Icelandic Arctic Policy: 12 Month Outlook

Summary

Global regions that once had an abundant surplus of snow and ice are being dramatically re-shaped because of climate change. The Arctic Circle is one of those regions; one with the largest potential impact, both positively and negatively. As the once inaccessible parts of the Arctic unfreeze, fresh geopolitical issues rise. Iceland is a member of the Arctic Council, albeit one with the least amount of strength and size. Icelandic Arctic policy will focus on the future of the Arctic from both a environmental and economic perspective.

Key Judgement 1 

It is likely the environmental dimension will be Iceland’s primary focus in the Arctic for the next 12 months. 

• It is almost certain the Arctic will lose most of its sea-ice by 2040, which would likely result in a significant geopolitical situation between nations who want to tap into its natural resources or utilize its newly opened shipping routes. Increased presence in the Arctic will create new environmental challenges within it.

• Iceland was the chair of the Arctic Council from 2019 to 2021, passing the duty to Russia this past May. During their tenure as chair, Icelandic Arctic policy priorities were focused on the environmental issues in the Arctic, including sustainable shipping and green energy solutions. 

• The Arctic’s military dimension is not relevant to Iceland. Although there is a potential economic gain in the region, Iceland has more of an inclination to use its strong background in environmental and sustainable practice to benefit the future of the Arctic. 

Key Judgement 2

It is likely Iceland will establish itself as a future shipping hub for the Trans-polar Northern Sea route. 

• Climate change caused ice melt in the Arctic will likely open the Trans-polar shipping route for year-round use. The future sea route will cut average shipping times dramatically, which makes the establishment of a port in Iceland a lucrative economic opportunity. 

• Iceland has partnered with the German port company Bremenports to construct a deep-water port and industrial site in Finnafjord, located in the Northeastern part of the country. 

• Constructing the port could open unique economic opportunities for Iceland because of its geographical location along the future Northern Sea route and the imagined volume of shipping traffic that passes its borders. Icelandic Arctic policy is likely to take advantage of this lucrative opportunity.

• The project is currently it its development phase and will begin the construction phase in 2021, lasting roughly three years. The port is planned on being operational in 2040, which unintentionally coincides with the projected time for dramatic ice melting. 

Key Judgement 3

Iceland has had growing relations with China over the past decade, and there is a realistic probability that relationship could be a point of tension among other members of the Arctic Council in the future. 

• China and Iceland signed a Free Trade Agreement (FTA) in 2013 and were the first European nation to do so. 

• Both Iceland and China currently have a strong relationship in the scientific dimension of the Arctic Circle. Both nations have embarked on joint research projects in the Arctic, focusing on climatology, oceanography, and geology. 

• It is likely the Trans-polar sea route and the Icelandic /Chinese relationship will be a friction point in the future. China could bring strong economic growth to Iceland through importing and exporting, and the Finnafjord deep-water port will likely be a strategic location for Beijing’s goals.  

• Iceland has considered taking part in China’s Belt and Road Initiative (BRI) which has complicated its relationship with the US. The US is cautious of China’s motives in the Arctic. In 2019, then Secretary of State, Mike Pompeo, tried to dissuade Iceland from participating in the BRI. Although they have not formally entered the initiative, the option has not been closed.  

Intelligence cutoff date: 13^th of December, 2021