European Energy Security the Substitutability of European Crude Oil Imports from Russia

The study is meant to be a contribution to the current debate on the diversification possibilities in EU for reducing the dependency on Russian crude oil and ensuring the energy security of the European Union (EU). We focus on the aggregate demand for crude oil in EU with the aim of investigating the degree of substitutability of crude oil imports from the Former Soviet Union countries (FSU) and crude oil imports from four alternative regions (America, Middle East, Europe, Africa). Following Fuss (1977) and Serletis (2010) we employ an econometric model of intra-fuel substitution, using a nonlinear seemingly unrelated regression (SUR) estimator, to assess the aforementioned degree of substitutability in terms of Morishima elasticities of substitution. We use the most recent dataset, published by the European Commission, consisting of a collection of imported volumes and CIF prices of crude oil by country of origin. The results indicate that the crude oil provided by former Soviet Union (FSU) countries is strongly substitutable with those imported from African and Middle Eastern countries whilst it is not substitutable with those imported from European and American countries.