Between China and the allies: Iceland needs a public China policy before others shape one for it
For a long time the Arctic was described as exceptional, insulated from the upheavals of international politics. That time has passed. Iceland’s strategic position in the region has drawn frequent attention recently as global tensions rise. Iceland has no armed forces of its own and relies on NATO and the bilateral Defence Agreement with the United States for its defence. Since Russia launched its bloody war of aggression against Ukraine, the need to strengthen Iceland’s resilience has rarely been greater.
The US administration’s claims of a Chinese grip on Greenlandic society, and of Chinese and Russian ships surrounding the island, served as grounds for the United States to acquire Greenland. Although the claims are unfounded, they shook NATO. The matter has now been settled with an agreement that entrenches the United States’ wish to deny China access to Greenland.
China has also launched its first scheduled service on the Northern Sea Route, from eastern China along the Russian coast to Rotterdam. Iceland and China have had good economic relations. They have a free trade agreement and close ties in Arctic research, and at the end of October, Air China begins direct scheduled flights between the two countries, with a stop in Copenhagen.
At its 2024 Washington summit, NATO declared China a “decisive enabler” of Russia’s invasion of Ukraine. The technology war between the United States and China is escalating, and Europe is debating the need to de-risk its relations with China.
Where, then, do Iceland–China relations stand in a changed security environment? Iceland has no public policy on relations with China. They are shaped instead by individual decisions on free trade, investment, land purchases and research stations. Iceland needs a public China policy in place, before pressure from other states shapes one for it.
Establishing diplomatic relations
Iceland and China established diplomatic relations in 1971, but contact was limited at first. Major change came when Deng Xiaoping took the reins after the difficult years of the Cultural Revolution. China’s economy then opened up considerably, and Chinese society changed markedly after China joined the World Trade Organization (WTO) in 2001.
Iceland’s 2008 financial crash was followed by difficult times, economically and politically. The United States turned down a request for assistance, the Nordic loans came with conditions, and in the Icesave dispute the Nordic states sided with the United Kingdom and the Netherlands against Iceland. This led the Icelandic government to turn increasingly to China to strengthen the country’s economic position. In 2010, for example, the two countries’ central banks concluded a currency swap agreement worth 3.5 billion yuan. It has been renewed regularly since, most recently in October 2025.
China’s growing interest in the Arctic also opened new doors in the relationship. In short, the two states’ interests aligned at the time: China wanted access to the Arctic, and Iceland wanted to strengthen its economy.
From Nubo to Kárhóll and the free trade agreement
Any overview of Iceland–China relations brings to mind the Grímsstaðir á Fjöllum affair, the so-called Nubo case of 2011. The businessman Huang Nubo tried to buy a 300 km² tract of land in north-east Iceland, reportedly to develop tourism. The case drew wide attention at the time, but the debate was mostly about whether foreigners should be able to buy land, and about human rights in China, rather than about security.
The case ended on the same note. In November 2011 the Minister of the Interior refused an exemption from the Act on the Right of Ownership and Use of Real Property, on the grounds that there was no precedent for an area of that size passing under foreign control. The decision rested on land-ownership law rather than a national security assessment, since no process existed that called for one.
Many critics saw the bid as an attempt by the Chinese government to extend its influence in the Arctic, while others pointed to the project’s potential economic benefits. After his Icelandic bid was refused, Nubo tried to buy land in Lyngen in Norway in 2014 and at Austre Adventfjord in Svalbard the same year. The Norwegian state bought Austre Adventfjord itself. In Iceland the outcome turned on a minister’s reading of land-ownership law, but Norway had more tools. When Søre Fagerfjord, the last privately owned property in Svalbard, came up for sale 10 years later, the Norwegian Police Security Service (PST) warned against the sale, and the government used the Security Act to make the sale subject to its approval.
While the Nubo case was unfolding, the Chinese government sought observer status in the Arctic Council to strengthen its access to the Arctic. Iceland and the other Nordic states were among China’s main supporters, while Russia and Canada had reservations about granting China observer status.
