Concerns are growing in Iceland over the potential fallout from escalating trade tensions between the United States and the European Union.
According to Sigurður Hannesson, Managing Director of the Confederation of Icelandic Industries, Iceland could be caught in the middle should a full-scale tariff war erupt.
Given Iceland’s geographical position in the mid-Atlantic, there is uncertainty as to which economic bloc the country would align with should the dispute heighten.
With close ties to both the European Union (through the European Economic Area (EEA)) and the United States, Icelandic officials will likely find it challenging to navigate conflicting interests over the coming months.
Speaking to the news site, Vísir.is, Sigurður stressed the importance of government action in light of the ongoing situation.
“In these circumstances, the main thing is for the government to protect its interests,” he said.
Could Iceland be impacted?
First, let it be understood that trade disputes between the US and Europe are not new.
We need only to look back to 2018, when Icelandic exports were last affected by US tariffs imposed by President Trump. Now in his second tenure in the White House, fresh uncertainty looms as he, once again, moves to impose new levies on European goods.
While it remains unclear whether Iceland, as part of the EEA, would be directly impacted, the overall instability is cause for concern.
US President Donald Trump. CC. Public Domain.
“A tariff war, of course, sounds very bad to our ears, as it does to most people,” Sigurður said to the news agency. “The worst-case scenario for us is that we somehow get stuck between the United States and Europe with our main exports. That would be the worst-case scenario, but I think it is extremely unlikely.”
Beyond trade, Iceland’s defence policy has been in focus as of late. The US has hinted that NATO members spending less than two percent of GDP on defence—such as Iceland—may no longer receive full military support.
However, Prime Minister Kristrún Frostadóttir insists Iceland’s defence agreement with the US remains secure.
Room for optimism
During the interview, Sigurður spoke about proactive steps Iceland could take, such as strengthening institutions like the Coast Guard and police.
He also highlighted potential contributions Iceland could make to the defence industries. “Various products are produced here that are useful for security or defence. We certainly have a lot to offer that we can emphasise.”
Despite ongoing uncertainty, Icelandic officials remain hopeful that the country can navigate the shifting geopolitical landscape without major disruption. For instance, the Prime Minister previously stated that Iceland and Norway would be shielded from the impact as they are not in a customs union with EU member states, as reported in RÚV.