Baku, 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.