is the contest to build and operate energy pipelines out of the landlocked region, the key to controlling the Caspian and its oil. The oil pipeline that resulted, the longest in the world, is among Washington’s greatest foreign policy triumphs in at least a decade and a half.

Along the way, LeVine introduces such players as James Giffen, an American moneyman who was also the political “fixer” for oil companies eager to do business on the Caspian and the broker for Kazakhstan’s president and ministers; John Deuss, the flamboyant Dutch oil trader who won big but lost even bigger; Heydar Aliyev, the oft-misunderstood Azeri president who transcended his past as a Soviet Politburo member and masterminded a scheme to loosen Russian control over its former colonies in the Caspian region; and all manner of rogues, adventurers, and others drawn by the irresistible pull of untold riches and the possible “final frontier” of the fossil-fuel era. The broader story is of the geopolitical questions of the Caspian oil bonanza, such as whether Russia can be a trusted ally and trading partner with the West, and what Washington’s entry into this important but chaotic region will mean for its long-term stability.

In an intense and suspenseful narrative, The Oil and the Glory is the definitive chronicle of events that are understood by few, but whose political and economic impact will be both profound and lasting.

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The Oil and the Glory


The Barons

In the early nineteenth century, Baku was a frontier settlement with the air of a medieval duchy. Within its seven-hundred-year-old walls, narrow cobblestone streets snaked past bustling outdoor markets, small mud-sided homes, and a minaret from which a princess had jumped to her death to escape her incestuous father. Rainbow-colored wooden carts called arbas, their wide carriages mounted on irregular seven- foot-tall wheels, transported people and goods across the surrounding desert. The crescent-shaped bay—seven miles from tip to tip and fifteen miles in circumference—teemed with fishing boats from the Russian city of Astrakhan up the coast and black merchantmen from downcoast Persia.

Baku was not regarded as a benign place. Alexandre Dumas père witnessed a frightening menagerie in 1858—“Tigers, panthers, jackals that roam through the whole province; the plants; the insects— locusts, scorpions and poisonous spiders.” And then there were the relentless dust storms. A British petroleum engineer named A. Beeby Thompson wrote of winds that deposited as much as five feet of sand on roadways, halting all traffic. “There is no complete escape from these sandstorms,” Thompson observed. “The fine dust penetrates everywhere; it accumulates in the pockets; it finds an entrance into the watch case, and causes the works to get clogged; it defies double windows and shutters, and the silicious particles accumulate in the house to such an extent that shovelfuls of sand may be removed from a Baku drawing room after a storm.” Still, the wonders of Baku astonished those daring enough to visit. At night, when the winds quieted down, it became a magical place. Fire danced from the land and sea; in November and December, it lit the western horizon an eerie blue. A British professor visiting in 1845 described “a fairy castle” in which “multi-colored tongues of fire dance weirdly in the winds.” In 1876, a journalist declared the spectacle “as wonderful as the Solfaterra at Naples, or the Geysers of Iceland, and to me infinitely more curious.” Other visitors spoke of huge bubbles that suddenly appeared on the surface of the Caspian, capsized ships, and, if a torch were tossed overboard, produced a wall of flame. Visitors also reported a trick of physics in which the fires did not burn hot— Ludvig Nobel emerged unscorched after steering a steamboat straight through the blazing sea.

The source of these phantasmagoric displays was Baku’s tremendous store of hydrocarbons. Experts speculated that the region was on top of a seventy-million-year-old residue of dead microorganisms. Another possibility was that detaching from the Black and Mediterranean seas had turned the Caspian into a saline death trap that entombed thousands of fish and other animals every day. Fumes from these ancient petroleum deposits continuously leaked to the surface, where they ignited at the slightest provocation.

Baku’s oil earned an early, almost mythic reputation. Marco Polo’s was perhaps the first written account. He reported a gusher that in a single hour produced “a quantity of oil sufficient to load up one hundred vessels.” Later reports were strikingly similar. Eighteenth- century British trader Jonas Hanway described Russians sipping cordials of Baku’s “white oil,” a spontaneously occurring mixture of natural gas and petroleum that they thought chic and a certain cure for venereal and heart disease. While nearly all the world cooked by wood fire, a visitor to the district of Surakhani found that fumes escaping from the ground enabled the preparation of heated meals. Villagers simply dug into the soil and, applying a live coal, ignited a blaze. The natural gas that produced this phenomenon could be dangerous. In 1754, a traveler spoke of eight stabled horses being burned alive when the earth beneath them accidentally caught fire.

One peculiarity especially absorbed visitors—the theology attached to Baku. Zoroastrianism, the monotheistic Persian faith that originated the notion of angels, paradise, and the underworld, taught that fire purified the soul. Hearing of Baku and believing that the fires had burned since the Flood, Zoroastrians flocked there. They built temples where flames fed by natural gas jetted through porous limestone—the same jets that created the city’s nightly fusing of Lewis Carroll fantasy and Dantean nightmare. The Zoroastrians fled in the middle of the seventh century, after Christian invaders sacked their temples and Arab conquerors insisted that Baku convert to Islam. Some brave followers made pilgrimages to Baku for centuries afterward, but by the 1860s xenophobic Orthodox Russia had all but halted even those short visits.

