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Norway's 1.6 trillion dollar 'oil fund' explained

Frazer Norwell
Frazer Norwell - [email protected]
Norway's 1.6 trillion dollar 'oil fund' explained
Have you ever wondered how exactly Norway makes money from oil, and what it does with the revenue. Pictured is an oil rig in Norway. Photo by Jan-Rune Smenes Reite:

Norway's wealth fund is the biggest in the world, but where does the money come from and what does the country do with it all?


The sovereign wealth fund is the money the Norwegian state generates from oil. 

The Norwegian government has three revenue streams from oil, Professor Halvor Mehlum from the economics department at the University of Oslo explained to The Local. 

READ MORE: Why is Norway such a wealthy nation?

Firstly, there is a surplus tax of 78 percent on all oil companies that operate in Norwegian waters. Secondly, the state earns dividends from government ownership in oil companies. The primary source of this income is from the 70 percent share it has in Equinor, and thirdly, the government earns money from the direct ownership of drilling rights in Norway's waters. 

Norway puts its oil revenues into the Government Pension Fund, the largest sovereign wealth fund in the world. In simple terms, the Government Pension Fund, or oil fund, is a giant savings pot that makes its money by investing in more than 9,000 companies all over the globe.

Some 70 percent of its funds are invested in shares and oil fund holds on average 1.5 percent of listed companies worldwide.

The fund is valued at around 16 trillion kroner or 1.6 trillion dollars. You can see the real-time value of the fund here on the Government Pension Fund's website.

What does the government do with the money? 

The money doesn't get invested just to sit in a big pot, though. Instead, the government uses the fund for public spending. 

"The oil revenue goes to finance the government budget—all parts of it. There is no earmarking of oil money for certain sectors such as health, education, pensions, the police and the army, for example," Professor Mehlum told The Local. 


Oil money makes up massive chunk of government spending. 

"It amounts to more than 20 percent of the budget, and about 10 percent of mainland GDP (which excludes GDP generated by offshore oil," Professor Mehlum said. 

The possibility of topping up the state's coffers with this cash is crucial for the Norwegian government. 

"Without this source of funds for the budget, the government would have to reduce spending drastically or increase taxes way beyond what is possible," the economics professor explained. 

What mechanisms are in place to stop the money from being mismanaged? 

With oil being a finite resource and the wealth generated by the sovereign wealth fund being crucial to government spending, it's massively important to ensure that the money isn't misspent. 


To prevent the government from draining the fund's reserves, there is a limit on the amount of money the state can use from oil revenues. 

"The government may spend an amount equal to 3 percent of the fund every year. If the cash flow is larger than the spending, then the rest is added to the fund," Professor Mehlum said. 

However, the limit on government oil spending isn't legally binding and is more of a flexible benchmark. Despite the rule not being legally binding, the government needs to keep the proportion of the budget made up of oil revenues to sensible limits to keep voters and the central bank happy. 

"The demand for restraint comes from two concerns among the voters. They are worried about the future, their pensions and their kids' tax burden. Also, they are worried that excessive spending will lead to interest rate hikes that hurt them seriously due to the heavy mortgage on their houses," The professor said. 

Does Norway's oil money pose any moral dilemmas? 

Yes. The first concern is how the fund invests its money. With the revenues being invested in thousands of companies and projects across the globe, it can be hard to keep track of whether the money is being spent in a morally responsible way. This can mean investments end up funding questionable companies. 


The fund has pulled cash from a brand accused of using forced labour in China and firms with illegal buildings on the West Bank in recent times. However, according to the professor, the fund's awareness of making socially responsible investments has only started to increase in recent years.  

"The fund is not very different from other funds. Over the years, pension funds, in general, have been more engaged in human rights, the environment, labour standards and not investing in mines, nuclear weapons and tobacco. 

The Norwegian fund has joined that trend and seems to be somewhat at the forefront of that process," he said. 

Events out of the fund's control can also lead to moral question marks hanging over it, such as the war in Ukraine, which has seen Norway inadvertently profit. 


"As Europe imports less natural gas from Russia, the prices Norway can charge are through the roof. In short, Norway profits massively as continental Europe stands up to Russia. Is that fair? I would say no," Professor Mehlum said. 

The oil fund has teams responsible for monitoring the behavior and work practices of the funds it works with.

When issues are brought to the fund's attention, it doesn't always divest to wash it hands of the company in question. Instead, it may use its stake in a company to try and influence its actions and ensure it acts responsibly. 



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