Chinese Premier Wen Jiabao visited Iceland in 2012. Four months later the icebreaker Snow Dragon (Xuelong 雪龙) sailed from Shanghai to Iceland, calling at Reykjavík and Akureyri. Ólafur Ragnar Grímsson, then President of Iceland, received the crew at Bessastaðir, the presidential residence, another example of Iceland’s support for China’s growing role in the region.
The Polar Research Institute of China (PRIC) established an aurora research station on a farm in north-east Iceland called Kárhóll. Besides PRIC, 10 other Chinese institutions took part, in partnership with more than 10 Icelandic bodies, including the Icelandic Centre for Research (Rannís). Research by Kristín Ingvarsdóttir and me, based on 13 in-depth interviews with people involved in Chinese and Japanese aurora research in Iceland, shows that one reason the Icelandic government supported the station was to facilitate the free trade negotiations with China, since the government knew the Chinese government wanted to build up its Arctic research infrastructure. The station was seen as an important gesture of friendship, a symbolic step that would ultimately smooth the way to the free trade agreement.
Japanese scientists have conducted similar aurora research in Iceland for decades without attracting much attention. We argue that the research itself does not explain the difference in reception. In the Chinese case, science served as a tool for other ends, and the arrangements are very different. The difference also reflects how differently Japan and China relate to the West. The station and the land are owned by Aurora Observatory, an Icelandic non-profit foundation, and the Polar Research Institute of China leases and operates them for 99 years. No specific national security assessment of the station’s activities was carried out at the time.
The gesture of friendship paid off. The free trade agreement was signed in April 2013, making Iceland the first European state to sign a free trade agreement with China. It entered into force on 1 July 2014.
Foreign media regularly claim that China has “bought up” the Arctic with a flood of investment. Most of the much-discussed investments never materialised, whether in the region as a whole or in Iceland alone.
When Anders Edstrøm, P. Whitney Lackenbauer and I mapped Chinese investment across the Arctic, we found that only a small share of the planned investment had materialised. In Iceland, the Chinese state oil company CNOOC received an oil exploration licence for the Dreki Area in 2014, together with Petoro and Eykon Energy, but the project was abandoned in 2018. A large port in Finnafjörður was discussed with Chinese parties in 2011 and 2012 but never became a joint project with them. The only direct Chinese investment in Iceland came when Geely Group bought a stake in Carbon Recycling International in 2015 for USD 45.5 million. In addition, the ferrosilicon plant at Grundartangi passed indirectly into Chinese ownership when China Bluestar Corporation bought its Norwegian parent company, Elkem, in 2011. Chinese investment in Iceland is therefore limited. What remains is a research station and a free trade agreement.
Iceland–China cooperation in the Arctic cannot be clearly separated from the two states’ economic relations, since the two fields have developed in parallel. China’s interests in the Arctic are multifaceted and combine economic and strategic interests.
China’s interests in the Arctic
Why is China interested in the Arctic at all? One reason is climate change. Since 1979 the Arctic has warmed nearly four times faster than the global average, and the Chinese government itself points out that these changes directly affect China’s weather, and with it agriculture, forestry and fisheries.
Another reason is economic. The region is estimated to hold about 30% of the world’s undiscovered, recoverable natural gas and 13% of its oil. Fish stocks are also likely to move steadily north as the climate warms.
A third reason is the opening of new shipping routes, as the scheduled service launched this summer shows. Weather in the region is less predictable than before, however, and search-and-rescue concerns along the Northern Sea Route raise insurance costs for shipping companies. This has held back traffic, although the Russian government wants to make the route an international shipping artery.
Access to more shipping routes is a priority for the Chinese Communist Party, to keep exports moving if other routes close, such as the Strait of Malacca. The closure of the Strait of Hormuz further raises the importance of Arctic shipping, though traffic there remains limited.
The Chinese Communist Party’s core interests are political, however: to be regarded as a stakeholder in the region. China has, for example, called itself a “near-Arctic state” (Jin Beiji Guojia 近北极国家) in its Arctic policy and announced that the Belt and Road Initiative now extends to the Arctic through a so-called Polar Silk Road (Bingshang Sichou Zhilu 冰上丝绸之路). Xi Jinping has also declared that China will become a polar great power (Jidi Daguo 极地大国).
