The Geopolitics of Iceland

Geopolitics_Iceland 1 Apl. Prof. Dr. Dr. K. Saalbach Geostrategy and Geopolitics Department 1 49069 Osnabrueck The Geopolitics of Iceland 02 March 2026 Summary This working paper analyzes the geopolitics of Iceland that covers an area of 103,125 km² near the Arctic Circle. In 2024, Iceland had 364,036 inhabitants. The main geopolitical problem for Iceland is its central location in the Greenland-Iceland-United Kingdom (GIUK) gap in the defense against Russia, its role as provider in the Sea Lines of Communication SLOC between the United States and Europe and its potential future as trade center for the new shipping routes. On the other hand, it is a small state without an own army. For this reason, the aim of the Icelandic geopolitics is to be embedded in and protected by institutional arrangements. In the military sector, this is achieved by the bilateral agreement with the United States from 1951 who give a security guarantee to Iceland. Iceland provides host support to NATO partners and exercises, as needed. Iceland is economically closely linked to Europe as member of the European Free Trade Area EFTA and the European Economic Area EEA which is the cooperation between EFTA and the European Union EU. As other Nordic States, Iceland is engaged in regional cooperations, the Arctic Council, the Nordic Council and the West-Nordic Council. Iceland is strongly engaged in search and rescue SAR operations with its Coast Guard for an area of 1.9 million km². Strategic issues for Iceland are the Arctic and Security Policy, potential new shipping routes due to the melting ice, the GIUK and GIN gap, the defense of Sea Lines of Communication SLOC and against cyber threats and the EU Membership. The work and the experience in the Arctic Council were the basis for Iceland’s first and second Arctic Policy from 2011 and 2021 with the four key areas international cooperation, climate change, security, and defense and Arctic research. Regarding the shipping routes, the Central Sea Route (TSR) could make Iceland to a very promising place for a large port. Where the Arctic meets with the Atlantic, there are possible gaps (sea passages for the Russians) known by NATO as GIUK (Greenland, Iceland, and United Kingdom) and GIN (Greenland, Iceland, and Norway). As Iceland is in the center of GIUK and GIN gaps, the NATO carries out air-surveillance missions from Iceland. Air policing from Iceland is also a part of the 2026 Exercise Arctic Sentry. Based on the availability of cheap energy resulting from the high geologic activity in Iceland, the country has a rapidly growing data center industry. The country hosts pivotal digital infrastructures and deep-sea cables of crucial importance to NATO and the broader Euro-Atlantic region. Also, Iceland’s satellite communication infrastructure, includes several essential ground stations for the NATO. For this reason, Iceland is a target for malicious cyber activities. Iceland plans to reactivate the EU accession procedure which could be a major strategic gain for the European Union in the Arctic Region. However, an EU membership still faces major obstacles. Iceland already has the Hoyvík Agreement with the Faroe Islands that established a single economic area. Furthermore, there is a free trade agreement (FTA) with China since 2013. If both agreements are not suspended, an EU accession of Iceland would factually include the non-EU member Faroe Islands into the EU and open a free-trade door for China into the EU. In summary, while Iceland’s geopolitics was successful in ensuring military and economic stability by agreements with the United States and Europe, several strategic challenges need to be resolved in the near future. Geopolitics_Iceland 2 Content 1 The Geopolitics of Iceland .................................................................................................................... 3 1.1 Introduction ................................................................................................................................... 3 1.2 The Map of Iceland ........................................................................................................................ 3 1.3 History ........................................................................................................................................... 4 2 Institutional Framework ....................................................................................................................... 