The first oilmen of Baku simply took out their shovels and dug or used their bare hands—the oil was that close to the surface. Obtaining the rights to do so was simple; you could buy or lease. Written evidence of one such agreement dating back to the Muslim year 1003—about 1595 by the western calendar—was found on a stone unearthed in a Baku oil pit. An Arabic inscription recorded the name of a landowner, Allah Jaz, the son of one Mohammed Nurs. The stone indicated that Mr. Jaz did not himself dig for oil but rather leased his property to an unnamed tenant. The tenant would have collected the oil in a pond lined with stone, then poured the unrefined crude into boordukes, goat- or ram-skin bags holding about twelve gallons. If Mr. Jaz’s tenant were export-minded, he would have loaded the boordukes onto camels, two bags per beast, and shipped them in caravans across the desert. An arba could carry ten times as much oil but was not sufficiently sturdy to survive the arduous trek to distant markets.

So it went for the next two centuries. During that time, Mr. Jaz’s property, in a district called Balakhani, was absorbed into the Persian Empire, then in 1813 into Russia. On the other side of the world, America had yet to develop a commercially exploitable oil industry. But that was about to change, sending shock waves all the way to Russia and, finally, to Baku. In 1859, a tenacious entrepreneur named Edwin Drake struck a gusher after twenty months of toil in the poor western Pennsylvania town of Titusville. With it, he triggered the world’s first oil rush. In the wake of that discovery, a stern and lanky Clevelander named John D. Rockefeller cornered both the U.S. and European markets, earning him history’s first great oil fortune.

By the late 1860s, Rockefeller-led advances were revolutionizing the oil business, but production methods at Mr. Jaz’s property were substantially unchanged. The latest tenant on this land lacked almost any justification to invest in the new steam-driven wells because unlike his Pennsylvania counterparts, he couldn’t be sure he would be the one to profit. Russia, milking the state-owned fields for bribes as Persia had in the past, rotated tenants every four years to obtain fresh payoffs. Hence, Balakhani tenants had every reason to continue to dig and scoop, without bothering to refine, and sell as much oil as they could as fast as they could. The result was that Russia’s product was inferior in every way to Rockefeller’s, including price.

Three years after Drake’s discovery, a few tin containers of kerosene arrived in St. Petersburg. Their appearance might have gone unnoticed except that, improbably, they had traveled all the way from America.

Why would anyone finance an eight-thousand-mile shipment of kerosene when petroleum-rich Baku was so close at hand? The reason was simple. Nights were long for half the year in the Russian capital, and its people had to rely on malodorous tallow to relieve the darkness. The American kerosene was clean-burning by comparison, and tradition- bound Baku was producing only a relative trickle of kerosene. By 1870, gratified Russians were buying 250,000 gallons of U.S.-produced fuel a year, much of it from Rockefeller.

Russian scholars wondered how the United States, which had discovered its oil just a few years earlier, could so brazenly challenge the Empire in its own backyard. The answer, of course, could be found in the self-defeating and corrupt management of the Empire’s petroleum riches. Court ministers and the press urged Alexander II to act. The czar was no visionary, nor even very resolute, but after some dithering, he buckled. In December 1872, he ordered the auction of 1,240 desseatines—3,348 acres—of oil land. In that one act, Alexander wiped out much of the state’s suffocating hold on the industry and triggered a delirium that would itself spread all the way to upstart America. At first, there was panic in Baku. Somehow the mistaken impression had taken hold that all the region’s oil lay within these tracts. Thus, bidders feverish to obtain some of the supposedly limited supply drove up the collective price of the lands at auction by a factor of six.

Not surprisingly, authorities by and large rigged the process. Most of the successful “bidders” were senior officials favored by Alexander, and the remainder were Baku’s richest merchants. But there was one unlikely winner. The son of an illiterate shoemaker, he would learn to write his name only later, and even then the resultant signature more closely resembled a chicken scratch.

Zeynalabdin Tagiyev had neither great wealth nor influence. He had made his way in life as a master stonemason after a harsh boyhood in which he was apprenticed as a bricklayer at the age of ten. But by the late 1860s, as he reached middle age, he had achieved a modicum of success. He had a thriving business as a building contractor and owned two retail fabric shops besides.

Baku was not big, but as the main regional trading hub connecting the Persian, Ottoman, and Russian worlds, it did offer considerable opportunity to the observant. Tagiyev noticed some small yet fascinating changes in Baku’s rudimentary oil industry. One well-off oil field tenant had built a primitive refinery. Other, smaller operators were erecting more modest kerosene-making plants—each little more than a roof over a couple of stills, but for Baku, real progress. Tagiyev himself soon procured a simple, two-cauldron refinery.

