Norway – Arctic Drilling Remains off the Agenda

In April, the center-left Ap definitively ruled out any chance that it might allow drilling for oil and gas near the islands of Lofoten, Senja, and Vesteralen in the Arctic Sea if it forms the government after the 2021 general election. The Ap’s declaration is of immediate importance because it confirms that opponents of Arctic drilling control a majority of seats in the current Parliament, which is bad news for state-owned Equinor (formerly Statoil), which had been banking on exploitation of reserves in the area to ensure steady production of the oil and gas that underpin economic stability.

As for the longer term, barring a U-turn by one or more of the parties opposed to Arctic drilling, or an unlikely major shift in the relative legislative strength of the largest parties in favor of advocates of exploiting the reserves, oil and gas production is entering a period of terminal decline. Consequently, political parties will need to put greater emphasis on devising alternative strategies for ensuring Norway’s long-term prosperity, which implies a focus on economic diversification.

In any event, it is doubtful that the Ap might actually end up heading the government after the 2021 elections. While it remains the most popular party, its support is currently running about four points below its 27% vote share at the last elections.

Prime Minister Erna Solberg’s Conservative Party and its coalition partner, the far-right FrP, have also suffered an erosion of support. However, the weakening of support for the governing parties has mostly benefited agrarian (and increasingly nationalistic) Sp, which does nothing to improve Ap leader Jonas Gahr Støre’s prospects for pulling together a stable majority coalition. Local elections later this year will provide a more concrete gauge of voter sentiment than the polls, but the general trends evident in the survey data will likely be confirmed by the election results.

The central bank has begun tightening monetary policy in response to heightened inflation risks generated by a recovery in the oil economy and a very low unemployment rate. An uncertain outlook for the global economy creates some risk of a slump in oil and gas prices that negatively affects growth potential, but with rising tensions in the Middle East clouding the forecast for global oil supply, policy makers may be inclined to err on the side of caution. On that basis, although real GDP growth may tick upward this year, the annual pace of expansion is forecast to remain under 2% in 2019.

Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. This commentary represents a sneak peek from our upcoming political risk reports. For more information please contact us at (315) 431-0511 and sales@prsgroup.com, or explore a subscription to PRS Online and/or ICRG Online today to receive political risk updates.

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