4 2.1 Overview ........................................................................................................................................ 4 2.2 Military .......................................................................................................................................... 5 2.3 Economy ........................................................................................................................................ 5 2.4 Regional Cooperation .................................................................................................................... 6 3. Strategic Issues .................................................................................................................................... 8 3.1 Iceland’s Arctic and Security Policy ............................................................................................... 8 3.2 New Shipping Routes ..................................................................................................................... 8 3.3 The GIUK and GIN Gaps ................................................................................................................. 9 3.4 Sea Lines of Communication SLOC and Cyber Threats .................................................................. 9 3.5 EU Membership ............................................................................................................................. 9 4 Summary ............................................................................................................................................. 10 5 References .......................................................................................................................................... 11 Geopolitics_Iceland 3 1 The Geopolitics of Iceland 1.1 Introduction This working paper analyzes the geopolitics of Iceland that covers an area of 103,125 km² near the Arctic Circle. In 2024, Iceland had 364,036 inhabitants. The main geopolitical problem for Iceland is its central location in the Greenland-Iceland-United Kingdom (GIUK) gap in the defense against Russia, its role as provider in the Sea Lines of Communication SLOC between the United States and Europe and its potential future as trade center for the new shipping routes. On the other hand, it is a small state without an own army. For this reason, the aim of the Icelandic geopolitics is to be embedded in and protected by institutional arrangements. 1.2 The Map of Iceland Map of Iceland Source/Author: File: Iceland position144.pngWikimedia Commons Date December 2007 Authors: Lencer + Ulamm No changes made here. Page URL: https://commons.wikimedia.org/wiki/File:Iceland_ position144.png License: Creative Commons Attribution-Share Alike 3.0 Unported via Wikimedia Commons Link to license: https://creativecommons.org/licenses/by/3.0/deed.en Iceland covers an area of 103,125 km² near the Arctic Circle, the region above 66o34’ latitude North. Eight Arctic States have territory in the Arctic Circle: United States (Alaska), Russia, Canada, Iceland, Denmark (Greenland), Norway, Sweden, and Finland. Its geologic location on the border of the American and European continental crust explains the high geologic activity which provides rich energy sources. It is very close to the Arctic Circle, but the small Geopolitics_Iceland 4 Grimsey Island 25 kilometers north of Iceland is partially within the Arctic Circle 1 . The following map shows the location of Iceland between the United Kingdom and Greenland which together form the GIUK gap where the Russian Northern could move into the Atlantic Ocean. North of GIUK, the Russian fleet needs to pass the GIN (Greenland-Iceland-Norway) region first. 1.3 History The first Icelandic State was formed in 930 and existed for more than 300 years. In 1286, Iceland came under control of Norway. As Norway and Denmark were united in the Union of Kalmar in 1380, it belonged from there on to Denmark and stayed with Denmark when the Union of Norway and Denmark ended in 1814. In 1845, the old Icelandic parliament, the Althing, was restored, and in 1874 the King of Denmark granted Iceland a separate constitution 2 . In 1904, Iceland was given autonomy by a Home Rule, and in 1918, Iceland and Denmark formed a Union which gave Iceland sovereignty except for the foreign relations which were still handled by Denmark. The King of Denmark was also King of Iceland. The initial duration of this agreement was 25 years 3 , i.e., until 1943, but in 1940, Denmark was occupied by Germany and the United Kingdom decided to occupy the Faroe Islands and Iceland before