Iceland holds: knife-edge referendum on EU - and it could be decided on fish

Prime Minister Kristrún Frostadóttir (C) supports Iceland joining the EU Inside a waterfront factory, workers in hairnets and blue overalls are sorting freshly caught cod and haddock, and machines process the fish into fillets, mostly bound for Europe. Visir fishing boss Pétur Pálsson, who fears joining the European Union would cost Iceland jobs and drive factories abroad, says: "If we are in the EU, they will be the ones who make the policy." On Saturday, voters in this island nation of almost 400,000 people will decide whether their country should resume talks on joining the EU.

It is a referendum that polls suggest is too close to call. Supporters think closer European ties could help tame Iceland's volatile currency and soaring cost of living.

Fisheries and other marine industries make up almost 40% of Iceland's exports It is a fault line that has divided Icelanders for decades, but after winning a snap election in 2024 Prime Minister Kristrún Frostadóttir's centre-left government pledged to hold a referendum "Things have been moving very rapidly with respect to geopolitical challenges," Finance Minister Daði Már Kristófersson tells the BBC, pushing Iceland's place in the world "up the agenda". For related coverage, explore our detailed analysis on Technology and Digital Systems.

Iceland Lies High North Updates

Iceland lies high in the North Atlantic, adjacent to a strategic stretch of sea called the GIUK gap, where Russian maritime activity is closely watched It is a founding member of Nato, and yet has no military of its own. One poll this week put the Yes vote ahead 3% to 48.7%; an earlier poll had the two camps neck and neck.

"It's impossibly [hard] to predict," says Eirikur Bergmann, professor of politics at Bifröst University. "Both camps are throwing everything they have at it." He points out that EU membership would strengthen Iceland's security and trade position, and shield it from much bigger powers.

A Yes vote would kickstart negotiations with Brussels, but a second referendum would have to greenlight any final membership deal.

The EU's 27 members would have to agree to it too. A No vote would shelve talks for the time being. Some Icelanders are expected to vote Yes as this is not the final referendum anyway.

Know What'S Package Updates

"We have to know what's in the package from the EU," says Reykjavik resident Anna Ragnarsdottir. "If we say no, we won't ever know." Iceland is one of the world's most expensive countries - so economic concerns are a key issue in the EU debate Although outside the EU, Iceland is part of the European Economic Area (EEA) along with Norway and Liechtenstein, so it is part of the single market and the Schengen border-free zone.

Reykjavik opened EU accession talks two years after the devastating 2008 global financial crisis, but abandoned them in 2013. Fishing was the biggest obstacle then, and remains a dealbreaker today.

Fish and marine industries account for almost 40% of Iceland's exports and many No voters are worried that under the EU's common fisheries policy they could cede some control of their lucrative fishing grounds.

Fishing is inseparable from Iceland's culture and political identity, and no politician ever could make that concession, says Prof Bergmann. "They'd be expelled from the country." Iceland's government intends to carve out a "special arrangement" to protect fishing and agriculture, and the finance minister says they are confident of getting "some exemptions".

Non-EU member Norway succeeded in 1994 even though it did not complete the process, he says, while EU states Finland and Sweden secured special terms for agriculture in the far north.

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But Eurosceptics doubt a carve-out is possible. The head of the Icelandic Farmers' Association, Margrét Ágústa Sigurðardóttir, is unconvinced: "No member state has been granted a permanent opt-out." She fears EU policies will focus on "the interests of 450 million consumers, rather than the specific needs of a country of 400,000 people".

Iceland has no military, but it is a Nato member and hosts alliance aircraft at Keflavik airport When the BBC visited the airbase at Keflavik this month, fighter jets were taking off, and the Stars and Stripes was flapping alongside the Belgian tricolour and Nato flags.

With no military, Iceland's security relies on its Nato allies and a 1951 defence pact with the US. However, Trump's repeated comments on taking over Greenland, and the risk of a weakened Nato alliance have added to Iceland's concerns.

Authorities point to Russia's maritime activities in waters close to Iceland as the main security issue and in June Icelandic authorities shared a Russian intelligence ship was tracked passing through Iceland's Exclusive Economic Zone.

There was disbelief among Icelanders when Trump mistakenly referred to their country four times in his speech at Davos, when he meant Greenland. The new US ambassador had to apologise when he joked that Iceland could become the 52nd US state.

Despite Greenlanders overwhelmingly opposing it, Trump has not dropped his wish to take over the island - something which is weighing on Icelandic voters Yet geopolitics, perhaps surprisingly, has been largely absent from Iceland's public debate.

For Snærós Sindradóttir of the European Movement in Iceland that is frustrating. The referendum is happening now "100% [because of] security matters", she says. The Yes camp says EU membership offers greater financial stability, while adopting the euro could curb the country's stubbornly high inflation.

Since breaking away from Denmark in 1944, Iceland has transformed from a poor island into one of Europe's most affluent nations. But prices in Iceland were 84% higher than the EU average, according to analysis "We get higher salaries, and it goes straight to the cost of everything," Sindradottir complains.

"It's like a dog chasing its own tail constantly." Snærós Sindradóttir is frustrated that the debate ahead of the referendum has not focused on geopolitics "The biggest problem right now is for the generation who are trying to buy their own housing," says Adolf Fridriksson, 62.

"The mortgage rates are terrifying." Meanwhile, Helga, 22, believes joining the EU will be too costly: "The fishing industry, and everything else, should be in our control." Saturday's result is being watched closely across Europe. If the Yes vote wins, Icelandic authorities say talks with Brussels will take "months, not years", as 11 of the 35 areas of negotiation were already finalised when they were broken off.

Leaders are taking note in neighbouring Norway, a traditionally Eurosceptic country and a fellow member of the EEA. But support for joining the EU is growing there too. Gaining a rich and stable new member in Iceland would be a welcome win for EU enlargement, says Hallgrímur Oddsson, head of the EU-Iceland think-tank European Currents.

"But a No vote could also be seen as a loss." US in closely guarded talks to open new bases in Greenland What tariffs has Trump introduced and why?