Exchange traded funds that tracks Norway, western Europe’s largest oil producer, have been strengthening on the improved outlook following the Ukraine and Russia standoff, but the Norwegian energy sector is coming up against its own political risks.

The Global X Norway 30 ETF (NYSEArca: NORW) and iShares MSCI Norway Cppd Investable Mkt (BATS: ENOR) both declined 1.7% over the past week. Year-to-date, NORW has gained 5.3% and ENOR increased 8.0%.

Last week, the opposition bloc defied the minority Norwegian government and forced Statoil ASA, along with other producers, to power North Sea developments from land, increasing costs and delaying projects, reports Mikael Holter for Bloomberg.

“The result will be a more difficult investment climate on the continental shelf,” Thore Johnsen, a professor of economics at the Norwegian School of Economics in Bergen, said in the article.

The unexpected change comes after last year’s surprise tax increase on oil.

“Twice in a year, the framework for how oil companies operate has been changed,” Erling Kvadsheim, head of licensing policy at the Norwegian Oil and Gas Association, said in the article. “This can make projects less profitable, because you have to include political risk in your calculations, and makes marginal projects less attractive.” [Norway ETF Lags Nordic Rivals]

The parliamentary action requires companies to provide an electrification system for the fields surrounding the North Sea oil deposit and was intended to bolster efforts to cut greenhouse gas emissions.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.