The Other Arctic Island: Greenland Reveals NATO's Iceland Problem
Greenland is just the beginning. The United States won't ignore Iceland's embrace of China for much longer
Top of The World News
July 10, 2026
Iceland’s growing ties with China are drawing renewed scrutiny after President Trump and Denmark clashed again over Greenland at the NATO summit in Turkey this week.
“It is a well-known position of the United States that it wants to own and take over Greenland. I hope that it is equally well-known everywhere that this is not going to happen,” Danish Prime Minister Mette Frederiksen said, after Trump reiterated his intent to control the island.
Iceland has flown under the radar during the Greenland furore despite its obvious implications for a small Arctic island with 400,000 people, no standing army, and the closest relationship with the People’s Republic of China (PRC) of all NATO states.
“Greenland belongs to the people of Greenland. The same is true for Iceland,” Prime Minister Kristrún Mjöll Frostadóttir told reporters at the NATO summit in Ankara.
She was correct to identify the parallel concern.
China has been seeking a foothold in the Arctic for years, keen to access the region’s resources despite having no territorial claim.
In 2008, it finally found an opening in Iceland, a long-standing NATO ally sitting at the crossroads of the North Atlantic, Greenland, the Arctic Ocean, and Europe.
That strategic location has made Iceland a valuable NATO ally despite its tiny size. During the Second World War, it played a critical role hosting Allied forces. In 1949 Iceland joined NATO, and during the Cold War it was used as an important listening post, monitoring submarine traffic through the Greenland-Iceland-United Kingdom (GIUK) Gap.
But once the Cold War ended, Iceland was quick to open the door to China, developing trade, scientific cooperation, and Arctic research ties in return for financial and trade support.
This wasn’t too much of a problem until the Trump administration adopted a hemispheric and continental defense policy.
China’s influence across the North American continent suddenly became much more visible, prompting US demands for control of the Panama Canal and Greenland while throwing long-standing US commitments – such as its NATO obligations in Europe — into doubt.
Iceland now finds itself under the spotlight. The Greenland dispute has highlighted Iceland’s strategic value — as well as its open-door policy with China.
There are two areas of concern. One is the scale of the economic relationship. China drives demand for tourism and seafood exports, two of Iceland’s biggest revenue generators.
The second is the China-Iceland Arctic Science Observatory (CIAO). This facility conducts a type and scale of research that Icelandic police officials warned last year amounts to a strategic threat.
“Iceland’s ongoing space observation project with China has raised concerns over China’s ability to surveil NATO airspace, particularly because of China’s track record of installing surveillance technology under the guise of scientific observation in other regions of the world,” RAND stated in a 2024 report.
Much of China’s activity at CIAO involves the ionosphere and advanced radar technologies, which that can be used to identify and track submarine, naval and space assets, particularly satellites.
In other words, it is effectively functioning as a sort of ground station — a vital requirement for China, a nation with far-reaching ambitions in space, but without any territorial claim on the Arctic.
An Arctic physical presence is essential for any space nation with polar-orbiting satellites. These vital space assets capture communications, observation and defense data unavailable to the majority of satellites orbiting the equator.
Similar concerns about Chinese abuse of its “research” privileges have arisen on Norway’s Arctic island of Svalbard. And the Swedish Space Force decided in 2020 to end China’s lease on the Esrange Space Center in Kiruna for the same reason.
The US Space Force has repeatedly identified China’s behaviour in space as a threat. Chinese operators and assets demonstrate a level of expertise that outpaces any other nation’s, including the US. They have also acted repeatedly with overt malign intent against US assets.
China’s presence is becoming an unavoidable problem for Iceland, with the CIAO less than 500 kilometres from the Keflavik air base, which resumed its listening post role after Russia — a strong China ally — invaded Ukraine in 2022.
NATO has also been ramping up operations at Keflavik over the past few years.
It is now being used to support P-8 Poseidon surveillance aircraft and fighter jet patrols across the North Atlantic and Arctic, and it functions as a staging post for the US Space Base in Pituffik.
These activities can now be easily observed by Chinese state assets, just five hours’ drive away on the other side of a small island.
Iceland’s dilemma became plain last year when the USS Newport News, one of the United States’ Virginia-class nuclear submarines, showed up at Grundartangi port armed with Tomahawk missiles.
“Deep coordination with our incredible NATO ally Iceland to achieve this historic visit demonstrates our commitment to freedom of navigation and the security of our allies in the region,” Admiral Stuart Munsch said.
It was an unprecedented display of US military posturing in the Arctic, and an unsubtle message that the region is no longer a low-tension area, which means that all nations — especially members of NATO — now need to pick a side.
Further reading:
China maintains a strong presence at the China Observatory: Iceland Monitor
Hudson Institute: China’s Arctic Push Threatens Greenland and North American Defense
Iceland’s relationship with China began less than 20 years ago after the 2008 great financial crisis triggered a collapse in its banking system.
