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MONEY

How will the war in Ukraine impact the cost of living in Norway?

Economic sanctions imposed on Russia in response to the invasion of Ukraine are already making their impact felt at petrol pumps, but what other knock-ons are there for the cost of living in Norway?

Shoppers in Tromsø
The war in Ukraine is going to have an impact on the cost of living in Norway. Pictured is shoppers in Tromsø. Photo by Chris on Unsplash

This week has already seen record-high prices for energy, petrol and diesel in Norway as a result of rising gas and oil prices triggered by Russia’s invasion of Ukraine.

The knock-on effects of the war are likely to be felt by Norwegian consumers even more in the near future, with the invasion impacting everything from the cost of fuel and energy to food and flight tickets.

Energy prices

Earlier this week, electricity prices topped 10 kroner per kilowatt-hour for customers in parts of Norway, when taxes and grid rent are included. Unfortunately for billpayers, this price is likely to rise in the future due to a mix of domestic factors and steps taken by Europe and the United States to ban oil or gas imports.

Even though the country relies primarily on hydroelectric power for its energy needs, sanctions against Russian oil and gas imports will still affect energy prices. The cost of electricity typically follows international oil and gas prices, which are at their highest level since the Global Financial Crisis in 2008.

Some consolation to households will be the government saying that it would look to continue its energy bill subsidy scheme, which sees the state pick up 80 percent of the bill if prices remain high.

The new minister for oil and energy, Terje Lien Aasland, told NRK that “for as long as energy prices are high, then we will contribute” and that the scheme would continue.

Food 

In February, monthly food prices rose by 4.5 percent, the largest monthly jump since 1981, figures from Statistics Norway released on Thursday revealed.

The rises seen in February weren’t a result of the war in Ukraine. However, industry heads have said that the war in Ukraine was likely to inflate shopping bills in the future.

“This is the first signal that there will be more (food price increases) here in the future with the war in Ukraine and the effect it gives. Inflation is high, and will be higher (as a result),” chief economist at food producer Nordea, Kjetil Olsen, told public broadcaster NRK.

The war in Ukraine affects food prices in two ways. Firstly, soaring fuel and energy costs increase overheads for producers, which are then passed onto suppliers, then to supermarkets and finally to consumers.

READ MORE: Why is food in Norway so expensive?

Secondly, Russia and Ukraine account for a third of the world’s barley and wheat exports, meaning the price of raw materials will also go up.

The impact of these factors won’t be felt straight away, though. This is because supermarkets typically only adjust their prices twice a year, once in February and once again in July. 

Fuel

Soaring crude oil prices have had a knock-on for fuel. Prices have already topped 25 kroner per litre for both petrol and diesel, and analysts have said that the squeeze at the pumps could become even tighter in the near future.

Professor Øystein Foros at the Norwegian School of Management, who has studied fuel prices for 20 years, told broadcaster TV2 that “The price of oil determines the price of petrol. If the oil price goes up more now, then we can get petrol prices of 30 kroner a litre”.

Fuel prices won’t just affect those at the petrol pumps, but also those at check-in terminals. This is due to the rising cost of jet fuel likely leading to more expensive airline tickets.

This will make it more expensive for foreign residents to visit friends and family back home and vice versa.

Airlines tickets may go up because some of the most popular airlines operating in Norway, such as Flyr, Norwegian and SAS, don’t have a fixed price agreement on fuel, meaning they are paying current market prices, which have soared recently.

Wages could go up

One unexpected effect of the war in Ukraine and one which could help offset some of the cost of living increases is the potential for wages to be increased. 

The country has just entered its wage settlement negotiation season. This is where unions and employers enter talks over how much wages for workers will increase for the year.

Increased inflation means unions are likely to push for higher wages to ensure that workers purchasing power doesn’t shrink.

“I envisage a possible wage increase of around three to four percent,” Kyrre Knudsen, chief economist at Sparebank 1, told NRK.

“The high prices of electricity, fuel and eventually food will pull up inflation. Now it is assumed that inflation will be around three percent, and then you will get a wage increase that exceeds inflation,” he explained.

“When you gradually sum up 2022, the salary for most people will have increased slightly more than the expenses, despite the fact that it looks quite dark right now,” Knudsen added.

