city, capital of Azerbaijan. It lies on the western shore of the Caspian Sea and the southern side of the Abşeron Peninsula, around the wide, curving sweep of the Bay of Baku. The bay, sheltered by the islands of the Baku Archipelago, provides the best harbour of the Caspian, while the Abşeron Peninsula gives protection from violent northerly winds. The name Baku is possibly a contraction of the Persian bad kube (“blown upon by mountain winds”). Baku derives its importance from its oil industry and its administrative functions.

The basis of Baku's economy is petroleum. The presence of oil has been known since antiquity, and by the 15th century oil for lamps was obtained from surface wells. Modern commercial exploitation began in 1872. The Baku oil field at the beginning of the 20th century was the largest in the world, and it remained the largest field in what was then the Soviet Union until the 1940s. By the late 20th century, much of the easily extractable reserves had been exhausted; drilling was subsequently extended far underground and outward across the Abşeron Peninsula and into the seabed. After Azerbaijan became independent, foreign companies contracted to explore for other potentially lucrative sites and develop them, and new refineries were established. Many derricks stand in the gulf facing the city. Most of the subordinate townships are drilling centres, linked by a network of pipelines to the local refineries and processing plants. From Baku oil is piped to Batumi on the Black Sea or sent by tanker across the Caspian and up the Volga River. Besides oil processing, Baku is a large centre for the production of equipment for the oil industry. Metalworking, shipbuilding and repair, the manufacture of electrical machinery, the production of chemicals and construction materials, and food processing also contribute to the local economy.