Iceland’s Election: What does it mean for the Arctic?

On Saturday’s parliamentary elections in Iceland, two center-right parties seized power from the incumbent Social Democrats. Iceland Review states that the Independence Party won a reported 28.5 percent of the vote, while the Progressive Party won 25.2 percent. What does this mean for Iceland’s Arctic strategy and the region at large?

The EU dimension

First of all, EU membership is now likely off the table. Both the Progressives and Independents oppose acceding to the union. In fact, it was the Progressive Party which promoted the idea of replacing the Icelandic króna with the Canadian dollar. In 2012, the party’s leader, Sigmundur Gunnlaugsson, said, “If we are going to adopt another currency, then the Canadian dollar looks very promising.” Yet they’re still pro-króna more than anything. For the EU, the fact that Iceland will not be joining the union any time soon means that at least for the near term, Brussels has lost the chance of gaining an Arctic coastal state. The EU’s website states that it has three (and potentially four) Arctic Council member states among its members, but the number will now probably remain at three. The Arctic Dialogue, a high-level summit between EU and Iceland officials regarding Arctic energy activities, such as Iceland’s hydrothermal industries and oil and gas in the Arctic at large, took place on April 15. The dialogue was part of the accession talks for Iceland to join the EU. With the new government in power, it’s unclear whether these talks will even continue. This could affect Iceland-EU cooperation, which might occur now on a more limited level now that membership is not in its crosshairs. Yet in an April 8 press release, Commissioner for Enlargement and European Neighbourhood Policy Štefan Füle emphasized that the “European Commission remains fully committed to continuing the work with the government of Iceland after the elections.” Whether this commitment will be mutual has yet to be determined. In any case, Iceland supports EU’s bid for permanent observer status in the Arctic Council and will probably continue to do so. Talks may also still go on regarding a joint maritime service center oriented towards economic development and monitoring of activities in the North Atlantic and Arctic Oceans. So just because EU membership is shelved doesn’t necessarily mean that all talks and cooperation with the EU will be put on hold.

Domestic issues

Either Gunnlaugsson or Bjarni Benediktsson, leader of the Independence Party, will become prime minister. Regardless of who takes the top office, it’s likely that Iceland will refocus on growing its primary industries. In March, Gunnlaugsson stated in an interview with Bloomberg, “There are great growth opportunities in the fundamental industries of Iceland.” The center-right parties’ express interests in resource development could cause Iceland to continue to rely on export-oriented industries such as fisheries, aluminum processing, and potential oil and gas development to fuel its economy. This, in turn, would help stabilize the króna, which plunged in value against foreign currencies during the crisis. Thousands of Icelanders are basically underwater with their mortgages, as many have a principal that varies based on the króna’s exchange rate.

With the Althingi’s possible increased emphasis on natural resource development, Icelanders are naturally concerned about environmental protection. Members of the Progressive Party answered the following question from Grapevine, an Icelandic newspaper:

Will your party do something to protect the land and its resources? Is a more stringent regulative framework needed to ensure conservation of the environment?

“The Progressive Party believes that it is important to include an article in the constitution that puts resources within Icelandic territory into the national ownership.”

No mention was made of conservation, but the fact that the Progressives want to emphasize Icelandic ownership over natural resources is interesting. I think this has more to do with offshore fisheries and potential oil and gas resources rather than land (recall the Anglo-Icelandic Cod Wars), but let’s not forget that land, too, is a hot-button issue in Iceland. When Chinese businessman Huang Nubo expressed interest in buying land in eastern Iceland to turn into a $200 million tourist resort, it stirred up a lot of controversy. Gunnlaugsson was rather supportive towards Huang’s plans, while Benediktsson was more opposed. In 2011, he said that foreign purchases of land would need to be “carefully considered.” He did add, however, “I think there lies a very high chance of cooperating with this man who seems to want to go in tourism and other such things.” (A great blog post about Huang’s saga can be found here.)

Huang seemed to be quite positive about his chances with the elections. In March, he commented to the China Daily, “There will very likely be a favorable turning point on the deal in April…But if I get nothing clear and final from the Icelandic government by the end of May, I’ll no longer be interested in pursuing the project, and I’ll let it go.”

So perhaps given the election results, we will see a continued strengthening of the Iceland-China connection from parliamentary quarters, particularly if Huang’s development plans are approved (although this is a private business venture rather than a government-backed deal). Iceland may continue to look to Asia, the Nordic countries, and nearby North America for business opportunities rather than continental Europe. The country may also continue to position itself as an Arctic coastal state strategically situated in the North Atlantic, emphasizing its Arctic identity over a European one. By consequence, the U.S., which had an air force base in Keflavík until 2006, could soon have to contend with Chinese investment not just in the Pacific, Caribbean, and Indian Oceans, but the Atlantic, too.

The U.S. doesn’t need to worry too much at this stage about losing out in the competition for Icelandic business. Eimskip, the Icelandic shipping company, moved its North American hub from Virginia to Portland, Maine in March 2013 in order to shortern North Atlantic shipping times – a decision I’ll write more about in my following post.

Mr. Grimsson goes to Beijing

All in all, things probably won’t change too much in the Arctic with the new parties in power in Reykjavik. Iceland’s most visible face in the circumpolar north has not been the prime minister, but rather President Olafur Grimsson, a political independent. As his office is elected separately, he will continue in his position. The longest serving president in Icelandic history, he has held office since 1996. Long terms, however, are not unusual; the previous president, Vigdís Finnbogadóttir, served for 16 years. The Grapevine says that opposing a sitting president is considered “bad form,” so it’s unlikely that we’ll see any real challengers to Grimsson. For a long time, the president was also not supposed to become mired in politics, as the position is more akin to a head of state than a political leader.

Yet Grimsson changed that with his involvement in the financial crisis in Iceland in 2008. A high-flying president comfortable in front of reporters and cozy bankers, many thought he was partly responsible for the country’s economic collapse. But Grimsson managed to save face by vetoing a bill passed by the Parliament, then led by the Social Democrats, that would have required Iceland to pay back some of the $5 billion lost in Dutch and British Icesave accounts. After the veto, the bill went to the people in a referendum, and Icelanders voted against it. Grimsson became the first president to use the power of the veto, symbolically transforming the office into a very political — and powerful — one.

Grimsson, former leader of the socialist People’s Alliance party, betrayed the wishes of the Social Democratic prime minister and her party. In 2012, the main opponent against Grimsson, Thora Arnordsdottir, ran on a platform calling for the president to stay out of politics. Now that the Independence and Progressive Parties will take power, Grimsson will have political allies in the Althingi. Grimsson, whom blogger Heather Exner-Pirot has called a “known Sinophile,” will probably continue building ties with the snow dragon and other Asian states interested in the Arctic. The Chinese-Iceland attraction is mutual, too: earlier this year, a popular television show on CCTV about the Arctic featured Iceland, showcasing the country’s natural beauty, geothermal energy and aurora. If that attraction is confirmed by parliament’s new leading parties, then the Iceland-China connection stands to grow stronger in the coming years while the island nation expands into new markets as well. This time, shipping — not banking — will provide the way forward into far-flung corners of the globe.