Germany could do. In 1941, the British troops handed Iceland over to the United States which already had occupied Greenland. In August 1944, Iceland declared its independence and became a republic until today. Iceland has a Coast Guard, but no army. Iceland was a founding member of the NATO in 1949 and made a defense agreement in 1951 with the US Iceland Defense Force on the base in Keflavík. In 2006, the United States decided to withdraw against Iceland's will 4 . But the 2006 amendment to the 1951 agreement clarified that the United States could still use and return to their base and Iceland also allows NATO members to conduct NATO operations from Iceland, as needed 5 . Following a financial crisis in 2007/2008 with bankruptcy of the three largest banks, a massive devaluation of the Icelandic currency and a credit crisis 6 , Iceland decided to apply for EU membership, which led to the start of accession negotiations in 2011. In 2013, the Icelandic government decided against joining the EU due to disputed fishing quotas and concluded a free trade agreement with China 7 . In response to the growing instability of the global politics 8 , Iceland decided in 2024 to reactivate the EU accession negotiations by a referendum in 2027 9 which now will be done already in August 2026 which could be a major strategic gain for the European Union in the Arctic Region. 2 Institutional Framework 2.1 Overview The main geopolitical problem for Iceland is its central location in the Greenland-IcelandUnited Kingdom (GIUK) gap in the defense against Russia, its role as provider in the Sea Lines of Communication SLOC between the United States and Europe and its potential future as trade center for the new shipping routes. On the other hand, it is a small state without an own army. For this reason, the aim of the Icelandic geopolitics is to be embedded in and protected by institutional arrangements. In the military sector, this is achieved by a bilateral agreement with 1 O’Rourke et al. 2025 2 LSE 2025 3 LSE 2025 4 Greenland Committee 2020 5 State Department 2006 6 Halldorsson/Gylfi 2010 7 Dams et al. 2020 8 Sheftalovich 2026 9 Hegedüs 2026, Leclerc 2026 Geopolitics_Iceland 5 the United States who give a security guarantee to Iceland and Iceland provides host support to NATO partners and exercises, as needed 10 . While the military sector is dominated by the United States, it is economically closely linked to Europe as member of the European Free Trade Area EFTA and the European Economic Area EEA which is the cooperation between EFTA and the European Union EU. Iceland is again discussing a membership with the EU. While Iceland views itself clearly as European country, the opinion on the EU is highly volatile. In crisis situations like the financial crisis and the unstable world order of today, the voters are supporting an EU accession as a safe haven, they could turn against EU if the political price regarding fishing and sovereignty is perceived as too high. When China was supportive after the financial crisis, Iceland turned to China instead of the EU in 2013. As other Nordic States, Iceland is engaged in regional cooperations, the Arctic Council, the Nordic Council and the West-Nordic Council. 2.2 Military Iceland was a founding member of the NATO in 1949 and made a defense agreement in 1951 with theUnited States which deployed the US Iceland Defense Force on the naval air base in Keflavík. In 2006, the United States decided to withdraw from its Keflavík base against Iceland's will 11 , but meanwhile, the US Department of Defense (DoD) established the DoD Arctic Strategy 2024 12 . The 2006 amendment to the 1951 agreement clarified that the United States could still use and return to the base and Iceland also allows NATO members to conduct NATO operations from Iceland, “as is necessary to support the future defense needs of Iceland and of the North Atlantic Treaty Area” 13 . In July 2007, the NATO North Atlantic Council decided to carry out airsurveillance missions from Iceland of two to three weeks duration on average three times a year 14 . Furthermore, the US awarded in 2016 contracts to upgrade Keflavik to provide “a high level of readiness for U.S. Air Forces in Europe”. 15 In February 2026, the new NATO exercise Arctic Sentry was started. The German Air Force deployed 4 fighter jets on the Keflavik air base for air policing 16 . Iceland has a domestic police force and a Coast Guard for search and rescue (SAR) operations, the protection of the Keflavik Air Base, the Air Defense Systems and its remote radar and communication sites 17 . 