For a while there, it looked like China's rage over the Nobel Peace Prize would have serious repercussions for Norway.
Livid about the decision to honour Chinese dissident Liu Xiaobo, Beijing postponed free-trade talks with the Nordic nation. And there was much hand-wringing over the future of the Norway's seafood industry, which exports huge quantities of raw fish to China.
In the end, business came first. Seafood sales have reportedly continued to thrive and on the same day the prize was awarded, State owned China Oilfield Services announced a contract with Norway's Statoil for drilling in the North Sea.
Besides, scrapping the free-trade pact is more of a political punishment than an economic one, analysts say. Norway, one of the world's largest oil exporters, is already a primary economic beneficiary of the emergence of China. And no trade policy can change that.
Simply put, oil drives Norway's economy and China drives the price of oil. Between 2003 and 2010, Chinese oil consumption grew to 9.5 million barrels a day from 5.5 million barrels a day.
"China could buy oil from Australia, wherever, we'd still benefit," said Knut Anton Mork, Handelsbanken's chief economist on Norway.
So forget trade pacts. The real concern, Mr. Mork says, is what will happen when Norway's massive oil supply runs out. And it will run out, he adds, declining over the next 25 to 30 years until it becomes "trivial."
Norway's dependence on oil revenues is staggering. Direct production of oil and gas accounts for about 20 to 25 per cent of the country's gross domestic product. The figure is even higher, close to 35 per cent, when you include secondary industries dependent on the flow of crudel, Mr. Mork says.
With oil, the Norwegian government's revenue per capita in 2008 was nearly 321,000 Kroner ($54,000 U.S.)
Without oil? About 232,000 kronor, or $39,000.
It's not that Norway hasn't been prudent – by law, oil revenues flow straight into its sovereign wealth fund, now one of the largest in the world, with a value of $512-billion.
But the government's long term fiscal plan, while accounting for the decline in oil revenue, doesn't account for the hefty contribution of secondary industries tied to oil. Those figures are buried in the "non-oil" figure, Mr. Mork says. And with one out of every four working-age Norwegians living off some kind of support from the country's generous social welfare system – be it disability pensions, sick pay or rehabilitation – it's a calculation the government can't afford to get wrong.
"This, I think, is going to be a rude awakening and it may come in as soon as 10 to 15 years," Mr. Mork said.
"Norway has the time to make changes, but it should not wait too long."
Eds Note: Tomorrow, Economy Lab will examine Norway's energy options
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