The price of a barrel of North Sea crude oil sunk below USD 50 on Wednesday morning for the first time since the finance crisis hit in 2008. The value of the Norwegian krone immediately fell as well, but economists still think Norway will ride out the storm.
“2015 will be a bad year for Norway,” conceded Jeffrey Sachs, a professor at Columbia University in New York, told newspaper Dagens Næringsliv (DN). He noted that lower oil prices will lead to lower economic growth but added that “this won’t been seen as a crisis by any other standard than the Norwegian.” He thinks a “bad year” by Norwegian standards would still be envied by many other industrial nations.
Norwegian economists, business leaders and politicians also have also rejected any talk of “crisis” in the country’s economy despite the recent dive in oil prices and the value of the country’s currency. News bureau NTB reported that a barrel of crude from Norway’s North Sea traded at a spot price of USD 49.93 on Wednesday morning but later rose back up to USD 50.10. That was still a sharp fall from Tuesday’s trades at USD 52, which in turn were down from the levels around USD 60 at the end of the year that already were grabbing headlines and causing concern.
The value of Norway’s krone fell in line with the oil price, with a US dollar costing NOK 7.82 by mid-morning. That’s the weakest krone for 12-and-a-half years, reported Thomson Reuters.
‘Let the oil lie’
Sachs was in Oslo to speak about the fall in oil prices and political unrest in the world at the annual Skagen conference on Wednesday, but he also had a meeting with one of his many local admirers, Labour Party leader Jonas Gahr Støre. “It’s always inspiring to meet Jeff,” Støre told DN. “He works closely with global challenges and gets things to happen.”
Sachs has also been a big fan of Norway, telling DN that the country is “one of the richest, smartest and most well-run countries in the world.” While he sees some dark clouds on the horizon because of the oil price dive, he praised how Norway has managed its oil wealth over the past 40 years, spending only a small portion of it and saving the vast majority for future generations. He also thinks, as do other economists, that oil prices will rise again along with the strength of the krone.
“My view is that the oil price will go back to 100 (US) dollars a barrel in one, two or three years,” Sachs said. If he’s wrong, he said that will mean slightly lower living standards but that welfare will be maintained. Lower oil prices can also reduce “the oil lobby,” he said, and spur the economic diversification that’s already on Norway’s political agenda. “Maybe Norway should let the oil in Arctic areas lie there,” Sachs told DN. “I think that would be a good idea.”