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Leif Sande, leader of Industri Energi is pictured after his meeting with Norway's Minister of Labour, who has asked for the parties of the conflict within the oil sector to return to the negotiating table in Oslo.NTB SCANPIX/Reuters

Norway's government looks set to allow the first closing of its oil industry in more than 25 years as a deadline to intervene in a dispute between striking offshore workers and employers nears, causing what could be a steep cut in Europe's oil supplies.

The strike over pensions has kept oil prices on the boil as a lack of government action to avert a plan by the oil industry to lock out all offshore staff from their workplaces from midnight (2200 GMT) has taken markets by surprise.

Under Norwegian law, the government could force the striking workers back to duty and has done so in the past to protect the vital industry on which much of the country's economy depends.

The dispute - now in its third week - has raised eyebrows in Norway, where oil and gas workers are already the world's best paid, raking in an average $180,000 (U.S.) a year. Offshore workers clock 16 weeks a year but cite tough conditions for their call for early retirement at 62.

The oil industry has refused to budge and said late on Monday a lockout looked likely.

"We are starting to realize that the government will not be intervening," Eli Ane Nedreskaar, a spokeswoman for the Norwegian oil industry association (OLF), told Reuters.

Leif Sande, leader of Industri Energi, the biggest of the three unions, said he had not heard from the OLF, nor received any signals of potential government moves.

"Our members are preparing for the lockout and will travel back to land at midnight," he said.

About 10 percent of the 7,000 offshore workers have been on strike since June 24.

Brent crude oil shot to over $101 a barrel on Monday on output fears.

"If a lockout happens, then it is serious not only for Norway but perhaps even more so for Europe, which is dependent on Norway for a large portion of its energy," said Nordea analyst Thina Saltvedt.

She added, however, that any lockout was unlikely to last long. The strike has already choked off some 13 per cent of Norway's oil production and 4 per cent of its gas output.

A full shutdown of output in Norway - the world's No. 8 oil exporter - would cut off more than 2 million barrels of oil, natural gas liquids (NGL) and condensate per day.

Last year, oil prices soared close to $130 per barrel after a revolution in Libya cut off 1.6 million bpd of the country's production although analysts do not expect an outage in Norway to last more than a few days as opposed to months in Libya.

"I do not think that we are going to see a lockout. At the same time, I am a bit surprised that the conflict has lasted this long," said Anne Gjoen, an analyst at Handelsbanken. "I will be extremely surprised if there is a lockout."

Norway is keen to retain its image as a reliable supplier of energy, but the Labour-led coalition government has been reluctant to intervene as it faces general elections in a year, and labour unions are important partners.

Kristine Nergaard, a researcher at the Fafo Institute for Labour and Social Research, said any intervention would involve the government initiating legislation on compulsory arbitration to stop the strike.

"When [the workers] get the message that legislation has been proposed, they will go back to work immediately, even if it would take time to approve the legislation," she said.

The last lockout in the offshore sector occurred in 1986, shutting down production on the Norwegian continental shelf completely, and lasted for three weeks before the government intervened. In 2004, the centre-conservative government stepped in to avert a lockout.

Norway's oil sector has grown exponentially in recent decades and energy now accounts for about half of the country's total exports.

Norway's state-controlled Statoil ASA, which dominates the sector, said a shutdown of all its production would take one to four days.

It said on Monday it was considering claiming force majeure - an inability to honour contracts due to circumstances beyond its control - toward transporters left without shipments.

"We cannot speculate whether the government will intervene or not. We have to take the threat of a lockout seriously," said Bard Glad Pedersen, head of information at Statoil.

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