Managing neighbourly relations: how Norway became the EU’s ‘happy outsider’

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Unless you are from one of the Scandinavian countries or are just very enthusiastic about the North European welfare model, you are excused for knowing fairly little about the Norwegian cultural and political identity.

Indeed for decades, the country has been associated only with fjords cruises or fine salmon trades, although more recently, Norway hit the headlines by becoming the European Union’s largest external gas supplier, as the Single Market attempts to cut ties with the Kremlin amid escalating tensions on the Ukrainian front.

More specifically, the Scandinavian country reinforced the historical friendship with Germany, by raising the share of gas supplies destined for the Central European country. It did so primarily by downscaling supplies to other European importers, like Italy, which denounced a reduction by more than fifteen per cent in early October.

The decrease was only temporary, but as Gazprom had stopped gas flows through Austrian territory, concerns mounted around the potential disparity stemming from the Norwegian energetic policy, especially in view of further (predictable) ‘blackmailing’ in the upcoming months by Russia’s state-owned gas company.

Norway’s ambiguous positioning

The great leeway enjoyed by the Nordic state comes, in fact, from its privileged position within the Continent’s political and economic arenas. Norway is among the world’s top sellers of natural resources in terms of oil and gas, exporting billions-worth quantities every year. Needless to say, the country's main customer is the European Single Market, which Oslo is part of, as a member of the European Free Trade Association (EFTA), along with Iceland, Liechtenstein, and Switzerland.

Norway also joined the European Economic Area (EEA) and the Schengen zone, yet not the Customs Union, thus allowing it to set a separate external tariff system from Brussels’. Nor are they part of the EU, of course, as membership was rejected first in 1962 upon French veto, and then again through the 1972 and 1994 referenda, the latter being widely considered the first setback to Continental integration since the Maastricht Treaty concluded two years before. In the end, such ambivalence has turned out to be highly profitable, above all by exempting the North European country from the Union’s stringent environmental and competition law.

Desirable to many, Norway’s status might be yearned for especially by the United Kingdom, still struggling to design a new path for stability since parting with the EU. The alleged similarity between the two frameworks is yet confronted with a few fundamental differences, substantially preventing Britain from reconnecting with the European institutions, at least in the short term.

First, Norway’s close ties with multiple EU Member States – notably, Sweden, Denmark, and Germany – which put pressure on Brussels to hold relations with the Northern country in high regard. On the other side, the UK’s considerably broader international leverage, making it a ‘delicate’ interlocutor for the Union. And finally, the eventual loss of credibility on Downing Street’s part after the Brexit telenovela.

The EU dilemma

Frankly speaking, the Norwegian dossier is unique within the European framework, and, as such, particularly difficult to manage for the EU bodies. For whenever we think of countries on the Continent which are not part of the Union, it is uncommon for those states to deliberately ‘disregard’ attentions from Brussels.

Indeed, Norway proved strong enough. The other main example would be Switzerland, although the latter’s renowned tradition of political neutrality cannot realistically fit the Scandinavian context, instead making it more of a stand-alone case.

And yet, given the latest developments concerning gas supplies, the country’s ambiguity shall no longer be deferred, risking undermining the already fragile equilibria in the Free Trade Area. The European Commission has various tools at hand, starting from negotiating a political agreement on energy prices, or soft-power measures such as increasing pressure on those environmental or legal requirements, Norway is currently unaccountable for.

Another (more ‘extreme’) scenario would see the fjords’ country joining the Union de-jure, thus completing the integration of Europe’s Northern boundaries. After all, one should recall that, together with Norway and Switzerland, the ‘outer seven’ EFTA founding members also featured Austria, Denmark, Portugal, Sweden, and the UK, all eventually becoming effective EU Member States.

Observers perceive this possibility as somewhat unfeasible, mainly on a fiscal basis. For instance, with its generalised VAT rate of 25 per cent, or 15 for food products, Norway has similar fiscal regulations to Sweden and Denmark, still, to the country’s elevated GDP per capita – about 89,000 USD in 2021, against the EU’s 38,000 in the same year (source: World Bank) – would correspond an equally expensive membership fee, quite inconvenient for Oslo’s government.

The bottom line

It is a given that European states have significantly increased their reliance on Norwegian resources since Russia invaded Ukraine. This should by no means be intended as an alarming situation for the Continent’s energetic security, not only for the Nordic state is certainly a dependable client and a reliable interlocutor for EU authorities; but more importantly, because the policy inscribes within a set of concrete attempts to cut ties with Putin.

And yet, it should also be clear by now how the balance of payments is disproportionately in favour of Norway. As of early October, the Norwegian Petroleum Directorate – responsible for the regulation of the country’s oil and gas reserves – estimated that the government’s total net cash flow from the petroleum industry would peak at about 114 billion euros (1.17 trillion Norwegian crowns) in 2022, and 134 billion euros (NOK 1.38 trillion) next year, with a surplus gain of approximately 85 billion euros (NOK 881 billion) compared to 2021, the extra profits being mainly due – the Directorate concludes – ‘to higher estimates for oil and in particular gas prices.’

Data from the Norwegian Petroleum Directorate (Oct 2022).

As the EU Member States still struggle to agree on common counter-measures to the volatile energy prices, such a decisive move has the potential to further ‘erode’ the EU’s voice in the eyes of that part of the Community, which, unlike Germany, cannot realistically design any public investments in favour of households and businesses, without seriously endangering their fiscal positions. Nor are they willing – as some ‘outspoken’ commentators have put it – to finance Norway’s green transition.

To conclude, the European Commission is called to serve once again as a fair mediator on the gas market, just like it did with vaccines against COVID-19. This alone is not expected to restore serenity and solidarity within the Single Market, but it should at least reaffirm the sovereign equality of Member States, despite undeniable political and economic cleavages.

Norway has been, and will remain a strategic ally for the Union, but especially now that the case has aroused international suspicion, the increasing profitability deriving from its position risks providing a reference point for other (wealthy) Members to wish for the same, ambivalent status.