It doesn’t take a genius to tell you that oil production is one of the most important sources of investment in the world. Whether environment activists like it or not, oil plays a major part in the economies of some major countries over the world.
Some of those countries even have economies completely built on oil and energy businesses. The problem with oil and fossil fuels is the fact that they’re not exactly a sustainable solution, as they will not last forever.
This is one of the reasons why many voices want governments to head towards more energy friendly solutions and clean energy, not to mention the damage that fossil fuels have on the environment. Norway, of the biggest oil producers in the world, has started taking action, and they’re dumping some of their oil stocks.
The trillion-dollar oil fund
Norway happens to be a major oil producer and a country whose economy is very tied to oil production. Yet they decided to take the initiative and ditch some of their oil stocks for several reasons. This will affect their sovereign wealth fund, which is estimated at 1 trillion dollars, and it will lose about 8 billion dollars (70 billion Norwegian krone) worth of shares in over 130 companies who are heavily invested in oil production and extraction.
While the move might come as a shock to anyone aware of Norway’s heavy investments in oil production, it does make sense. The move has taken over a year of deliberations, and the finance ministry gave a good reason for this decision.
A country like Norway heavily depends on oil production and a good chunk of its finances rests on the oil market. If something happens to the international oil market, this means Norway’s economy might be at risk, and the USD to NOK math might go in a direction the people of Norway wouldn’t like.
Most countries who depend heavily on oil are subject to having their currencies affected by oil prices, and in the worst case scenarios, those currencies can significantly crumble against the dollar. This is why diversification is important.
By selling some of the oil companies, the government ensured that the vulnerability of their commonwealth decreases and the risk factors are somewhat managed.
Does it affect everyone?
Fortunately, it doesn’t. The Norwegian government was smart enough to exempt major industry players like Shell and Exxon Mobil from this decision, and it’s because they have different interests in the energy sector themselves.
These companies are not only invested in oil production and manufacturing, but they’re also well invested in different forms of energy and have a big role in renewable energy sectors.
This is why none of these companies with diverse business models is going to be sold.
How will this affect the stock market in Norway?
While this move is still to be approved by the parliament, it is definitely going to make waves in the Norwegian stock market and might have some significant effects on the Norwegian krone.
While the country’s wealth fund was basically built on oil money, indicators show that the future holds other plans as pressure from the international community builds upon countries to manage their fossil fuels to protect the environment.
Pessimists fear that this move might have the opposite of the intended and might actually lower the Norwegian krone versus the US dollar. In any case, only time will tell if this was the right move.
© #Norway Today