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. Last Updated: 07/27/2016

Caspian Oil Puts the Boom Back in Baku

BAKU, Azerbaijan -- English pubs and Mexican-style restaurants jostle with shops selling computers and mobile phones. New shops, bars and hotels are opening more and more frequently -- the latest are a Turkish-built five-star hotel and Mothercare, the middle-class baby-store chain.

Azerbaijan's capital, Baku, is experiencing a boom. The multimillion-dollar oil contracts signed by foreign companies with Azerbaijan during the past few years have introduced a spirit of confidence and a community of 5,000 expatriates to the city.

Last week, oil potentates from all over the world gathered here for the opening of a pipeline to carry the first oil from a $7 billion project backed by oil majors like British Petroleum, Exxon and Russia's LUKoil.

Elmar Dzhabarov, a young real estate broker, is delighted. "There's a lot of business starting up. I am doing a lot of business renovating apartments for foreigners who are coming here to work," he said.

But cheek by jowl with the flashy new shops are crumbling apartment blocks, stinking courtyards and run-down districts overcrowded with refugees from the war with Armenia.

On the edge of the city, a desolate scene of hundreds of old rusting oil derricks straddling black pools of spilled crude oil and industrial waste, reveals something of the post-Soviet backwater that Baku remains at heart.

Like most Azeris, Rina Mamedova, a doctor at one of Baku's hospitals and a mother of two, does not believe the benefits of the oil boom will reach her.

"We have been hearing about prosperity from the oil for years now. But we never see any of it. It is not for us," she says. Struggling on a salary of just $20 a month, she has seen her standard of living fall drastically since the end of the Soviet Union.

Baku has been through this cycle before. The casinos where the new rich throw away their money had their turn-of-the-century predecessors. This is not the first oil boom the city has experienced, but the second in a century.

Oil barons left behind schools, libraries, private mansions and the region's first opera house. The Nobels, the Rothschilds and the Rockefellers were among those who made money in the first boom as Baku became the world's leading exporter of crude oil.

Baku's oil-producing history goes back to the 10th century when, historians relate, oil literally bubbled out of the ground. Baku was known throughout the Middle East as a source of oil, highly prized as a fuel, medicine, or weapon of war. Traders carried it away in wineskins on mule trains. Zoroastrians built a temple here around a perpetual gas flame that burned as if magic straight from the ground. The temple still stands today on the edge of the modern city.

By the 16th century, traders were arriving from England to purchase the oil, which was being dug by hand from pits in the ground. Jeffrey Duckett, who worked for the London-based Moscow Co. and visited Baku around that time, described it: "Heere unto which towne is a strange thing to behold -- for there issueth out of the ground a marveilous quantitie of oyle, which oyle they fetch from the uttormost bounds of Persia; it serveth all the countrey to burne in their houses. This oyle is blacke, and it called nefte."

There was also a special white oil, no longer found anywhere in the world, that was used for polishing and lacquer production.

Local landlords, some illiterate peasants who struck it rich and some feudal princes, became rich and powerful, while serfs worked night and day keeping the oil wells pumping for paltry wages.

The rich landlords vied with each other to build extravagant palaces in a rich variety of European and oriental styles that transformed the city. Many of those buildings still stand today, adjoining the medieval old city and stretching down the long sea front. Large old trees shade the streets throughout the city, the results of a vast project that imported thousands of tons of earth and water to convert the dusty desert settlement into a European-style town.

The city mushroomed as workers and prospectors -- mostly Russians and Armenians -- flocked to join the boom. The population exploded from 15,000 to 112,000 in the last quarter of the 19th century, growing faster than any European city at that time.

Baku hit the big time with its first gusher in 1873 at Bibi-Eibat. By the 1890s it was producing 95 percent of oil production in the Russian Empire and nearly half of world production. In 1941 it hit its peak production of 23.5 million tons. But under Soviet management, Baku's oil industry fell technically and financially behind the rest of the world.

With Azerbaijan now an independent country, President Heidar Aliyev has been able to invite foreign investors to modernize the oil industry. With their help, Baku is hoping to surpass its previous production record within the next decade as Western-financed projects start to yield oil from offshore fields. "We are on the eve of a prosperous future," Aliyev told his nation last week as the first oil flowed out to Western markets. "This only became possible after Azerbaijan became independent. We tell the world as an independent nation that Azerbaijan is the master of its destiny."

Like people all over the former Soviet Union, independence for many Azeris has meant impoverishment and uncertainty. It also brought war with Armenia and huge suffering.

But Aliyev is pursuing his dream with determination. In the old city, he has ordered the rebuilding of the legendary 15th-century palace of Shirvanshah. Two stone masons have been chipping away for a year and a half, chiseling out by hand an intricate Islamic tracery of flowers, leaves and tendrils in the arches of the main hall. "We are very badly paid," was all one could say, looking down from his perch close to the ceiling.