VZCZCXYZ0010
RR RUEHWEB

DE RUEHRK #0322/01 3131701
ZNY SSSSS ZZH
R 091701Z NOV 07
FM AMEMBASSY REYKJAVIK
TO RUEHC/SECSTATE WASHDC 3492
INFO RUEKJCS/SECDEF WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE 0065
RHMFISS/HQ USAFE RAMSTEIN AB GE
RHMFISS/COMNAVREG EUR NAPLES IT
RULSJGA/COMDT COGARD WASHINGTON DC
RUEHZG/NATO EU COLLECTIVE
RUEKDIA/DIA WASHDC
RUEAIIA/CIA WASHDC

S E C R E T REYKJAVIK 000322 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/NB, EUR/RPM 
OSD-P FOR DAVID CATE 
OSD RESERVE AFFAIRS FOR ASD HALL 
 
E.O. 12958: DECL: 11/06/2017 
TAGS: PREL MARR PGOV PINR IC
SUBJECT: ICELANDIC DEFENSE POLICY ONE YEAR AFTER U.S. WITHDRAWAL 
 
Refs: A) 06 Reykjavik 85  B) 06 Reykjavik 357 
  C) 06 Reykjavik 359  D) 06 Reykjavik 364 
  E) 06 Reykjavik 401  F) Reykjavik 01 
  G) Reykjavik 69  H) Reykjavik 99 
  I) Reykjavik 192  J) Reykjavik 247 
  K) Reykjavik 298 
 
Classified By: Amb. Carol van Voorst for reasons 1.4 (b) and (d). 
 
¶1.  (C) Summary: A year after the closure of U.S. Naval Air Station 
Keflavik and the withdrawal of permanent U.S. forces from Iceland, 
Post agrees with Prime Minister Haarde that the turnover went better 
than either party expected.  After recovering from the initial shock 
of our base closure notification in March 2006, the Icelandic 
Government has solidified its defense links with its neighbors and 
within NATO, successfully hosted U.S. and NATO ship visits as well as 
a multinational air defense and counterterrorism exercise, 
strengthened its Coast Guard in resources and in international ties, 
and begun canvassing for NATO air policing support.  Former base 
properties now house university students and academic research 
centers.  Although several difficult issues remain -- intelligence 
cooperation and the future of the air defense radar system among them 
-- they are partially due to domestic political considerations, and 
will be solved as the new coalition government settles in.  With 
climate change, a likely increase in North Atlantic energy shipments, 
a new focus on Arctic resources, and a more visible Russian presence, 
the High North could easily reemerge as an area of high strategic 
importance in the decades ahead.  U.S. interests in the region will 
be well served by encouraging Iceland to continue to develop its 
security and defense capabilities while we keep our defense 
options--including access to the base--open.  End Summary. 
 
From protests to robust joint efforts 
------------------------------------- 
¶2.  (C) When we notified the Icelandic Government in March 2006 of 
the decision to close U.S. Naval Air Station Keflavik (NASKEF) in six 
months, bitter disappointment and, in some quarters, outrage were 
evident.  Commentators predicted the end of the bilateral 
relationship and opined that the 1951 U.S-Iceland Defense Agreement 
was now worthless.  Former Prime Minister David Oddsson let it be 
known that had he been in office, he would have immediately abrogated 
the treaty and ejected the U.S. military ahead of the September 
deadline.  Minister of Justice Bjorn Bjarnason, considered by many 
the most pro-U.S. and pro-NATO member of the cabinet, acidly 
questioned U.S. dependability in defense matters. 
 
