NEWS ANALYSIS: Lots of economic warnings were being issued in Norway this week, both before and after the country’s central bank announced a half-point rise in interest rates to hinder more inflation. Downplaying the country’s wealth, now fueled by high oil and gas prices tied to the war in Ukraine, may help ward off rising resentment from elsewhere in Europe.
The announcement of Thursday’s interest rate hike was surrounded by unusual doom and gloom around Norway’s economic prospects right now. Norway remains extremely wealthy, though, and now that irks some other countries in Europe. They don’t think it’s fair that rich Norwegians just keep getting richer, or are actually profiting from the war that Russian President Vladimir Putin launched against Ukraine four months ago.
Polish Prime Minister Mateusz Morawiecki, for example, recently described Norway as a small country with just 5 million inhabitants and a huge surplus from oil and gas. Newspaper Aftenposten picked up a report from Polish TV station TVN24 in late May, in which Morawiecki also suggested Norway is profiting unreasonably from the war in Ukraine.
“Something is wrong,” claimed Poland’s prime minister during a televised session of a youth dialogue congress. He thinks Norway should share more of its “gigantic” surplus.
“Dear Norwegian friends, this is not normal, it’s not fair,” Marawiecki said in his appeal into a camera. “You are indirectly benefiting from the war caused by (Russian President Vladimir) Putin, coincidentally, of course, because the war in Ukraine isn’t Norway’s fault, but you are indirectly profiting from the war. You should share quickly, not because it’s necessary for Poland, but for Ukraine and those most affected by the war,” he said.
Many Germans and other Europeans are also struggling with high gas prices. At one point shortly after the war began, Norway was raking in NOK 2.4 billion worth of gas every day, often at Europe’s expense. Gas sales to Europe accounted for NOK 259 billion just from January to March, around five times as much as in pre-Corona and pre-war years, reported DN. Just last week, DN could also report that gas prices had risen in May to their highest level in three months. When state oil company Equinor’s gas terminal on Melkøya outside Hammerfest could finally reopen last month after a fire in September 2020, it quickly started generating huge amounts of money as well.
Dealing with the discomfort
As Norway continues to report record trade surpluses, more people like Mateusz in Poland also think Norway should share more of its wealth, and quickly. Economist and professor emeritus Knut Anton Mork acknowleged as early as March that Norway had become a war profiteer. The question, he wrote in newspaper Dagens Næringsliv (DN), is how Norway will deal with the discomfort. Calls within Norway to share more of its wealth have been going out since shortly after Putin invaded Ukraine.
“There’s clearly a need to evaluate whether we should be extra generous now with our foreign aid,” Harald Magnus Andreassen, chief economist at Sparebank 1 Markets, told DN as early as mid-March. That’s when the value of Norwegian oil company Equinor passed the symbolic border of more than NOK 1,000 billion, and when its shares were soaring on the Oslo Stock Exchange. High oil and gas prices always fuel prosperity in Norway and they still are, even after share values have since fallen back.
Espen Henriksen, a professor of finance at the Norwegian business school BI, went so far as to claim that there’s “a moral imperative” that Norway send more aid to Ukraine and elsewhere. Economics professor Halvor Mehlum said the limits put on expenditure or donations of oil revenues don’t apply in “extraordinary situations” like the pandemic or Russia’s widely condemned war on Ukraine.
There are also those who simply have a bad conscience about how Norway has been profiting from the war. “We’re not talking about cynical weapon smugglers here, but our own country,” wrote investor Carsten Hjelde and sustainability expert Petter Fulli in DN earlier this spring. They proposed taking the average oil and gas price over the past five years and investing everything earned over that into a “dedicated solidarity fund” to help rebuild Ukraine and invest in “green energy projects.” Even DN itself editorialized that “we should give away” profits clearly generated on the war: “In a way this money already belongs to those fighting in the trenches in Ukraine. They’re fighting for their country, but also for western democracy. They dying in a war that’s so risky for Norway that we had to think twice before even sending weapons to help them defend themselves.”
Norwegian politicians point to their acceptance of Ukrainian refugees, assistance to other countries receiving refugees and the donations of weapons and medical aid to Ukraine. Aftenposten reported that Norway nonetheless lags behind even much smaller European countries like Estonia and Latvia in terms of its direct support to Ukraine as a percentage of gross national product. At least nine other countries are offering relatively more money than Norway. Parliament wants the government to better account for how much money has been sent to Ukraine, and how it’s used.
Finance Minister Trygve Slagsvold Vedum of the Center Party denies Norway is enriching itself at the expense of Ukraine or gas customers in Europe. Even though Putin’s war has resulted in much higher oil and gas revenue, Vedum stressed that the value of Norway’s huge Oil Fund (where oil revenues are stashed for future generations) has lost more on the world’s stock markets than it has gained in new revenues. Vedum, in his work with Norway’s recently revised state budget for this year, has stressed a need to save money in Norway, and to be careful about increased public spending.
Defense spending is rising, not least since Norway shares a border with Russia, but Prime Minister Jonas Gahr Støre agrees with Vedum that “we must get the most out of every krone.” He has claimed that Norway is “lucky” to still be experiencing economic growth, “but that also means we need to hold back on the state budget.” He’s keen to avoid overheating the budget. While defense has taken on new meaning, other campaign promises last year may need to be postponed in favour of defense, the need to take in more refugees and to boost overall preparedness.
Investors in Norway, meanwhile, have been pouring money into the oil industry again, much to the chagrin of climate activists. Among the investors is the savvy and experienced John Fredriksen, who recently became the largest owner in yet another oil tanker company: Fredriksen sees the oil flowing and in demand again, and knows it will need to be shipped.
While the Polish prime minister wants Norway to send more money to help Ukraine, climate activists and some politicians at home want Equinor to invest its profits in renewable energy projects. Equinor claims it has ambitious plans for alternative energy but seems more interested in continuing to search for even more oil and gas. Other Norwegians are constantly calling on the government to use oil revenues to improve infrastructure and further boost social welfare. The government, as usual, responds by noting how use of oil money is restricted within the country so as not to overheat the economy – not unlike how the central bank raised rates to do the same.
There’s no question that Norwegians in general have been and are continuing to benefit from all their petro riches. Despite all the concerns and newfound economic pessimism expressed recently, Norwegians have still been spending record amounts on homes and holiday homes, cars and boats. Consumer demand has spiked as restaurants have reopened and airlines started flying again after the Corona crisis. There’s a reason why fashion firm Dior is opening a new store in Oslo’s so-called high-end “fashion district,” and why Porsche recently distributed a 36-page catalogue in local media. Someone also recently paid NOK 6.12 million (USD 612,000) for a 27-square-meter cottage without its own toilet on an island in the Oslo Fjord.
There’s clearly still money to burn in Norway, so some of the complaining about higher electricity bills and petro prices at the pump seems out of place. “We have had ridiculously high consumption the past 10 years,” Linda Tofteng Eliassen, consumer economist at Sparebank 1 NordNorge, told Norwegian Broadcasting (NRK) this week. “We Norwegians have had a lot of money. I think people have thought they’ve been living in a normal economy, but it hasn’t been.” Eliassen thinks rising interest rates will bring Norwegians more in touch with reality.
“We have had an unnatural ability to afford things because of very low interest rates,” she said. She acknowledged that some Norwegians will feel the pinch of higher interest rates, compounded by the high electricity rates, fuel- and food prices, “but for most, this is no crisis, just something that has to be tackled.” And their government will remain under pressure to share its wealth, or risk ill will abroad.