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Obviously it refers to Vyacheslav Molotov, the USSR's Foreign Minister during the Second World War. It was apparently coined by the Finnish army, which used the weapon against Russian tanks during the Winter War. The OED's first example of the term appears to refer to the fuel mixture used by Russian tanks in winter; the next refers to `Molotov's cocktails' being used against tanks by the Finns.
The petrol bomb itself was apparently invented during the Spanish Civil War; it's slightly surprising that it took about thirty years of the wide availability of petrol before somebody thought of putting it in a bottle, stuffing a rag in the top, lighting it and throwing it.
The OED isn't available for free online, but the relevant quotes are,
1940 Times 27 Jan. 6/2 The tanks often get stuck on the road, as the petrol mixture used -- the so-called Molotoff cocktail -- seems to be unsuitable for these temperatures.
1940 W. CITRINE My Finnish Diary 41 When the soldiers attack the Russian tanks, they call their rudely-made hand grenades `Molotov's cocktails'.
Copyright (c) 2003 Chris Lightfoot. All rights reserved.