Varða Briefing #7: Decision Time

Hello,

August finds Iceland in a decisive mood. On the 29th, voters choose whether to reopen accession negotiations with the European Union; our lead story takes stock of the campaign, its camps, and the security debate it has managed not to have. Also in this issue: the government now books close to one per cent of GDP as defence-related expenditure, and is being asked what sits behind the number. In Ankara, Iceland joined a five-nation maritime security pact while Trump revived his claim to Greenland. NATO flew air policing from a carrier deck for the first time, off Iceland, with a Russian patrol aircraft and an intelligence-collection ship for company. And Iceland's special forces boarded an anti-whaling protest ship at midnight.

On 29 August, Icelanders vote in a referendum on whether to restart accession negotiations with the European Union. According to recent polling data, the race remains incredibly tight: with the Yes camp holding a narrow advantage at 53% compared to 47% for the No side; the numbers have barely moved since June. It is arguably a strange campaign season. Much of the electorate is abroad in warmer weather or settled into their summer hyttes, and early voting opened while the country was on holiday. Online and in the news, though, the campaign is more robust than the quiet streets suggest.

The Yes campaign's central message is procedural: this vote opens negotiations, nothing more, and Icelanders should see what is on offer before deciding anything. Prime Minister Kristrún Frostadóttir put it plainly in a recent Rest is Politics interview, recorded in Reykjavík: "It's a referendum on getting a deal," with a second referendum to follow on any agreement, and "you can be a maybe person on the EU and still say yes, because you want to see what this looks like." The camp is nonetheless happy to name the likely benefits: lower interest rates, lower inflation, more economic discipline and stability. "The single biggest issue here is currency," Kristrún said in the same interview; "it's costing us a ton." Foreign Minister Þorgerður Katrín Gunnarsdóttir sharpened the point to Euractiv: "The only two countries that have higher interest rates than Iceland are Russia and Ukraine, and that says a lot." The full podcast interview with Kristrún is worth a listen for those following developments in Iceland.

The No campaign runs on sovereignty: control of fisheries, control of agriculture, and no transfer of decisions to a Brussels that Icelandic voters cannot hold to account. Guðrún Hafsteinsdóttir, leader of the Independence Party and of the opposition, made the case in Politico: "Independence is emotional for Icelanders. We have only been independent for about 100 years out of 1,200." The question, as she frames it, is "whether Iceland should transfer key decisions over fisheries, agriculture and economic policy to the EU," and her answer is that "friendship does not require membership."

The Yes side is led by the government coalition, with an asymmetry built in. Of the three coalition parties, the Social Democratic Alliance and the liberal Reform (Viðreisn) favour membership; the People's Party, the smallest partner, supports holding the referendum but opposes joining. Kristrún drew criticism through the spring for holding back on campaigning and leaving the heavy lifting to Þorgerður Katrín; since late July she has kicked into gear, the podcast appearance included, and the load is now more evenly shared. A new organisation, Sjá Ísland, its name a play on já (yes) and sjá (to see), has started campaigning on exactly the procedural message: vote yes in August to see what an agreement actually contains. 

The larger change since accession was last in play, 10 to 15 years ago, lies in who is missing from this camp. The labour unions, once reliable supporters of accession, are divided, and several union leaders on the movement's left have crossed to the No side, fearing higher unemployment and a larger inflow of workers after joining. The Federation of Icelandic Industries, once the most pro-EU voice in the country, has moved from advocating membership to fighting it. And the Confederation of Icelandic Enterprise, the country's largest business association, now led by former Independence Party leader Bjarni Benediktsson, has come out hard against, where business opinion was once far more mixed.

Opposite them stand the opposition parties and Áfram Ísland, a campaign organisation spanning unlikely bedfellows from former business leaders to the hard left, with former president Ólafur Ragnar Grímsson, somewhat controversially, lending his weight to a No. The camp enjoys the backing of the business associations; in organised interests, the advantage now runs to No, for where the Yes side has lost its old institutional allies, the No side has collected them. It can also count on the fisheries lobby, which comes to the campaign with media outlets owned by industry figures and a significant advertising budget. Last summer's battle over the raising of resource rents, fought through a marathon filibuster in Alþingi, arguably doubled as a dry run: the industry mounted a coordinated advocacy and media campaign against the bill, and though ultimately unsuccessful it gleaned what moved opinion. A referendum is a bigger stage, but the industry's campaign machinery is still warm from last summer.

What neither side is campaigning on is security and defence. Iceland now sits in the operational zone of the world's four most powerful geopolitical actors, the United States, Russia, the European Union and China, yet the subject is conspicuously absent from the referendum debate. Benedikt Franke, chief executive of the Munich Security Conference, noticed as much after attending Varða's inaugural Reykjavík Security Forum. In a post written on his return, he observed that while much of the debate revolves around inflation and interest rates, "it seems to me that geopolitical arguments should win the day." Of the three pillars of Iceland's security, the 75-year-old defence agreement with the United States, founding membership of NATO, and the recently concluded defence partnership with the EU, "at least two of these pillars appear less stable than they were a few years ago."