¶3.  (SBU) A year after NASKEF's closure, the state of the bilateral 
relationship is quite different from the gloomy predictions.  This 
past August, Prime Minister Haarde told former lead negotiator ASD 
Tom Hall and Commander U.S. Air Force Europe (USAFE) General Tom 
Hobbins that "no one could have imagined a year ago how well things 
would turn out."  Negotiations in 2006 resulted in a technical 
agreement to close the base and a political Joint Understanding 
pointing the way forward.  The continuing defense relationship was 
then made visible to the public by cooperation on two major ship 
visits, a search-and-rescue training visit by a U.S. P-3 aircraft, 
and a large-scale multinational air defense and counterterrorism 
exercise.  Links between the Icelandic and U.S. Coast Guards -- both 
bilaterally and within the newly-formed North Atlantic Coast Guard 
Forum -- continue to grow in depth and breadth.  Exchanges in law 
enforcement training and operational information have shown results 
in counter-narcotics and document fraud detection work.  Politically, 
we have worked together at NATO to gain consensus on a peacetime air 
defense plan for Iceland; transferred Iceland's air defense radar 
system and are nearing completion of future support arrangements; and 
held the first round of high-level Security Dialogue consultations as 
outlined in the Joint Understanding. 
 
Looking beyond the bilateral relationship 
----------------------------------------- 
¶4.  (C) Outside the bilateral field, PM Haarde has pressed ahead with 
a strategy of greater engagement with Iceland's neighboring NATO 
Allies.  In early 2007, Iceland signed agreements with Norway and 
Denmark on increased defense and security cooperation, and began 
talks with the UK and Canada along the same lines.  Despite a change 
in government (and Foreign Minister) in May, the GOI has continued to 
flesh out the earlier agreements.  These efforts have resulted in 
increased visits by Danish Navy and Coast Guard vessels, as well as 
the participation of Norwegian and Danish forces in the NORTHERN 
VIKING air defense and counterterrorism exercise in August 2007. 
Norway was among the first NATO Allies to show interest in providing 
aircraft for air policing in Iceland.  MFA efforts to secure periodic 
air policing represent a welcome change in Iceland's traditional 
approach to defense:  a recognition that Iceland must assume more 
responsibility and, to accomplish this, must be more active within 
the Alliance in promoting its own affairs.  The recent MFA briefing 
for all resident NATO ambassadors on air policing was a first:  a 
true lobbying effort directed at capitals.  The brief was a shrewd 
sales pitch, including pledges of significant host nation support for 
the mission, which would be funded out of the first-ever defense 
budget in the Icelandic government's history.  This budget ($8.6 
million of a total GOI budget of $6.9 billion) is a concrete 
acknowledgment that Iceland has realized it needs to provide more for 
its own defense. 
 
¶5.  (C) Along the same lines, the GOI has boosted efforts to provide 
for greater domestic security.  In the last year, the Icelandic Coast 
Guard (ICG) has awarded contracts for a new patrol vessel and 
fixed-wing aircraft, while also leasing three search and rescue (SAR) 
helicopters to replace the USAF helos that previously provided SAR 
backup.  Minister of Justice Bjarnason, who controls the ICG, has 
been developing a plan for procurement of permanent helo support and 
has been discussing joint purchases with the Norwegian SAR 
authorities.  The ICG has also continued a practice of robust 
international deployments of the ICG Explosive Ordnance Disposal 
(EOD) team to peacekeeping operations, most recently in Lebanon in 
the winter of 2006-2007.  Post has encouraged the MOJ and ICG to make 
their procurement and training plans with an eye towards maintaining 
the capacity to deploy abroad in NATO or UN peacekeeping operations. 
 
¶6.  (U) Smart governance has also mitigated the local impact of 
NASKEF's closure on the community of Reykjanesbaer/Keflavik.  Job 
losses, initially feared to be in the hundreds, were minimal as all 
but a handful of 700-plus former NASKEF employees found new work. 
This was due to quick engagement by the outgoing NASKEF/Iceland 
Defense Force command and the town of Reykjanesbaer in providing job 
referral and counseling services, helped by the robust Icelandic 
economy and a low unemployment rate.  Similar focused planning and 
creative thinking are turning the base facilities into a significant 
plus for the economy and society.  On the first anniversary of the 
March 2006 base closure notification, the Government of Iceland 
announced plans to create a university-level academic institution on 
the former NASKEF site.  The "Keilir Atlantic Center for Excellence" 
has already begun operations.  Among other initiatives, it hosted 
productive meetings with U.S. Assistant Secretary of Energy for 
Energy Efficiency and Renewable Energy Alexander Karsner and the 
Director of the U.S. National Renewable Energy Laboratory during 
summer 2007.  Discussions are underway about a formal relationship on 
renewable energy research.  Meanwhile, the Keflavik Airport 
Development Corporation (KADECO), established to handle other 
commercially viable real estate on the base, opened 1100 apartments 
for rental by eager university students and brought in nearly $270 
million from the sale of other buildings on the base. 
 
