In spite of the fact that the lease system brought considerable benefit to the Russian Empire, it had a significant drawback – a temporary, limited character.
According to the established procedure, oil fields were leased for four years, and its owner, naturally, was not interested in making large investments, drilling new wells, and carrying out geological exploration. After the expiration of the lease, someone else could just pay a higher price and acquire the oil well.
This circumstance clearly hindered the development of the oil industry. Meanwhile, the empire was experiencing an economic upswing and needed large volumes of oil and oil products. At the time, American oil occupied a leading position on the Russian market.
It was under these conditions that the government took a radical, revolutionary, and economically reasonable step: it decided to lease its oil fields to private ownership. This was an extremely important event which later played an enormous role from political, economic, and social points of view, as well as in the aspect of interethnic relations.
In November 1872, the government put up 68 oil-bearing areas for auction with a total area of around 460 hectares and a starting price of 552,240 rubles. The results of the auction were staggering: the state treasury earned 2,980,307 rubles, much higher than the starting price.
The new owners of the oil fields became 12 Russians who paid 1,485,860 rubles (of which 1,333,328 rubles were paid by Kokorev and Gubonin for about 60 hectares), 11 Armenians (H. Mirzoian, G. Lianosian, Bezhanian, Onikian, Vermishian, Tsurinian, Lalaian, Karabekian, Ter- Hakobian, brothers B. and P. Sargsian), and one Armenian company named “Partners” (founded by Bogdan Dolukhanian, Minas Kachkachian, and S. Kvitko). Armenians overall paid 1,459,182 rubles, of which 1,220,000 was paid by Mirzoian for about 40 hectares.
Hovhannes Mirzoian, a Tiflis citizen, was a typical representative of the Armenian commercial capital. He was the first in the whole Caucasus to see the promise of the oil industry. He became the first oilman and one of the “fathers” of the Baku oil business.
Initially, he was engaged in the trade of raw silk, an activity that had a long tradition among Armenian merchants. In 1853, Mirzoian had a chintz shop. Then, he founded a silk factory in the town of Nukhe and earned a big capital from it. From 1855 to 1863, paying 312 thousand rubles a year, he has rented the Salyan fishery located at the mouth of the Kura River flowing into the Caspian Sea. 2,500 employees worked at the fishery.
Aside from oil fields in Baku, Mirzoian has rented the Kaitago-Tabasaran oil field. In 1865-1868, paying 13,250 rubles annually, he has rented the two recently-discovered oil wells in Grozny. He brought its production up to about 1,085 tons and founded a kerosene factory which mostly worked for Armenians.
In addition, in 1878-1886, for an annual fee of 7,850 rubles, he rented and exploited the Zaglik alum plant in the Elisabethpol Governorate
The activities of Mirzoian in the Baku oil industry can be characterized by the word “first.” He was the first in 1868. He founded two kerosene plants in Surakhanakh and produced around 2,612 tons of kerosene that amounted to 260 thousand rubles. He also was the first to export kerosene.
It was an incredible amount: it is enough to note that in that year, all the other refineries together produced about 979 tons of kerosene that amounted to 64 thousand rubles. In 1867, Mirzoian produced about 10,859 tons of oil, 11,691 tons in 1868, and 22,289 tons in 1872.
In 1871, he established the first oil rig in Balakhani and the second in 1872. It was after this that the oil owners switched to oil drilling. And by 1879, no oil wells remained.
After the death of Mirzoian in 1885, his widow Daria along with sons Grigor and Melkon and daughter Maria founded the partnership “Brothers Mirzoyev and KO” with a grand capital of 2,1 million rubles. Being representatives of the aristocratic elite of Tiflis, the Mirzoian family wisely transferred the affairs of the company to the professionals of the oil business.
The chairman of the partnership was B. Ghorganian, the directors were D. Gharazian, M. Dolukhanian, H. Garsoian, and T. Enfiadjiants, thanks to whom “Brothers Mirzoev and KO” became one of the most stable and effective oil companies, extracting around 244,939 tons of oil annually.
The company owned oil fields in Balakhani and Sabunchi, factory buildings in Surakhani, an oil pipeline in Balakhani, a kerosene and lubricant oil factory in Baku, various workshops and a chemical laboratory, a pier on the coast of the Caspian Sea, 4 sailing vessels (“Moscow”, “Arseniy”, “Prussia”, “San-Dadash”), production areas in Batumi, as well as warehouses of petroleum products in Moscow, Tsaritsyn, and Nizhny Novgorod. “Brothers Mirzoev and KO” remained one of the best companies owned by Armenians until the tragedy of 1918.
An excerpt from the book of Khachatur Dadayan “Armenians of Baku”
Read also: “Armenians and Baku” by Khachatur Dadayan, The Term “Azerbaijani” Did Not Exist Before 1918, Armenians in the Period of the Russian Expansion in Transcaucasia, The Role of Armenians in the Development of the Baku Oil Industry