Impact of the Petroleum Tax System in Norway on the evolution of money market and bond yields. Considerations from the “atypical” year 2022

Abstract

We call the year 2022 as “atypical” for the Norwegian budget, given the record revenue that was achieved due to increases in oil and gas prices. After the Russian invasion in Ukraine in 2022, and the subsequent oil cut deliveries from Russia, Norway became Europe's largest supplier of natural gas. The event lead to Norway generating the highest oil and gas tax revenue ever recorded by the Scandinavian government, with spill-over effects on the economy as a whole and on the money market liquidity and hence interest rates in particular.Given the benefit that the Scandinavian state ended up with, as a result of the war in Ukraine, some researchers even argue about its so-called status of “war profiteer”.Also, the Norwegian Krone (NOK) significantly benefited from the demand of local currency from the oil and gas companies, especially in October 2022, when the second yearly tax installment was due. Money market rates skyrocketed in that particular period, as the structural liquidity decreased, signaling the level of oil and gas taxes (and hence the market demand for NOK to pay them) was markedly beyond Norges Bank estimations.