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Russian Dilemma - Halil Öztürk


In this paper, we shall invert the frequently asked question: “Can Europe be independent of Russian Oil?” to “Can Russia be independent of the income from Europe?”


The reason why to ask such a question:

To think simply and basically, energy flows across borders are fundamentally international trades of money and energy, meaning as long as the agents of the trade regard such an exchange as beneficial for themselves, the trade shall occur and be occurring, and a breakdown will affect Russia as well as Europe. Since trivially, the word "independence" is not particular just to Europe but also to Russia, the answer to this question will naturally influence Russia’s strategy in this trade akin to the original question; here, we are in particular interested in the “discount advantage of Russia” to discriminate other exports, actual and possible ones, in the European market.


Analysis

To see how much Russia depends upon the income coming mostly from the Europeans and how it has changed with respect to a time series, we are going to employ a simple but basic ratio analysis:



For R, we used the data of the Bank of Russia.

For GDP, we used the data of the Ministry of Finance of the Russian Federation.

To visualize our data:


Linear Regression for the original data:


this inequality implies that as time elapses, Russia's "independence" from the exporting revenue is going up and up.


Smoothing, de-trended and deseasonalized data by exponential smoothing for Damping variable = 0.4:


This version of the data, stationary, also implies an increase in the independence of Russia from the revenue from exporting energy with respect to time.

At this point, we ought to take Rosneft's financial performance consideration, which is the admiral company of Russia in the sector, to develop a scenario or strategy.


Whilst analyzing Rosneft's financial reports, since we are especially interested in the discount advantage of Russia, we will simply look at the profit margins based upon a time series from 2000 through 2021, which is the largest interval provided by Rosneft.


Second – order exponential smoothing (alpha = 0.039321, beta = 1):


Linear Regression for the smoothed data:

this inequality implies that Rosneft has a decreasing trend for its profit margin year by year, which can be seen as an "advancing" incentive to use the discount advantage of Russia because it has been already the case that trading with Europe, Rosneft profit margin is going down and down, meaning a discounting or embargo would not harm Russia as much as the case of upward profit margin trend.


Conclusion

Based upon our ratio analysis for Russian national accounts and Rosneft’s profit margin, we can trivially claim that as time elapses, the independency level of Russia from the revenue from crude oil and oil products exporting, most of which comes from Europe, does rise. Ergo, if the Europeans decide to tend to alternatives to the Russian oil such as renewables, new suppliers, and so forth, Russia’s discount advantage is “getting stronger and stronger” as a response.

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