The oil industry views the untapped waters around the Lofoten and Versteraalen islands as one of the best remaining prospects off Norway, the world's fifth biggest oil exporter, whose output has fallen by a third in the past decade.
But Norway’s green and socialist movements oppose oil and gas activities in the region, which is home to Europe’s largest cod stock and unique cold water reefs.
A decision on whether to order an impact assessment study for drilling in Lofoten – the most divisive issue in Norwegian politics – is due within weeks.
On March 9, Labour MPs asked Prime Minister Jens Stoltenberg to negotiate a way out of the stalemate with SV, possibly by changing the study's name or tweaking its scope.
But the Socialists rejected this. "We can't accept any study that leads to opening the region for oil and gas activities," SV's energy spokesman Snorre Valen told Reuters. "We simply won't compromise on this."
Oil industry pressure
The ruling coalition has survived for six years, partly by delaying decisions on the Lofotens. But pressure from the oil industry, trades unions and some local people is forcing Labour to move on the issue.
The SV environment minister Erik Solheim played down the chances of a government collapse to the Aftenposten newspaper.
"The government has for the past six years shown a phenomenal ability to survive. We have like Lazarus risen from the dead, and several times at that," he was reported saying.
Norway’s oil row comes as a report by the US National Academy of Sciences warns of a new struggle for oil and gas resources in the Arctic by 2030.
Melting ice cover due to climate change will upset the Arctic power balance and intensify unresolved disputes among countries with Arctic borders.
These include Norway, the US, Canada, Denmark, Russia, Iceland, Sweden and Finland.
"The geopolitical situation in the Arctic region has become complex and nuanced, despite the area being essentially ignored since the end of the Cold War," the study says.
It predicts a low chance of conflict but cautions that that "co-operation in the Arctic should not be considered a given even among close allies."
(EurActiv with Reuters.)