2.3 Economy The European Free Trade Association (EFTA) was founded in 1960 by Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and the United Kingdom with the Stockholm Convention which was updated and replaced in 2001 by the Vaduz Convention. Meanwhile, the EFTA consists of Iceland, Liechtenstein, Norway, and Switzerland; Iceland joined in 1970. However, Iceland also had a free trade agreement with the European Economic Community (EEC) since 1972. 18 The EEC was part of the European Communities (EC) which 10 Sigholm et al. 2024 11 Greenland Committee 2020 12 DoD 2024a 13 State Department 2006 14 Childs 2022, Dean 2023 15 Childs 2022, Dean 2023 16 Bundeswehr 2026 17 Sigholm et al. 2024 18 Leclerc 2006 Geopolitics_Iceland 6 was transformed to the European Union (EU) in 1992. In 1992, Iceland, Liechtenstein, and Norway formed with the EU the European Economic Area (EEA) which came into force in 1994. The EU and the EFTA members control the EEA together in Joint Committees. 19 Iceland joined various EU programs and cooperations such as the Northern Dimension 20 . In 2021, the European Commission presented an Arctic strategy that focuses on Arctic protection, sustainable development, and international cooperation, aiming for a more active role. In foreign policy, the Arctic Strategy identifies the Northern Dimension and Greenland as key priorities 21 . Since 2007, the Northern Dimension has been a cooperation between the EU, Russia, Norway, and Iceland for the Baltic and Barents Sea region in the areas of environment, economy and social affairs, transport and logistics, and culture, which was affected by Ukraine conflict 22 . Iceland is also a signatory of the Schengen treaty and Dublin regulation on asylum 23 . In July 2025, the EU and Iceland signed a memorandum of understanding (MoU) on enhancing cooperation on fisheries and ocean affairs and also cooperate through the EU's Agency for the Space Program (EUSPA). The EU and Iceland want to enhance their security cooperation, but only complementary to the NATO agreements 24 . But after the financial crisis, Iceland signed a free trade agreement with China and other agreements, like the research agreements between the Polar Research Institute of China (PRIC) and the Icelandic Centre for Research (Rannís) with the China-Iceland Arctic Observatory (CIAO) in Karholl. Iceland was a founding member of the Asian Infrastructure Investment Bank to facilitate participation in the Chinese Belt and Road Initiative 25 . The Faroe Islands have free trade agreements with several countries, but the most important is the Hoyvík Agreement with Iceland from 2005, that entered into force in 2006. This agreement established a single economic area for the territories of both countries, with free movement of goods, services, capital, and persons 26 . 2.4 Regional Cooperation The Arctic Council is an important platform for Iceland. The work and the experience in the Council were the basis for Iceland’s first and second Arctic Policy from 2011 and 2021. The Arctic Council of the eight Arctic states United States (Alaska), Russia, Canada, Iceland, Denmark (Greenland), Norway, Sweden, and Finland was founded by the Ottawa Declaration 1996 as intergovernmental forum for the Arctic Region. The Council is based on consensus and does not handle security and military aspects 27 . The Council has adopted three legally-binding agreements, the Agreement on Cooperation on Aeronautical and Maritime Search and Rescue (SAR) in the Arctic (2011), the Agreement on Cooperation on Marine Oil Pollution Preparedness and Response in the Arctic (2013), and the Agreement on Enhancing International Arctic Scientific Cooperation (2017) 28 . For security matters, discussion fora were established, the Arctic Security Forces Roundtable (ASFR) in 19 Álvarez López/Razauskas 2024 20 Foundation Robert Schuman 2025 21 EC 2001 22 Álvarez López/Razauskas 2024 23 Foundation Robert Schuman 2025 24 Leclerc 2006 25 Greenland Committee 2020 26 Faroe Government 2025 27 O’Rourke 2024 28 Brimmer 2023, O’Rourke 2024 Geopolitics_Iceland 7 2011 and the Arctic Chiefs of Defense (ACHOD) Forum in 2012 29 . In 2016, the Arctic Coast Guard Forum (ACGF) was founded 30 . Iceland is strongly engaged in SAR operations with its Coast Guard in the ACGF framework. Iceland’s search and rescue area is 1.9 million km², more than twice the size of the Icelandic exclusive economic zone 31 . Iceland claimed an extended continental shelf (ECS) in 2009 at the responsible United Nations Commission on the Limit of the Continental Shelf (CLCS) and received a favorable recommendation from the CLCS in 2016. 