The security debate that exists is narrow: whether a Yes would irritate Washington and put the 1951 bilateral defence agreement at risk. Gunnar Pálsson, former ambassador to NATO, argued in Morgunblaðið that the American position should be established before the vote; Þorgerður Katrín rejected the premise in Alþingi, saying membership would change nothing about the agreement and that Iceland should not ask other nations for permission to conduct its foreign policy, and gave little for the ambassador's concerns. Centre Party MP Ingibjörg Davíðsdóttir, 25 years in the foreign service, warned in a party video that "there is no shelter in the EU" and pressed for consultations with Washington first. There is also a gap between registers worth watching: at home, the ministers argue economics; to foreign media, the Greenland dispute and geopolitics carry the argument.

But why is the discussion of security and defence so muted? Part of the answer lies in experience. The Second World War made Iceland rich rather than scarred, and no generation carries war stories into the debate, a point Kristrún herself made on the podcast; Icelandic instincts about great-power politics were formed at little cost. Part lies in capacity. For 35 years after the Cold War, Iceland's geopolitical weight shrank and security policy demanded little of its politicians, so Russia's invasion of Ukraine in 2022 found a state with few officials, scholars or journalists in the habit of arguing about defence, and the habit is being rebuilt mid-crisis. And part lies in attention. The 2008 crash turned Icelandic politics inward, as deep crises do (see e.g. Brexit), and the arguments now dominating the campaign, currency, fisheries, sovereignty, are the old domestic ones, which the crash entrenched rather than displaced. Iceland debates what it knows how to debate, and security is not yet in the repertoire.

If the No side wins, accession leaves the table, this time with a referendum's legitimacy behind the inactivity; after 2013 the file lay dormant for a decade without one. Two contingencies could force it back. If Norway were to move toward membership, Iceland and Liechtenstein could not carry the costs of sustaining the EEA arrangement, and Iceland would have to scramble. And US pressure, economic or worse, of the kind Greenland now faces, could send Iceland back to Brussels out of need rather than choice; nobody negotiates well with their back against the wall. That is also the quiet argument for negotiating now: Iceland has never been of greater geopolitical interest to the EU than it is today, and the two states whose interests collide most directly with Iceland's in its own waters, Norway and the United Kingdom, sit outside the Union and will not influence negotiations. Þorgerður Katrín, speaking to Euractiv, also argues that the timing favours Iceland: the country would negotiate from strength rather than from the post-crash weakness of 2009, the EU wants to show that enlargement can reach northwest as well as east and southeast, and Iceland would be the first net contributor to join since 1995.

If the Yes side wins, the foreign minister expects negotiations could take about 18 months, brisk by accession standards but conceivable for a country that already applies most single-market law through the EEA. The harder obstacle sits at home. Membership requires a constitutional amendment permitting the transfer of state powers to international institutions, and Iceland's record on constitutional change since 2008 is three failed processes, casualties of post-crash polarization and of poor process design. The government may have the numbers: an amendment needs a simple majority in two successive parliaments, with a general election in between. But the arithmetic understates the politics, the opposition is unlikely to pass up the spoiler's role. After all of that would come the second referendum, on the accession agreement itself.

Polling stations close at 22:00 GMT on 29 August. We will return with the result, and a first assessment of the fallout, shortly after.

Iceland now counts ISK 48.9 billion, or 0.92% of GDP, as defence-related expenditure. The figure comes from a memo the Ministry for Foreign Affairs and the Ministry of Finance and Economic Affairs sent Alþingi's Budget Committee a few weeks before NATO's Ankara summit, reporting under the Hague commitments: 43.5 billion (0.88%) for 2025, 48.9 billion this year, and 1.0% by 2030. In Ankara on 8 July, Prime Minister Kristrún Frostadóttir cited the count, telling press that Iceland has reached "close to one per cent."

The figures have drawn criticism on several fronts. Parliament has been given no breakdown of the projects behind them, and the ministry told RÚV, the state broadcaster, it could not yet specify which projects and budget lines fall under the 0.92%. The count also sits oddly against recent history: a few years ago Iceland's measured contribution did not reach 0.1% of GDP, and the budget for security and defence proper stands at ISK 10.68 billion this year, about 0.2%. Nor does the government state which allocations fall under NATO's 3.5% target for core military capability and which under the 1.5% target for defence-related investment.

Garðar Forberg, formerly Iceland's representative on NATO's Military Committee and a member of Varða's advisory board, makes this point in Varða's magazine, Tímarit Vörðu: "We in Iceland seem to have decided to hang almost everything on the 1.5 per cent, which could cover projects such as major road schemes, harbours or alternate airfields, while largely looking past the other 3.5 per cent." Most of what Iceland actually contributes today, he argues, including the Keflavík security area, the radar network and host-nation support, belongs under the 3.5% military category as defined at The Hague, not the 1.5% Iceland reports against. Björn Bjarnason, former minister of justice, put it more bluntly in Morgunblaðið: the total amount is "an opaque figure, built on renaming treasury account codes rather than on new spending."

