Iceland

It is unlikely (around 3%) that Iceland will be directly involved in significant armed conflict within the next three years; the main tail risk remains a major NATO–Russia escalation in the North Atlantic/Arctic that operationalizes Iceland’s GIUK-gap role.

Over the next year, expect continued NATO air policing rotations (including higher-profile Nordic participation) and more public emphasis on protecting undersea cables, ports, and cyber readiness. The most plausible security events remain below the armed-conflict threshold: cyber intrusions, espionage, disinformation, and occasional air/maritime probing. Terrorism risk likely stays elevated but dominated by lone-actor plotting.

Over five years, Iceland’s direct war risk stays low but is more sensitive to systemic shocks: a major NATO–Russia escalation, intensified Arctic militarization, or sustained hybrid attacks on North Atlantic infrastructure. The more likely path is deeper NATO/Nordic integration, possible EU-adjacent security cooperation, and increased dual-use and cyber-resilience investment, keeping contestation largely non-kinetic.

Bottom line Iceland’s direct armed-conflict risk remains a low base-rate case. The credible route to kinetic involvement is exogenous: a high-end NATO–Russia crisis in the North Atlantic/Arctic where Iceland’s GIUK-gap location and Keflavík host-nation support become operationally central.

Threat drivers Alliance exposure and geography: NATO air policing rotations continue and are becoming more visibly Nordic-integrated, increasing Iceland’s operational relevance in deterrence and surveillance. This raises salience in a severe great-power crisis, but it is not evidence of imminent attack.

Hybrid and infrastructure vulnerability: Iceland’s concentrated critical infrastructure, import dependence, and limited undersea cable connectivity create leverage points for cyber sabotage, espionage, and coercive disruption. Broader European reporting on intensified state-linked cyber activity against government and critical infrastructure is consistent with a higher likelihood of non-kinetic incidents affecting Iceland or Iceland-linked systems.

Terrorism: Official assessments keep the terrorism threat elevated (mid-level on a five-step scale) and emphasize lone actors/small cells rather than organized networks. This supports vigilance but does not materially increase the probability of “significant armed conflict.”

Resilience and systemic firebreaks Deterrence and escalation control: NATO membership and the U.S.–Iceland defense relationship remain the primary firebreaks; the expected costs of kinetic action against Iceland are high and escalation risks are substantial for any attacker.

Institutional and economic resilience: Governance indicators and OECD assessments point to strong institutions and administrative capacity. Financial-system reporting indicates robust banking resilience and stress-test performance, reducing the risk that shocks translate into state fragility.

Net assessment (3 years) Very low risk of direct armed conflict. The modal security trajectory is intensified gray-zone contestation and resilience-building, not kinetic engagement. A material upward shift would require clear indicators of imminent North Atlantic military confrontation or sustained, attributable attacks that trigger alliance military responses.