The Multi-dimensional Oil Dependency Index (MODI) for the European Union

Abstract

Oil constitutes more than one third of total energy available in the European Union (EU), which continues to depend heavily on fossil fuels. Russian exports have known a remarkable growth in the last two decades, making this country crucial – as the war in Ukraine has recently shown – in deciding the energy future of the EU. In this regard, we provide a comprehensive and dynamic measure of oil dependency, constructing the Multi-dimensional Oil Dependency Index (MODI) for EU-28 countries (including the United Kingdom) during the period 1999–2019. This composite index considers four different key dimensions of oil dependency, i.e. energetic, economic, international and geopolitical dependencies, exploiting the multivariate technique of the Principal Component Analysis. The subsequent determination of rankings and their variation over time can be useful for policymakers to identify key areas where to intervene and reduce dependency, as well as to set benchmarks for policy actions. Our analysis reveals some interesting findings: first, the EU has still much to do to decouple oil consumption from GDP growth and achieve the environmental targets set by the European Green Deal; second, EU countries present very different degrees of oil dependency and, in several aspects, trends are not aligned; third, international and geopolitical dependency on oil constitute a worrisome problem for EU's energy security.