The fleet that left: Iceland's lack of merchant shipping is a national-security issue

Today no merchant vessels are registered in Iceland, whereas in 1987 there were 39.1 All ships operated by Icelandic shipping companies sail under foreign flags — Faroese, Norwegian or Dutch, for example — even though over 90% of Iceland's trade in goods travels by sea.2 Fuel, food, medicines and building materials therefore arrive almost exclusively on ships over which Iceland has no jurisdiction.

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The fact that Iceland has no merchant vessels under its jurisdiction is not a technical problem — it is a national-security issue, plain and simple. Stable supply chains and access to essential goods are fundamental to the security of any nation. Registration determines which state has jurisdiction over a ship, and it is on the basis of that jurisdiction that a state can call on its services in times of emergency.3 The Icelandic authorities have no such authority over the ships that carry goods to and from the country.

Two attempts to establish an Icelandic international ship registry have failed, and setting up a new registry is unlikely to be a realistic option in the short term.4 Inaction, however, is not a good option.

Varða proposes that the Icelandic authorities explore the possibility of cooperating with the Faroe Islands Maritime Authority (FMA) on the operation of an Icelandic international ship registry. Iceland would set the legal framework but entrust the day-to-day operation of the registry to an institution that Icelandic shipping companies already know and trust. There are existing precedents for such cooperation.



The ships that now sail under the Faroese flag could transfer to the Icelandic flag without any change in service, and Iceland would thereby regain jurisdiction over the vessels. This approach has clear models in the operation of the world's largest ship registries — those of Liberia and the Marshall Islands, for example — which are outsourced to third parties without jurisdiction and flag-state authority being surrendered.

1. An island nation without ships of its own

Since 2004, not a single merchant vessel has been registered under the Icelandic flag. Icelandic shipping companies do operate ships that serve the country daily, but they all sail under the flags of other states.5

A ship registry is an official register that defines which vessels fall under the jurisdiction of the state in question. The flag state is responsible for safety, labour protection and environmental protection on its ships, and it alone has the right to dispose of them under emergency and defence legislation.6 A ship registered in the Faroe Islands falls under Faroese — or, in the event of armed conflict, Danish — jurisdiction, not Icelandic, regardless of who owns the vessel.7 Most Icelandic-owned merchant vessels are registered in the Faroe Islands or Norway.8

The reasons are well known. Competition in the international shipping market is fierce. Shipping companies seek out registries that offer low and predictable costs, flexible crewing and terms, favourable taxation and round-the-clock service. Neighbouring states such as Norway, the Faroe Islands and Denmark have solved this with dual registries: one for coastal shipping on domestic terms and another, international, registry with a competitive framework.

Iceland has two ship registries, one general and one international, and the entire fishing fleet sails under the Icelandic flag.9 The merchant vessels fled the country in search of a more favourable operating environment and better service, so the international ship registry is in effect dormant. Iceland is thus the only maritime nation in Europe with an international ship registry that exists in name only and goes unused.10

The Icelandic authorities attempted to respond in 2007 by passing legislation on an Icelandic international ship registry (IIS). It never became a realistic option. The tax incentive was repealed in 2011 following objections from the EFTA Surveillance Authority (ESA).11 Not because international ship registries inherently violate EEA rules, but because of flaws in the Icelandic implementation.12 In 2021 a new draft bill was put forward but failed to pass, chiefly owing to disputes over pay and working conditions.13

2. Legal uncertainty in times of conflict

The greatest danger of the current arrangement is not operational but legal. When a ship is registered in another state, that flag state has control over the vessel if an emergency arises.14 In the event of serious conflict, flag states can call ships into service for their own purposes. Iceland could then lose access to the vessels that carry food, medicines and other supplies to the country, with no legal authority to intervene. Since Iceland has no merchant vessels on its own registry, there is no formal guarantee that the ships could be called home to serve Icelandic public interests.

Our neighbours have already begun preparing for the requisition of assets in an emergency. In January 2026, the Norwegian authorities sent letters to thousands of Norwegians informing them that their equipment and property, including ships, could be expropriated in an emergency.15 In the case of ships, those powers extend only to vessels sailing under the Norwegian flag, just as every other state's powers extend only to ships under its own flag. Since Iceland has no such ships, there is no legal basis for comparable measures.

Even without formal requisition, international disruption can cause serious interference. As tensions rise, ships may be moved off routes deemed risky, sailings may become less frequent, or freight rates may exceed what small markets can afford. The priorities of shipping companies and insurance markets then carry great weight, and Iceland would have limited bargaining power to respond to such circumstances. The experience of the COVID-19 pandemic showed in practice how fragile global supply chains can be. For an island state that relies on a single supply chain, the risk is especially acute.

At the same time, Iceland's expertise in international shipping and the human capital needed to crew merchant vessels have diminished.16 Just like the absence of a merchant fleet, the shortage of expertise in shipping and freight logistics is a concern for Iceland, and a concern in its own right.