32 Iceland is also a member of the other regional cooperations, the Nordic Council and the separate West-Nordic Council. The Helsinki Treaty of 1962 33 is the legal basis for the Nordic Cooperation and the Nordic Council, the official body for Nordic inter-parliamentary cooperation between Norway, Sweden, Finland, Denmark, Iceland, and the self-governed countries Greenland, the Faroe Islands, and the autonomous region of Åland 34 . Within the Nordic Council of Ministers as platform inter-governmental cooperation, the Faroe Islands, Greenland, and Åland are also represented, but do not have voting rights 35 . In 2024, the Faroe Islands and Greenland declared that they would no longer accept their exclusion from Nordic summits on foreign and security policy and that they wished to become full members 36 An agreement was reached to conduct a legal review of the Helsinki Treaty and a revision is planned in 2026 37 . However, at the end of 2025, the Nordic Council created a fait accompli by amending its rules of procedure, without waiting for the revision of the Helsinki Treaty. Effective January 1, 2026, Greenland, the Faroe Islands, and Åland became equal members of the Presidium and now participate equally in all important decisions of the Nordic Council 38 . These developments could have impact on the other regional organization, the West-Nordic Council. The West-Nordic Council is a parliamentary cooperation between Iceland, Greenland, and the Faroe Islands 39 . The Council was founded as West Nordic Parliamentarian Council of Cooperation in 1985, the year when Greenland left the EU. As the Faroe Islands were not in the EU as well, it was a cooperation outside the EU. However, there are annual meetings between representatives of the European Parliament and the West Nordic Council 40 . The parliaments of the members send representatives to the West Nordic Council with the Annual General Meeting as most important regular event. Iceland has expressed an increased interest to work more with its neighbors from Greenland and the Faroe Islands 41 . As Iceland and the Faroe Islands already have an economic union and as both the Faroe Islands and Greenland are looking for independence, the council could serve as a political platform for all actors. Their strategic key asset would be the control of large sea areas and the rich fishing grounds. 29 Däumer 2021, Rachold 2022 30 Däumer 2021 31 Iceland 2021 32 O’Rourke et al. 2025 33 Official file of the Nordic Council of Ministers and Nordic Council 2018 34 Åland is an autonomous and demilitarized area of Finland 35 Edvardsen 2025 36 Dam 2024, Edvardsen 2024 37 Edvardsen 2025 38 Nordic Council 2025. 39 EP 2009 40 Álvarez López/Razauskas 2024 41 Hafsteinsdóttir 2025 Geopolitics_Iceland 8 3. Strategic Issues 3.1 Iceland’s Arctic and Security Policy The Arctic Council is an important platform for Iceland. The work and the experience in the Arctic Council were the basis for Iceland’s first and second Arctic Policy from 2011 and 2021. The first Arctic policy was created to strengthen Iceland within the Arctic Council 42 while the second Arctic policy “Iceland’s Policy of Matters Concerning the Arctic Region” 43 from October 2021 was built on Iceland’s 2019-2021 chairmanship of the Arctic Council 44 . A special focus is the climate change and the impact on the Arctic region. The melting of the ice may open new shipping routes (Section 3.2) 45 . The four key areas of the 2021 Arctic Policy are international cooperation, climate change, security, and defense (naming Russia and China as potential risks) and Arctic research. 46 In 2023, Iceland updated its National Security Policy 47 . The aim is to ensure Iceland’s broad security interests through active international collaboration also in the maritime areas. The NATO is seen as key pillar of Iceland’s defense together with the 1951 Defense Agreement between Iceland and the United States of America 48 . 