Measuring external oil supply risk: A modified diversification index with country risk and potential oil exports
External oil supply risk is an important aspect of energy security and oil import diversification is viewed as one of the most effective measures to reduce supply risk. By using the diversification index approach, this research attempts to assess external oil supply risks of oil importers with consideration of two key factors associated with oil suppliers, country risk and potential oil exports capacity. The former can be used to reflect the oil supply risk associated with oil suppliers' macro-economic and socio-political stability and the latter is directly related with the physical availability of oil. The empirical research on China, Japan, the US and EU demonstrates that Japan's oil importing strategy is more concerned about potential exports of oil suppliers than country risk; the EU's oil imports have a good balance between country risk and potential exports of oil suppliers; the US has successfully diversified its oil imports to maintain the security of its external oil supply. With the rapid increase in oil demand, China has changed its oil import policy by expanding oil trade partners and switching to suppliers with high potential oil exports. Some further suggestions are presented for China to ensure its oil supply security in the future.
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