3. A partnership on registry operation

Iceland has no realistic prospect of establishing a competitive international ship registry from scratch in the coming years, as a certain number of vessels is needed for such an operation to be viable. The Faroese international ship registry holds around 90 vessels, while merchant ships owned by Icelandic shipping companies number fewer than ten. Moreover, no international ship registry has been operated in Iceland for nearly a quarter of a century, so the necessary expertise is unlikely to be in place.17 This does not mean, however, that nothing can be done.

Some of the world's largest ship registries are not operated by the states themselves. The Liberian registry, the world's largest, has since 1948 been run by the private company LISCR, headquartered in Dulles, Virginia.18 The Marshall Islands registry, the third largest, is operated by International Registries, Inc. (IRI), a private company in Reston, Virginia.19 In these cases the state retains full flag-state authority — that is, jurisdiction and emergency powers — but outsources day-to-day operations to an external party that has made the registries competitive and accessible to international shipping companies.

Iceland should make use of the same arrangement and negotiate with the Faroe Islands on the operation of its ship registry. Iceland would thereby control the legal framework for an international ship registry. It would need to be aligned with the Faroese framework, be competitive in terms of taxes and costs, and take account of international conditions with regard to pay and working conditions. The FMA would handle day-to-day operations, that is, registration, inspections, certification, advisory services and support for shipping companies. Ships now sailing under the Faroese flag could transfer to the Icelandic flag without any change in service. Iceland would regain jurisdiction, and with it emergency powers, over the vessels that secure society's basic needs.

In the longer term, expertise and administrative capacity for ship registration should be secured domestically. This Faroese route does not preclude that work, and the agreement could even include provisions for Iceland to second staff to the Faroese ship registry, as we do in other international cooperation. In parallel, training and education in the operation and management of merchant vessels should be strengthened.

4. Sovereignty at sea

The benefit of the partnership route is first and foremost increased security: a formal and binding guarantee that the Icelandic authorities can prioritise minimum shipping capacity when it matters most. The economic benefit lies not in direct tax revenue but in greater predictability and reduced risk if things take a turn for the worse.

The current situation is the result of decades of policymaking that has not taken sufficient account of national security. In a world of rising tensions and poorly protected supply chains, it is unrealistic to assume that the market alone will safeguard Icelandic public interests in uncertain conditions.

The decision we face is clear: either Iceland continues to rely entirely on shipping capacity under foreign flags, or we decide to regain a minimum degree of control over our own lifelines. Resilience at sea is part of essential national security.

Sources

1. Guðjón Guðmundsson. Ekkert kaupskip á íslenskri kaupskipaskrá. Fiskifréttir, 11 December 2025. https://fiskifrettir.vb.is/ekkert-kaupskip-a-islenskri-kaupskipaskra/ . ↩︎
2. World Trade Organization. Trade Policy Review: Iceland — Summary. WT/TPR/S/454, 17 April 2023. https://www.wto.org/english/tratop_e/tpr_e/s454_sum_e.pdf; Statistics Iceland. Innflutningur eftir vöruflokkum. Accessed 1 March 2026. https://px.hagstofa.is/pxis/pxweb/is/Efnahagur/Efnahagur__utanrikisverslun__1_voruvidskipti__01_voruskipti/UTA06202.px; Statistics Iceland. Vöruflutningar um hafnir. Accessed 1 March 2026. https://px.hagstofa.is/pxis/pxweb/is/Umhverfi/Umhverfi__5_samgongur__4_skip/SAM05103.px ↩︎
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5. Guðjón Guðmundsson. Ekkert kaupskip á íslenskri kaupskipaskrá. Fiskifréttir, 11 December 2025. https://fiskifrettir.vb.is/ekkert-kaupskip-a-islenskri-kaupskipaskra/ ↩︎
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13. Ministry of Infrastructure. Drög að frumvarpi til laga um íslenska alþjóðlega skipaskrá. Government consultation portal, case no. S-92/2021, published 31 March 2021. https://island.is/samradsgatt/mal/2961#view-advices
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14. United Nations. United Nations Convention on the Law of the Sea. Montego Bay, 1982. Articles 91 and 94.
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15. James Rothwell. Norwegians told to prepare for wartime property seizures. The Telegraph, 19 January 2026. https://www.telegraph.co.uk/world-news/2026/01/19/norwegians-told-to-prepare-for-wartime-property-seizures ↩︎
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17. Ministry of Finance and Economic Affairs. Alþjóðleg skráning skipa: raunhæfur möguleiki? Reykjavík, November 2014. https://www.stjornarradid.is/media/fjarmalaraduneyti-media/media/rit-og-skyrslur-2015/Althjodleg-skraning-skipa.pdf ↩︎
18. Wikipedia. Liberian Companies. Accessed 3 March 2026. https://en.wikipedia.org/wiki/Liberian_companies ↩︎
19. International Registries, Inc. About. Accessed 3 March 2026. https://www.register-iri.com/about-iri/ ↩︎

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