OSLO, May 12 (Reuters) - Norway's government said on Tuesday it expects the state to earn 721.1 billion crowns ($78.71 billion) this year in revenue from oil and gas production, up from 557.4 billion initially forecast, as the Iran war pushes up energy prices.
Norway produces around 4 million barrels of oil equivalent per day, but the minority Labour government said the windfall revenue from higher prices should be added to its sovereign wealth fund, already the world's largest at $2.2 trillion.
Unlike other European countries, Norway runs large fiscal surpluses thanks to its fund, but it must still limit spending to avoid fanning domestic inflation by stimulating demand too much and driving up interest rates.
Last week, the Norwegian central bank raised its key policy rate by 25 basis points to 4.25%, moving sooner than analysts had expected, to quell inflation driven by strong wage growth and high energy costs.
LOWERS ECONOMIC FORECAST
The government estimated that the price of crude oil will average $91 per barrel this year, up from $67 seen in October, and that natural gas will cost $14.0 per million British thermal units (MMBtu), up from $10.4 per MMBtu.
The finance ministry cut its forecast for economic growth outside the oil industry, known as non-oil GDP, to 1.7% in 2026 from 2.1% seen in the original budget bill last October, blaming the weaker outlook on the fallout from the Iran war.
The government, which is unpopular according to polls, faces tough negotiations in parliament to secure a majority for the budget from opposition parties hoping to overrule Labour's priorities.
Cash spending from the fund is now seen at 579.0 billion crowns this year, down from 584.0 billion planned last December, the government said in its revised budget.
($1 = 9.1616 Norwegian crowns)
Reporting by Terje Solsvik, editing by Gwladys Fouche
Source: Reuters