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Paz owns Israel's largest chain of petrol stations

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Decision comes amid campaigns for fund to boycott Israel

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Norway PM says engagement is a better strategy

(Updates comment requests in paragraphs 3, 12, updates bullet

points, adds context on boycott calls in paragraphs 7, 14-16,

19-20, interview with PM in paragraphs 17-18)

By Gwladys Fouche

OSLO, May 11 (Reuters) - Norway's sovereign wealth fund,

the world's largest, said it had sold all of its shares in

Israel's Paz Retail and Energy because the company owns

and operates infrastructure supplying fuel to Israeli

settlements in the occupied West Bank.

The divestment, announced on Sunday, was the second of its

kind by the fund after its ethics watchdog in August adopted a

tougher interpretation of standards for businesses that aid

Israel's operations in the occupied Palestinian territories.

Paz, which says on its website it has also sold and

marketed fuel to the Palestinian Authority, declined to comment.

It was the latest decision by a European financial entity to

cut back links to Israeli companies or those with ties to the

country since the outbreak of the war in Gaza in October 2023.

The move comes amid an

intensifying campaign

in the Nordic country for the fund to divest entirely from

Israeli companies.

The fund's first such divestment was from Israeli telecoms

firm Bezeq in December.

The fund, which owns 1.5% of listed shares across 9,000

companies globally, operates under guidelines set by Norway's

parliament.

It held stocks worth 22 billion crowns ($2.10 billion)

across 65 companies listed on the Tel Aviv stock exchange at the

end of 2024, according to its own data. They represented 0.1% of

the fund's overall investments.

Paz is Israel's largest operator of petrol stations and has

nine stations in the occupied West Bank.

"By operating infrastructure for the supply of fuel to the

Israeli settlements on the West Bank, Paz is contributing to

their perpetuation," the fund's Council on Ethics watchdog said

in its recommendation to divest.

"The settlements have been established in violation of

international law, and their perpetuation constitutes an ongoing

violation thereof," it added.

The Israeli embassy in Oslo did not immediately reply to a

request for comment.

BOYCOTT PRESSURE

The U.N.'s highest court last year said Israel's occupation

of Palestinian territories and settlements there were illegal

and should be withdrawn as soon as possible, in a ruling that

Israel rejected as "fundamentally wrong" and one-sided.

On Friday, Norway's powerful LO trade union voted in

favour of a full economic boycott of Israel.

Campaigners say the government should instruct the fund

to divest from Israeli companies in the same way

it instructed the divestment from Russian companies

three days after Russia launched its full-scale invasion of

Ukraine in February 2022.

The Labour-led government, which has close ties with LO,

is so far resisting the pressure.

"We don't plan to change our strategy," Prime Minister

Jonas Gahr Stoere told Reuters on Friday after the LO vote,

saying engagement, rather than boycott, was the way to influence

behaviour.

"But I hope Israel is reading that this (the boycott) is

an expression of a significant part of public opinion," he said.

Norway

helped initiate

a hearing at the International Court of Justice,

held earlier in May

, to push Israel on its obligations to facilitate aid

deliveries to Gaza.

The government says it is best to let the fund's ethics

watchdog conduct its work as per ethical guidelines agreed in

parliament. Campaigners say the watchdog works too slowly.

($1 = 10.4531 Norwegian crowns)