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Norway is often held up as a model for Arctic countries looking to ensure that they can make the most of their newly available natural resources. But new concerns about the country’s reliance on oil may have them thinking twice about following in its footsteps.
Thanks to a mix of vast oil reserves and a spendthrift attitude towards using the profits the oil generates, Norway has become the envy of many resource-rich countries, amassing a massive sovereign wealth fund that holds $170,000 for every resident of the country of 5 million.
On top of that, Norway has budget surpluses, a sterling credit rating, low unemployment and a cradle-to-grave network of social services.
Economists have long warned, however, that Norway has gradually developed an addiction to oil that could wind up undermining its economy.
Those concerns were given new credence in the a report about country’s economy released by the OECD, an economic organisation, earlier this month.
“The ripple effects from a weak oil sector may be greater than expected,” the OECD wrote.
Few expect that Norway’s oil industry will come screeching to a halt, but oil does account for a fifth of Norwegian economic output, and after a period of strong investment, the industry is forecast to slow significantly. The OECD concluded that while Norway’s short-term outlook is good, it remains vulnerable to fluctuations in oil prices.
Should the world demand for oil rebound, Norway will be in good shape in the long-term, said the OECD. But uncertainties, such as the development of shale gas and the development of renewable energy technologies may undermine the economy’s prospects.
Prices may go up and prices may go down, but production is headed in one direction: down, and faster than expected. What’s more, with its reserves in the Barents Sea not living up to their promise, the country is looking to be heading for a life after oil well before it planned on doing so.
Tord Lien, the oil minister, said he agreed with analysts when he admitted earlier this month that Norway’s oil boom was “probably over”, even though he underscored that neither production nor investment were declining sharply – yet.
Should it come to pass that they do, the OECD remained confident that Norway would pull through, pointing out that the country’s policy tools were adequate to help the economy adjust to sudden changes.
It also underscored that despite the country’s reliance on oil – and this is where those trying to copy the Norwegian miracle should take note – growth in other sectors of the economy would soften the blow.