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UKRAINE

War in Ukraine casts a chill in Norwegian Arctic town

War may be far away but tensions from the Ukraine conflict are causing an unprecedented chill in a remote Arctic town where Russian and Ukrainian coalminers have worked side by side for decades.

War in Ukraine casts a chill in Norwegian Arctic town

 In Barentsburg, in Norway’s Svalbard archipelago, relics of a bygone era — a bust of Lenin, a sculpture with Cyrillic script declaring “Our goal – Communism” — bear witness to Russia’s longstanding presence.

The town’s population peaked at around 1,500 in the 1980s, but shrank after the Soviet Union collapsed.

Now, some 370 people live here, two-thirds of them Ukrainians — most from the Russian-speaking eastern Donbas region — and the remainder Russians.

The atmosphere on the archipelago changed after Russia’s invasion of Ukraine began in February, officials and residents told AFP.

“Opinions are absolutely polarised,” admits Russian tour guide and historian Natalia Maksimishina.

But, she says, “what our long and difficult history of the Soviet Union has taught us is that people here know when to stop talking politics”.

Some Ukrainians accuse the Russian state-owned company Arktikugol Trust operating the coal mine in Barentsburg of muzzling dissent.

But Russia’s consul Sergey Guschin says there were “no visible signs of conflict on the surface”, although he admits “there are of course some tensions and discussions on social networks” like Facebook and Telegram.

The consulate is protected by high iron bars and security cameras, and lavishly decorated with a marble entrance, winter garden and custom-made tapestries. Its splendour stands out in the otherwise drab town.

Departures

In what could be another sign that anger is simmering under the surface, around 45 people have left Barentsburg “since the start of the operation”, acknowledges Guschin, using Moscow’s terminology for the Ukraine invasion. There were no further details about the individuals.

The departures speak volumes, as leaving Barentsburg is no easy feat. estern sanctions imposed on Russian banks have not only prevented the miners from sending money home to their families, they’ve also made it difficult for them to buy plane tickets.

The only airport is in Longyearbyen, Svalbard’s main town 35 kilometres (22 miles) away, where it is difficult to get by without a Visa or Mastercard, which Russians cannot use because of sanctions.

At the entrance to Barentsburg, the coal plant spews out black smoke, adding to the town’s dreary atmosphere.

A 1920 treaty which gave Norway sovereignty over Svalbard guarantees citizens from signatory nations equal access to its natural resources.

Russia’s Arktikugol Trust has operated the mine in Barentsburg, on the shores of the Isfjorden fjord, since 1932.

 A few locals huddle between the town’s pastel-coloured buildings, seeking shelter from the bitter cold that reigns even in May.

Locals are more discreet today, especially since they work for the state-controlled company that runs the whole town, from the mine to the shops and restaurants.

Russia imposes heavy fines or even prison terms on anyone found guilty of “discrediting” its military or publishing “false information” about it.

‘People just shut up’

Longyearbyen is inhabited mainly by Norwegians but has a large Russian and Ukrainian community.

It can only be reached by helicopter or snowmobile in winter and boat in summer due to lack of roads from Barentsburg.

Julia Lytvynova, a 32-year-old Ukrainian seamstress who used to live in Barentsburg, accuses Arktikugol Trust of suppressing dissent

As a result, “people just shut up, work and live their lives like nothing has happened”.

She hasn’t been back to Barentsburg since the war started, but she asked a friend to put up an anti-war poster for her on the gates of the Russia consulate.

Her sign, written on a blue-and-yellow background, had a now-famous expletive-laden line used by Ukrainian border guards after rejecting a Russian warship’s surrender demand. Her poster was taken down in less than five minutes, she says.

The mayor of Longyearbyen, who has lived in Svalbard for 22 years, says he has “never experienced the kind of discord” now seen among the 2,500 residents of 50 nationalities, including around 100 Russians and Ukrainians.

“There are some tensions in the air,” Arild Olsen admits.

n response to the invasion, most tour operators in Longyearbyen stopped taking tourists to Barentsburg, depriving the state-owned company of a lucrative cash cow.

Lytvynova supports the move “because this money supports the Russian aggression”. By ending this source of income, “they don’t help to kill my Ukrainian people”.

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