Security threat or harmless partner?
The debate on China as a security threat most often seems to run one of two ways: either the threat from China is so great that Iceland should limit all contact with it, or there is no threat at all, and China is simply a friendly state. China is very unlikely to engage in direct military conflict in the Arctic in the coming years. Nor is Sino-Russian cooperation in the region limitless, although the two states describe it that way. My research with Baldur Þórhallsson shows that it is driven by the shifting balance of power with the United States, but constrained by the regional balance of power in the Arctic, China’s economic interests in the West and conditions in the Russian north. Iceland does face potential threats from China particularly in the hybrid domain.
Chinese ships have, for example, repeatedly severed undersea cables with their anchors. In May 2026 the Norwegian Police Security Service arrested a Chinese national suspected of involvement in an attempt to set up a satellite data ground station on Andøya. China also keeps Russia afloat economically, which sustains Russia’s war of aggression against Ukraine. In addition, China and Russia hold a growing number of joint naval and air exercises near the coast of Alaska.
Growing attention to hybrid threats has deepened the debate on Chinese research, and on whether its dual-use potential justifies restricting it in the region. This summer, for example, the US Coast Guard and the Royal Canadian Navy shadowed the Chinese Snow Dragon for almost a month, on an expedition in which the research vessel deployed more than 30 buoys. Two cases are most often cited as possible security threats in the Arctic: China’s research station in Svalbard and the station at Kárhóll. Chinese research is also sometimes described as one of the Chinese government’s main potential channels for intelligence gathering. The head of the Security and Analysis Department at the National Commissioner of the Icelandic Police has called Chinese espionage in Iceland a sensitive matter, referring specifically to the research station at Kárhóll. I do not seek to determine whether the station is used for espionage. It is clear, however, that suspicions of espionage persist and could be used to put pressure on Iceland over its relations with China.
The need to map Iceland’s interests
Iceland has major interests at stake in its relations with China. Since the free trade agreement entered into force, the value of Icelandic goods exports to China has multiplied, and 2025 was a record year. According to Statistics Iceland, goods exports to China reached ISK 25.4 billion, about 28% more than the year before. That is still just under 3% of Iceland’s total goods exports. Seafood is the main export to China, but exports of cosmetics, health products and aluminium are growing. Imports weigh more heavily. The same year, Iceland bought ISK 166 billion worth of goods from China, mainly vehicles, tyres and electronics. That is about 12% of all goods imports, making China Iceland’s largest source of imports, ahead of Norway. Iceland’s dependence therefore lies mainly on the import side.
Since the Trump administration’s tariff policy began, both European states and Canada have increasingly turned to China to strengthen their economies. This is happening even though NATO has called China a “decisive enabler” of Russia’s invasion of Ukraine. It is therefore clear that economic interests weigh heavily here. Continued cooperation with China is also necessary to counter climate change. Iceland and China have, for example, cooperated well on geothermal development in China. Like Iceland, China is a party to the Agreement to Prevent Unregulated High Seas Fisheries in the Central Arctic Ocean, which entered into force in 2021 and bans commercial fishing until the scientific knowledge is in place.
Pressure already present
Iceland has already faced US pressure over its relations with China. When Mike Pence, then Vice President of the United States, visited Reykjavík in September 2019, he thanked Icelanders for declining to take part in the Belt and Road Initiative. The Icelandic government had done no such thing, and the Minister for Foreign Affairs said the remarks were not entirely accurate.
Kárhóll has already become a point of contention. In October 2024 the chair and the ranking member of the House Select Committee on the Chinese Communist Party wrote to the US Secretaries of Defense and State. They said the station appeared to conduct dual-use research, and proposed that the United States urge the Icelandic government to carry out a national security review of research by Chinese scientists in Iceland, and assist it in doing so. The free trade agreement could be next. This puts Iceland in a difficult position, given the importance of its security and defence cooperation with the United States, while it must also safeguard its sovereignty and its right to shape its own policy.