The International Monetary Fund provided a $2.1 billion stabilization program, and Nordic loans helped stabilize the currency, but Iceland still needed a US$500 million Chinese currency swap to rebuild its financial sector.
China has since leveraged that contribution into a critical Arctic foothold.
In 2012, Chinese Premier Wen Jiabao visited the island and signed an Arctic cooperation agreement covering scientific research, climate studies, marine science, geothermal energy, and fisheries.
In 2013, China acknowledged Iceland’s assistance after it won permanent observer status on the Arctic Council. Beijing admitted that without Iceland its five-year quest would have failed.
A couple of months later, Iceland became the first European country to sign a free trade agreement with China that radically expanded Icelandic seafood exports.
In 2018, the China-Iceland Arctic Science Observatory opened, engaging in research with direct military application, including that which aids the detection and tracking of satellites, submarines, and other military assets. (english.scio.gov.cn)
The observatory is the most obvious evidence that Iceland is now compromised as a NATO ally.
And security concerns are only one dimension of Iceland's relationship with China. The economic relationship has become equally significant.
Iceland has recovered well from its financial crisis nearly 20 years ago. It is now a successful market economy with a $43 billion GDP expanding just under two percent a year, with one of the highest GDP per capita rates in the world of $110,000.
Debt to GDP is also low at 54 percent, and falling.
Tourism dominates an economy led by services (65 percent), but manufacturing also plays a major role thanks to Iceland’s abundant geothermal energy resources. Aluminium smelting contributes around ten percent to GDP thanks to strong demand for green energy and products.
Although seafood and fish processing account for just four percent of GDP, they punch above their weight as 40 percent of exports.
However, the Iceland does suffer from one critical weakness, one created by its Chinese partner: a structural trade deficit now amounting to $872 million.
Under the free trade agreement, China can flood Iceland with tariff-free goods, with the result that Iceland — a nation of 400,000 — imports more than $100 million in Chinese goods each month.
Chinese seafood demand has also caused some disruption. China takes nothing Iceland produces other than fish, accounting for under three percent of Icelandic exports in total, but that demand fluctuates wildly. In early 2026, Chinese seafood demand suddenly tripled, then collapsed.
Despite these fragilities, Iceland is reinforcing its economic dependence upon China.
In late 2025, the two nations agreed to prioritize the high-value, high-spending, luxury Chinese tourism segment. Iceland also agreed to pair its geothermal intellectual property and expertise with Chinese industrial capital to build green energy grids, establishing a huge secondary consulting and engineering job market.
Two years ago, Washington started to pay closer attention to Iceland, as part of its rising intolerance for Chinese espionage in the Arctic dressed up as research.
In 2024, a Congressional select committee wrote to the State Department demanding action to close the Observatory along with all other Chinese “research” in the Arctic.
“...the United States is responsible for Iceland’s defense under the NATO umbrella, the United States should urge and assist the Icelandic government to carry out a national security review of the research performed by PRC scientists and halt any PRC research that is used for military purposes on Icelandic soil,” a 2024 letter sent by the committee writes.
Two US Senators are now pushing a bill through Congress to force a strategic review to address these Chinese activities, extending existing prohibitions on Chinese encroachment upon Arctic waters.
Congress followed that up with a visit last month by ten members of House Permanent Select Committee on Intelligence led by Chairman Rick Crawford. This delegation discussed not just security but Iceland’s 2035 chairmanship of the Arctic Council, according to reports.
Iceland’s response to the visit was muted.
“This visit...underscores Iceland’s growing importance in the changing security environment in the Arctic and North Atlantic,” foreign minister Katrin Gunnarsdottir said.
There were no joint statements. The Select Committee has yet to file its report.
In the meantime, Iceland continues to promote the European view of Arctic affairs -- that Russia and not China is the greatest threat.
At the NATO summit, Prime Minister Frostadóttir repeated NATO boilerplate on Russia during interactions with the press, while stating that the alliance is stronger rather than weaker despite the tension caused by the dispute over Greenland.
“Yes, the dynamics have changed,” she said. “The conversations may be a bit better in a different way but we have more members, there’s more money going into defense. So in most ways, this is a stronger alliance than it was 12 months ago. But yes, the tone is different.”
She made a point of intercepting President Trump in public to shake his hand, but there is no indication that any direct bilateral talks occurred, or that Iceland’s Arctic role came up for discussion on the sidelines.
Instead, attention remained focused on Greenland, with Frostadóttir urging patience, pointing to the tripartite working group now hammering out a resolution with the United States.
Danish foreign minister Lars Lokke Rasmussen said recently that he expects a concrete solution by the end of the year.
At which point, it’ll be Iceland’s turn.
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