The announcement in 1872 that the state would auction some of Alexander’s oil lands excited Tagiyev, and he and an equally exhilarated Armenian friend named Sarkissov agreed to enter into the bidding. But how could they hope to compete with Baku’s wealthiest and most influential figures? In particular, they were vexed by a contractor named I. M. Mirzoyev, who more than anyone had contributed to the auction hysteria. It was not that Mirzoyev was reckless—it was he who had the foresight to open Baku’s first refinery—but he was a bit overenthusiastic. He paid an astounding £254,000 for a 270-acre parcel—85 percent of all monies raised during the auction to buy 8 percent of the land. His tract was among the most highly prized, and no one begrudged Mirzoyev his right to disgorge his fortune this way. But in doing so, he disheartened the few ordinary bidders, such as Tagiyev and his partner, who could not afford to be so profligate.

Their chance finally arrived in the auction’s final hours, when the more dubious properties came on the block. The next-to-last parcel was especially suspect. It was a stretch of flatland called Bibi- Heybat, one thought so unlikely to contain hydrocarbons that the state had appraised it at a mere £57. But the participants’ zeal after Mirzoyev’s example was still intense, and they bid up the price, driving it to fifteen times its assessed value. Sensing that this might be his final opportunity, Tagiyev would not be denied. He bid £906. No one countered. Dubious Bibi-Heybat was theirs.

The oil field was next to a mosque, and “dubious” soon seemed a generous way to describe it. Tortuous months of extracting just a dozen barrels from time to time stretched into years. Finally Sarkissov lost patience and sold out to his partner.

Not until fourteen years after the auction did Tagiyev’s payoff come. But when it did, it arrived in a very big way.

On September 27, 1886, there was a rumble at Bibi-Heybat, and a gusher burst 224 feet into the air. It resembled “a colossal pillar of smoke, from the crest of which clouds of oil sand detached themselves and floated away a great distance without touching the ground,” the Baku News reported. The magnitude of Tagiyev’s strike was flabbergasting. Before it was contained, it spewed, and lost, more oil each day than was being extracted at the time by all other major petroleum-producing centers in the world combined—including America’s twenty-five thousand wells and those in Galicia, Romania, and Burma.

The mosque next door and nearby homes were drenched by the 3,500- barrel-an-hour shower of oil and rock. Even neighbors a mile and a half away were treated to the downpour. On the sixth day, a sudden thrust of crude saturated the square in front of the Baku Town Hall two miles from the well. Two days later, the flow was measured at 81,400 barrels every twenty-four hours. Authorities demanded that the well be capped, and on the fifteenth day Tagiyev’s engineers managed some semblance of control—they reduced the daily outflow to 7,000 barrels. “Altogether,” the Baku News reported, “close on 12 million puds [1.4 million barrels] are estimated to have come to the surface, and most of this was lost for want of storage accommodation. The oil simply poured into the Caspian Sea, and was lost forever to mankind.”

Before long, Tagiyev’s strike was making him among Baku’s wealthiest citizens. His oil, notable for its high quality, fetched twice the price of that extracted in Balakhani, where land cost up to five times as much. Tagiyev proved not only determined but clever and ambitious as well. He built a refinery to process his crude and a dock on the Caspian from which his own private tanker fleet could steam north to the mouth of the Volga River. Waiting there were Tagiyev-owned barges to ship his oil to customers courted by his own Moscow sales office.

Tagiyev became Baku’s most influential citizen, a dignified and deceptively quiet man with a bearded, open face and white hair who was astonishingly lean and fit. Peasants, workmen, robbers, and the crustiest oilmen all treated him with deference. When he appeared in public, he extended his hand, and people jostled to kiss it and addressed him as “Haji.” He was elected chairman of the city council and was decorated by the Emir of Bukhara and the Shah of Iran. Czar Nicholas II named him an honorary state councilor. Even after he left the city council, few people of consequence would pass through town without dropping by for tea with the oilman who after years of struggle had overtaken all the power brokers and generals to become Baku’s elder statesman.

Foreign visitors raved about the oil. Lewis Emery, an oilman from Bradford, Pennsylvania, found that Baku’s lamp oil, unlike that at home, produced no smoke when it was burned. British journalist Charles Marvin reported that Baku oil was less dangerous as well, its flash point at 88 degrees, some 20 degrees higher than the American varieties. Other American visitors found the fountains of oil roaring skyward most thrilling. Some recalled that, in the Titusville boom, a few hundred barrels a day was a bonanza. But in Baku, a well called Vermishev spewed oil for four solid months, its stalk forty feet tall and nine feet in diameter.

About the Author

Steve LeVine
Steve LeVine is the author of Putin’s Labyrinth: Spies, Murder, and the Dark Heart of the New Russia and The Oil and the Glory: The Pursuit of Empire and Fortune on the Caspian Sea. He is the chief foreign affairs writer for BusinessWeek and is based in Washington, D.C. He was a foreign correspondent for eighteen years, posted in the Soviet Union, Pakistan, and the Philippines, reporting for The Wall Street Journal, The New York Times, Newsweek, Financial Times, and other publications. More by Steve LeVine
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