This shows why the Icelandic government needs to define its own interests, goals and limits in relations with China in advance, rather than let Iceland’s policy take shape mainly as a reaction to pressure from other great powers. Pressure is likely to grow, and Iceland, like other European states, is likely to be asked to limit its relations with China. It is therefore important to have mapped Iceland’s interests and where its red line lies before that happens.
Iceland needs a China policy
Iceland has no public policy on China. The National Security Policy does not mention China by name, and the act on screening foreign investment was passed only in June 2026 and will not take effect until early 2027.
I therefore propose that the Minister for Foreign Affairs, in consultation with the National Security Council, submit a motion for a parliamentary resolution on Iceland’s China policy to Alþingi in the spring 2027 session, and that the policy be published. This was the procedure for the Arctic policy in 2021 and the security and defence policy in 2026. Such a policy would need to cover many areas. First, economic relations: Iceland needs to map where its economic opportunities with China lie, which industries and services would need support to reach the Chinese market and how to attract more Chinese tourists.
Second, the policy needs to set out how the new act on screening foreign investment will be applied. In 2020 Egill Þór Níelsson and I proposed reviewing the process for investment from outside the European Economic Area (EEA) and introducing screening on the Nordic model. Six years later, legislation to that effect was passed. As noted above, however, Chinese investment in Iceland is very limited. The act covers critical infrastructure and sensitive sectors but not ordinary land purchases, so another Nubo case would still fall under the older legislation on property ownership. The policy needs to answer whether that is sufficient. The answer would apply to more states than China.
Third, Iceland’s dependence on Chinese technology needs to be mapped, including in telecommunications and cybersecurity. Deeper research is needed here to analyse the effects of a possible Chinese invasion of Taiwan, including on semiconductors and supply chains.
Fourth, the research station at Kárhóll should be assessed on national security grounds. No formal assessment has ever been carried out, and no process exists that requires one. An assessment would strengthen the station itself, which could then point to having passed it, and it would strengthen the Icelandic government if foreign states use the station to apply pressure. Under no circumstances may a national security screening framework be misused against research and academic freedom. Scientific ties were, after all, an important thread between people on opposite poles during the Cold War. To ensure this, the framework must rest on clear criteria set in law, be run by an independent body and provide a right of objection. In this way it protects both security and academic freedom.
Fifth, Iceland needs regular assessment of how Chinese activity in the Arctic develops and how it affects Iceland’s interests. Finally, there needs to be a policy on how to respond to great-power pressure concerning Iceland’s relations with other states.
Sweden and Finland, for example, have developed and published dedicated policies on relations with China based on their own interests, and Norway and Denmark address China in their security strategies. Iceland has neither. None of these states intends to cut off relations with China despite China’s growing competition with Europe. The trade interests and the need to cooperate on climate are too great. They have, however, chosen to limit their relations with China to varying degrees in different areas.
The Swedish policy, for example, is considerably more critical than the Finnish one, while Norway’s national security strategy covers relations with China in detail. Iceland should do the same: assess its own interests, learn from neighbouring states and publish the policy.
Publishing the policy would increase transparency, predictability and coordination within the government. It would give other ministries, municipalities, businesses, academia and even the public a frame of reference. The policy would matter too because relations with China extend beyond trade to telecommunications, critical infrastructure and national security. A public policy would also have signalling value and set out which issues matter to Iceland.
Setting a course
Iceland is an independent, sovereign state. International upheavals have always happened and always will. Iceland needs to be at the helm itself, which means having a plan, a policy, rather than only reacting.
The goal of a China policy should be to maximise the benefits for Icelandic interests while minimising risk, rather than to restrict relations. If Iceland wants to be a leading state in the Arctic, it must do more than talk. It must be able to handle the difficult sides of a changing international order. Iceland should therefore learn from the other Nordic states.
Neither the United States nor Russia will leave the Arctic. Nor will China withdraw if its government holds its current course. Iceland therefore faces many decisions about its relations with these great powers in the coming years. It needs to keep up momentum and avoid drifting without a policy. The first step lies with the Minister for Foreign Affairs: to present a policy on relations with China to Alþingi and publish it.