Decision Season

With Parliamentary elections looming, more Norwegians than usual are asking themselves the tough questions. It is now apparent that the slump in oil is not a temporary one. What will the country do now? Time for the lottery winner, after receiving the last annuity, to get a job before burning out the savings. Many are looking towards the sea, fishing and exploiting underwater natural resources. Others are looking to blast open the mountains to do the same.

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However, commodity based economies, third-world in nature, are subject to mother nature’s whims, innovation, and ruthless competition.  Moreover, it creates complacency, catching the nation off guard when there is a shift in the supply curve (instead of hitting peak oil, the opposite happened). Hence, the decisions or lack thereof, made during the next four years will impact future generations. Two generations of Norwegians grew up on the delusion that their society, built on pre-socialist values and high oil prices, can endure any challenge.

The Fund’s withdraws could accelerate amid a global financial crisis: politicians burning cash to shore up the economy and secure votes.

Burn Rate

Taking the sovereign wealth fund (The Fund) for granted, many fail to realize that the underlying investments are all pinned to the prevailing low-interest rate climate. If inflation gets out of control and rates must be pushed up to cut it off, the effect on stock and bond values could be substantial.


Norwegian GDP growth correlates to oil prices.

Currently, assuming constant tax revenues, budget and oil fund value, Norway is in great shape: able to fill the budget gap for the next 30 years. But then what? Also, one must ask, how often do assumptions, which depend on everything remaining constant, endure the test of time? Is it possible to dodge a decade’s worth of black swans, some of which haven’t even been born yet? Based on observation, most believe that a miracle will happen, like it did in the past (stumbling onto one of the largest oil reserves just offshore), or the situation will just work itself out.

The New Normal

Yesterday’s lows are today’s highs: far off the $70/barrel required to balance the budget.  Technology turned oil, a once scarce resource, into an abundant commodity.


Rising rig counts rose, in the latest months, despite flat to downward trending oil prices, indicate lower break-even prices.

The technology from the American Energy Renaissance, is going global, offering all nations additional options, regarding energy sources. In addition to continuously improving fracking technology, clean coal, natural gas, wind, and geo-thermal sources, further reducing the need for imported hydrocarbons.

The Fish Story vs. Reality

Although many Norwegian leaders believe that the nation can switch from one commodity to another, fish cannot replace oil.  However, the Norwegian Salmon’s strong brand equity could be diminished by increased on production on the back of industrial techniques. Moreover, commodity production, especially this kind, can be replicated worldwide.

The coastlines of the UK, Iceland, Greenland, Canada, Chile, Maine, Alaska, Japan, and Russia offer similar habitats, suitable for fish farming, like those of coastal Norway.  Moreover, fish farming is not rocket science. The required equipment is available on Alibaba.  Perhaps that’s where Salmar bought their latest system.


Sources: Statistics Norway: and Fish Information and Services (

In addition to the law of supply and demand realities, new entrants joining the marketplace as long as profit opportunity exists, industrial fish farming offers a new set of problems:

  • Sea Lice poses one of the greatest challenges. Concentrated and congested in relatively small pens, the critters spread quickly, contaminating entire batches. Although the lice itself is not harmful to humans, it kills the fish. Currently, the Norwegian Ministry of Food and Industry states that there is a high risk of fish dying from lice between Karmøy and Sotra. Sometime soon, they will have a color code system (red, yellow, or green), overlaying a map of the nation’s coastlines, indicating risk levels.
  • Escapes post a major environmental hazard similar to that of Kudzu in the American South. When the genetically engineered (GMO) fish find their way into the open seas, they inevitably breed with the wild fish, weakening and mutating them. Based on a recent study, the problem is widespread.

Scientists tested half the rivers in Norway and found that every wild Atlantic Salmon population contains significant “Frankenstein” genes, introduced by the GMOs.  Escapes happen when storms tear open the containment nets, freeing hundreds of thousands of Salmon. Also, sloppy handlers and smolt (baby salmon) can slip out of containment system. The problem was so widespread in 2013 after a major “jailbreak”, which freed 127,000 fish, that a major fish producer offered a bounty: $90 per recaptured fish.


Nutritional differences exist between farm raised and natural salmon. Source: Alexandra Morton – an activist in Canada. Norwegian salmon distinguishes and defines itself on quality. Mass production could diminish that advantage. 

Fish, especially Salmon, are an important component to the Norwegian economy but considering the public expenditure, marketplace competition, and industry risks outlined above, it will not carry the country forward.

Debt Fueled Economy

Nevertheless, Norway continues to party on.  The nearly trillion-dollar sovereign wealth fund can carry the nation forward until they find a strategic replacement to oil: but for how long?


Norwegian consumers are some of the most indebted in the world while the national government runs accelerating deficits in the face of a declining oil industry.  Source: and the Norwegian Ministry of Finance

There are risks that could shorten that ability. Consumer debt, fueled by excessively low interest rates and rapidly growing money supply as well as a widening budget gap, could stoke a crisis. Such a crisis, generally international in nature, could also hit asset prices in a time of need, reducing the lead time from 30 years to perhaps 10. Imagine withdrawals accelerate while The Fund’s value takes a hit from a major stock market pullback and bursting of the bond bubble?


Source: M1 ,M2 & M3 Money Supply Aggregates. It is quite apparent that once issued, currency is hard to take back. Norwegians are not supposed to discuss this but rather just trust in Norges Bank.

Sadly, very few Norwegians understand the underlying economics tied to their prosperity, blindly believing the headlines and Central Bank headline statements.  Who is richer, the guy with a new BMW bought on credit or the used Chevy bought with cash? Culturally, there is a lot of public trust in Norges Bank (The Norwegian Central

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