Iceland's Strategic Position. An inventory of the issues


  • Niklas Granholm
  • Johannes Malminen

Publish date: 2011-08-22

Report number: FOI-R--3227--SE

Pages: 31

Written in: Swedish


  • Iceland
  • US
  • NATO
  • European Union
  • Financial crisis
  • Icesave
  • Geostrategic change
  • Arctic
  • Great Britain
  • The Netherlands
  • Common Fisheries Policy
  • Air-policing
  • Russia
  • Strategic bomber flights
  • EU-membership
  • referendum
  • EFTA-court
  • International Monetary Fund
  • credit rating
  • aluminium
  • geothermal energy
  • Haldór Laxness


Iceland is going through three simultaneous crises: the management of and recovery from the severe economic crisis, in the field of defence and security and regarding the domestic situation. The three crises seem to interact and Iceland will probably need a long time to recover. In addition, the regional geostrategic pattern in the Arctic is undergoing change and will affect Iceland's strategic circumstances. Even though the immediate risks of state bankruptcy have been avoided and some recovery has taken place, the economic crisis is far from over. Iceland is on its way to succeed with a financial stabilisation that may be followed by recovery that will take a long time. Iceland's economic base, fisheries and manufacture of aluminium, will likely not grow at a pace that will quickly lift Iceland out of the crisis. A clear path towards restructuring of Iceland's economy that would increase long-term growth cannot be discerned. Iceland's rejection of the negotiated deals regarding the Icesave-affair will in all likelihood prolong the crisis. There is a possibility of a negotiated settlement in the EFTA-court between the parties before a verdict is due. Iceland's political system will as result of the economic crisis be subjected to pressure. Iceland's application for EU-membership was done from a relatively narrow political strategic base and a membership looks to be delayed. The crucial point is the fisheries, and though reform of EU's Common Fisheries Policy (CFP) may be on the way, this will take time. Iceland has good indicators for development: a young and relatively well educated population, well developed infrastructure, and a cheap, environmentally friendly energy supply. In a globalised world, Iceland has good preconditions for success. The US military withdrawal from Iceland in 2006 created bitterness on Iceland in some quarters, while other saw it as a positive development. In recent years, Russian strategic bomber flights have been resumed. While this is not a return to the cold-war pattern, it creates apprehension on Iceland. Moreover, it raises the question of whether Iceland's defence solution is in step with regional strategic developments. No sign of any change to Iceland's status a "the unarmed member of Nato" can be seen. Little money for defence will also be available.