Prime Minister Kristrún Frostadóttir and Foreign Minister Þorgerður Katrín Gunnarsdóttir represented Iceland at NATO's leaders' summit in Ankara on 8 July. On arrival, Kristrún told RÚV: "The message Iceland brings to the meeting today is that Iceland is living up to all the expectations placed on us," citing the defence-related expenditure figures discussed above. After the meeting, she described a better mood than the run-up had promised: "There was much talk of solidarity, of the strength of the alliance," and Europe and Canada, she noted, are taking on greater burdens to lighten the load on the United States.

On the summit's sidelines, Iceland joined the Maritime Security Partnership, in which Germany, Canada, Norway and Denmark cooperate on the security of shipping in the North Atlantic and the Arctic; the five defence ministers confirmed the accession in Ankara. The partnership, begun by Germany, Canada and Norway, with Denmark joining last year, covers maritime situational awareness, anti-submarine operations, freedom of navigation and the protection of undersea infrastructure around the GIUK gap; Iceland contributes host-nation support. "This is about cooperation between states in this region that have capability, and are developing it further, in an area that has become so important, also for strengthening the ties across the Atlantic," Þorgerður Katrín said. German Defence Minister Boris Pistorius, to RÚV: "Iceland's location is of course important, and Icelanders have much to contribute."

Greenland followed Iceland's delegation to Ankara. At a press conference hours before the summit, President Trump repeated that Greenland should belong to the United States, pointing to Chinese and Russian vessels in surrounding waters and to what he called Danish underinvestment. Kristrún called the remarks unsurprising and restated Iceland's position: "Greenland is of course part of Denmark and belongs to the Greenlandic people, and we must respect that sovereignty. The lines are entirely clear when it comes to allies, and he knows that well." Trump, for his part, singled her out after the leaders' photo, turning back to shake her hand, and no one else's. "There is warmth between us," she said afterwards.

For the first time, NATO air policing over Iceland and Arctic airspace was flown from a carrier deck rather than from land. HMS Prince of Wales, flagship of the UK Carrier Strike Group, operated off Iceland in July under NATO command within Arctic Sentry, the vigilance activity the alliance launched in February 2026. Its F-35Bs flew with support from the Icelandic controllers at Keflavík, who monitor the country's airspace: the Control and Reporting Centre is operated by the Coast Guard and connected to NATO's air command at Uedem. The carrier then berthed at Grundartangi in Hvalfjörður on 13–14 July, before the group completed the first phase of its 2026 deployment on 23 July.

On 2 July, two of the carrier's F-35Bs intercepted and escorted away a Russian Tu-142 maritime patrol aircraft that had approached at low altitude in the Norwegian Sea and dropped sonobuoys near the ship. Three days later, Foreign Minister Þorgerður Katrín Gunnarsdóttir flew by helicopter from Akureyri to the carrier at sea to meet UK Defence Secretary Dan Jarvis. She called the deployment "a clear demonstration of NATO's enhanced presence in this strategically important region, and one that Iceland is proud to support and contribute to," adding that "activities such as Arctic Sentry reflect this shared commitment." Jarvis, in the same statement: "We live in an increasingly dangerous and uncertain time, and it's deployments like this, supported by allies and partners including Iceland, that improve our deterrence and defence as part of NATO."

The same week the ministers met, the MFA confirmed that the Russian intelligence-collection ship Yuri Ivanov had returned to waters north and west of Iceland, inside the exclusive economic zone but outside territorial waters, watched by the Coast Guard in consultation with the defence department of the foreign ministry, NATO commands, and the alliance's control centre at Keflavík. The UK Ministry of Defence counts a 30% increase in Russian naval vessels threatening UK waters over the past two years and names the GIUK gap and undersea infrastructure among its concerns. UK–Iceland defence cooperation continues through the autumn: defence ministers of the UK-led Joint Expeditionary Force meet in Iceland this autumn, and a JEF leaders' summit follows in Iceland in 2027.

It has not been a quiet summer in Icelandic waters, and not all of the traffic has been Russian. On the evening of 30 July, the Bandero, operated by the anti-whaling Paul Watson Foundation, entered Iceland's territorial waters and made for the whaling ship Hvalur 9, whose crew radioed the Coast Guard that they felt threatened; the foundation says the Bandero had disrupted the hunt earlier that day. The Bandero ignored instructions to leave, first from the Coast Guard's operations centre, then from a helicopter, then from the patrol vessel Freyja, and finally an order to stop its engines. Shortly before midnight the police special unit and the Coast Guard's special operations unit boarded the ship at sea, arrested the captain, and brought the vessel to Sundahöfn in Reykjavík: "the biggest operation in decades," the Coast Guard's spokesman said, and one that "went exactly according to plan." The 21 crew, Paul Watson not among them, remain aboard; police are seeking deportation and a re-entry ban, and the Icelandic Transport Authority has revoked the ship's seaworthiness certificate.