3.2 New Shipping Routes The melting of ice due to the global warming opens three potential shipping routes in the North, the Northern Sea Route (NSR, Northeast Passage) around Northern Russia, the Northwest Passage (NWP) through the Canadian Arctic Islands and the Central Sea Route (Transpolar Sea Route TSR). The new sea routes are currently not permanently ice-free, but are expected to be mostly ice-free between 2030 and 2040 49 . Iceland’s and China’s focus is on the Centra Sea Route (TSR). Looking forward to new potential shipping routes, China has plans for a large shipping port in Northeast Iceland. China mentioned the new sea routes in their Arctic Policy from 2018 50 . The Central Sea Route (TSR) goes through the center of the Arctic and could make Iceland to a very promising place for a large port 51 . The Northwest Passage (NWP) goes through the Canadian Arctic Islands and Canada argues that the NWP is in its territory while the United States hold the opinion that this is an international sea route with freedom of navigation and overflight 52 . While on the map this route looks short and attractive, it is quite difficult to navigate and meanwhile, it is questionable whether the route is commercially viable 53 . In contrast to the other (still hypothetical) shipping routes, there is a growing activity in the Northern Sea Route (NSR, Northeast Passage) around northern Russia which is significantly shorter than the normal Southern Sea Route SSR around India. Russia and China already invested in various Northeast Passage projects to transport gas from Siberia to China 54 . 42 Hafsteinsdóttir 2025 43 Iceland 2021 44 Dean 2023 45 Remiro Sorian 2025 46 Dean 2023 47 Althingi 2023 48 Althingi 2023 49 Greenland Committee 2020 50 Iceland 2021 51 Gomes 2022 52 Gomes 2022 53 O’Rourke et al. 2025 54 Fernández-Montesinos 2023 Geopolitics_Iceland 9 3.3 The GIUK and GIN Gaps Where the Arctic meets with the Atlantic, there are possible gaps (sea passages for the Russians) known by NATO as GIUK (Greenland, Iceland, and United Kingdom) and GIN (Greenland, Iceland, and Norway). During cold war, the NATO routes deployed the Sound Surveillance System (SOSUS) and maritime patrol aircrafts like the P-3 Orion as early warning elements of anti-submarine warfare (ASW) 55 . The area north of Scandinavia is known as the ‘bastion area’ where the former Soviet Union and now Russia has significant nuclear forces with nucleararmed ballistic missile submarines (SSBNs) in an ice-free region with the Kola peninsula 56 ; it is a huge, permanently ice-free area 57 . The NATO base in the Faroe Islands supports the socalled bastion defense 58 . As Iceland is in the center of GIUK and GIN gaps, the NATO carries out air-surveillance missions from Iceland of two to three weeks duration on average three times a year 59 . Air policing from Iceland is also a part of the 2026 Exercise Arctic Sentry. 3.4 Sea Lines of Communication SLOC and Cyber Threats Based on the availability of cheap energy resulting from the high geologic activity in Iceland, the country has a rapidly growing data center industry. In 2023, Iceland launched the IRIS 108 Tbps (Terabit per second) undersea cable system linking Iceland to Ireland and from there to Europe. Ireland has less strict data protection laws that attract many Tech companies. Iceland hosts pivotal digital infrastructures and deep-sea cables of crucial importance to NATO and the broader Euro-Atlantic region 60 . Also, Iceland’s satellite communication infrastructure, includes several essential ground stations for the NATO 61 . Most of the deep-sea cables are located south of the GIUK gap which makes the gap surveillance even more important 62 . For this reason, Iceland is a target for malicious cyber activities. The Chinese presence on Iceland is a matter of concern for the West and in June 2023, the pro-Russian hacking group NoName057 attacked the Parliament’s website and the infrastructure, and the Computer Emergency Response Team of Iceland (CERT-IS) had difficulties to handle these attacks 63 . 3.5 EU Membership Iceland decided to apply for EU membership, which led to the start of accession negotiations in 2011. In 2013, the Icelandic government decided against joining the EU due to disputed fishing quotas and concluded a free trade agreement with China 64 . In response to the growing instability of the global politics, Iceland decided in 2024 to reactivate the EU accession negotiations by a referendum in 2027 65 which now will be done already in August 2026 which could be a major strategic gain for the European Union in the Arctic Region. The view of the EU is that Iceland’s application has never been officially withdrawn, but only suspended, which means that the negotiations could be continued which would significantly accelerate the procedure 66 . 55 Aguiar 2026 56 Rachold 2022 57 Rachold 2022 58 Østerud/Hønneland 2013 59 Dean 2023 60 Sigholm et al. 2024 61 Sigholm et al. 2024 62 Childs 2022 63 Sigholm et al. 2024 64 Dams et al. 2020 65 Hegedüs 2026, Leclerc 2026 66 Leclerc 2026, Sheftalovich 2026