French oil business
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Rothschild interest in oil dates back to the 1880s when the French bank acquired a refinery at Fiume on the Adriatic and then developed interests in the newly opened oil fields on the Black Sea. Their interests grew until by 1900 they were major operators in the production and marketing of Russian oil, then the largest sector in the world, before exiting the business in 1912.
It is difficult to determine the reasons which motivated the House of Rothschild to take an interest in the oil business; the first developments came in December 1879, when the French Rothschilds commissioned Alexandre Deutsch de la Meurthe and Son to secure their interests in a refinery built at Fiume (now Rijeka in Croatia) to supply cheap oil to the Austro-Hungarian Empire.
The first Russian oil refineries had been built in 1823 in the north of the Caucasus and around 1830 in Baku. In this region, there were 136 oilwells in 1850 and more than 400 by 1872. In 1874, Robert Nobel, a Swede, bought a refinery and land in Baku, and it was Nobel who began the first large-scale operations, introducing into Russia tanker-wagons and the first oil tankers (on the Caspian Sea) in 1878. By 1880, Nobel dominated the Russian market and in the following years sought opportunities to extend sales beyond Russia. In 1883, he founded (with the assistance of Deutsche Bank), the Deutsche-russische Naphta-import-Gesellschaft.
Approached by the Nobel family in 1883 to help finance a railway line from Baku to the Black Sea, the French Rothschilds, led by Mayer (Alphonse) de Rothschild (1827-1905) not only secured their supply but received in return oil rights in the area. Edmond de Rothschild made several visits to the region to assess the opportunities. The building of the railway line led to the creation, in 1883, of an export company called BNITO (from the Russian "Batumskoye Neftepromyshlennoye i Torgovoye Obschestvo"). In 1884 BNITO also came knocking at the Rothschilds door. A careful examination of the question allowed the House of Rothschild to calculate that Russian oil could compete and beat American oil in the Mediterranean and even in the Far East. But this would depend upon building an understanding between the various Russian producers. The first priority was to purchase oil-bearing land in the regions of Baku and Batoum, then to bring together a certain number of individual producers, acting as sole agent for the sale of their oil.
It was agreed to make approaches to Nobel and in March 1886 the French House of Rothschild, driven by Alphonse de Rothschild (1827-1905) bought BNITO which became the Société Commerciale et Industrielle de Naphte Caspienne et de la mer Noire. (The Caspian and black Sea Oil Company). In 1888 the Houses of Rothschild and Cahen d’Anvers made approaches to another company, the Nouvelle Société du Standard russe, which was trying to exploit deposits at Iliinsk and Kouban (now Kuban in Ukraine), and wanted to involve itself in deposits in Grosny (now in Chechnya). An agreement was signed in 1890 for joint working of these new deposits.
In 1892, the first of Shell's oil tankers, 'Murex', sailed for Batoum to be filled by BNITO oil from Baku. In 1898, the House of Rothschild bought the company MAZOUT, which they turned into a commercial company for the sale of Russian oil within Russia. The idea was to lower the cost of sale and transport within the Empire. Standard Russe, BNITO and Nobel joined in this venture.
By 1900, Russian oil production in effect passed into passed into control of Nobel and Rothschild, and the company began to organise sales to compete with Standard Oil. From 1904 discussions took place to end in the European market (particularly in the UK, Belgium and Holland) the agreement between the Nobel-Rothschild Group and the Deutsche Bank Group. This latter group had Romanian deposits (Steava Romana, A.G. für Pétroleum Industrie), and selling companies in Germany (Deutsche Petroleum A.G.) and England (General Petroleum). For its part, the Nobel-Rothschild Group had also created selling companies in England (Caucasian Steam Shipping Co. Ltd and Consolidated Petroleum Co. Ltd, the latter born in 1900 from the fusion of the Anglo-Caucasian Oil Co., founded in 1897 and Bessler Waechter) and in Belgium and Holland (founded in 1888).
Russian oil could still compete effectively with American oil in the Far East. It was expedient to form a link with an operation with deposits in the Dutch East Indies. In 1902 a marketing company, the Asiatic Petroleum Co. Ltd. was set up by the House of Rothschild, representing Russian oil interests, Shell and Royal Dutch to fight off competition from the American company Standard Oil. In 1906, Deutsche Bank (which had interests in Rumanian oil), Nobel and the French Rothschilds joined together to form the European Petroleum Union to negotiate market division agreements with the American company, Standard Oil. The new company spawned three affiliated companies: British Petroleum, in England, the Petroleum Steamship Co. in Belgium and Holland and the Deutsche Petroleum Verkaufs Gesellschaft in Germany. In order to represent its various interests in these companies, the House of Rothschild founded the Société de Participation Industrielle.
Rothschild withdrawal from the Russian oil business
It is difficult to determine the precise reasons which brought the House of Rothschild to abandon the Russian oil business: waves of anti-semitism, social and political instability in the region (Baku and Batoum witnessed bloody strikes in 1902 and again between 1904 and 1906) may have been key factors in their decision. In 1911 negotiations took place for the sale to Royal Dutch of the Rothschild shares in BNITO and MAZOUT. An understanding was signed on 8 December 1911 which was ratified on 21 February 1912, when the Rothschild interests were sold in exchange for shares in the Royal Dutch and Shell oil companies. It was a decision which saved the Rothschilds from the fate of their competitors, who lost their assets following the 1917 Revolution in Russia.
Little survives in the correspondence of de Rothschild Frères held at the Archibes Nationales du Monde du Travail at Roubaix which throws light on the reasons for the decision of the French Rothschilds to develop their oil interests. An extensive series of papers concerning oil business (especially Russian oil), 1884-1914 will be found at Roubiax, Fonds 132 AQ 136-290.