Remaining Issues: Intelligence, Division of Labor 
--------------------------------------------- ---- 
¶7.  (S) Despite progress, some areas of difficulty remain, 
particularly in the fields of intelligence-sharing and the operation 
of the Iceland Air Defense System (IADS).  These issues are rooted in 
domestic political battles.  On intelligence matters, Icelandic law 
does not authorize any collection other than for law enforcement 
purposes, and the MFA and Justice Ministry are consequently engaged 
in a turf battle over the intelligence portfolio.  The MFA has 
responsibility for coordination with NATO Allies on defense matters 
while police, under the authority of the MOJ, handle international 
law enforcement cooperation.  At the same time, the MOJ-controlled 
Coast Guard and "Viking Squad" special police are the units most 
likely to operate together with NATO military units during exercises 
in Iceland and elsewhere.  As such, the MFA and MOJ have been the 
main players in a tug-of-war over intelligence authority, a battle 
which has thus far stalled serious efforts to provide USG training 
and institute regular intelligence exchanges (a stated goal in the 
Joint Understanding). 
 
¶8.  (C) Similarly, the MOJ has tried to grab authority for operation 
of the IADS air defense radars from the MFA, with Minister Bjarnason 
arguing that in peacetime the system plays more of a "homeland 
security" role than a defense role.  Though this argument has not yet 
produced any results, it has been a distraction in the MFA's task of 
reorganizing the Iceland Radar Agency (the state-owned corporation 
that operates IADS) in order to cut costs.  The press has been quick 
to note that recent management decisions have been handled clumsily. 
However, the MFA plans to introduce legislation this winter to 
formally bring the Radar Agency under its authority and clarify the 
agency's status under Icelandic law.  Likely to go unaddressed are 
ongoing questions regarding combat controllers and rules of 
engagement for IADS and any NATO air defense assets it operates with, 
meaning that continued bilateral and NATO engagement on this matter 
will be necessary. 
 
¶9.  (C) A further complication is posed by incoming Foreign Minister 
Gisladottir, who is struggling to reconcile her instinctive 
discomfort with the use of force to the defense and security 
responsibilities in her portfolio.  The Social Democratic Alliance 
(SDA) party she leads has never been able to agree on a defense 
policy, not least because of its fairly large pacifist wing.  After 
some early stumbles -- e.g., announcing the news of Iceland's 
withdrawal from the NATO Training Mission Iraq on the day of SACEUR's 
visit to Reykjavik in September -- Gisladottir has proven to be an 
interested student on defense issues.  Even her strong reluctance to 
allow Icelandic peacekeepers to be armed while abroad may be 
softening somewhat in response to interlocutors' arguments that 
unarmed peacekeepers can be as much of a force protection burden as 
they are an asset to deployed units.  Both her senior Political 
Advisor and the MFA Defense Department Chief have told the Ambassador 
in recent weeks of her keen desire for additional information and 
discussion in security matters.  Continued engagement and exposure 
will likely prove the best means to develop the Foreign Minister into 
a long-term partner. 
 
The Road Ahead 
-------------- 
¶10.  (C) This fall, Minister of Justice Bjarnason and others in 
Iceland have been nearly overcome with "I told you so" fever in 
response to increased Russian air activity and renewed territorial 
claims in the Arctic.  To these observers, the decision to close the 
base was a strategic mistake:  climate change, increased shipping 
routes and oil exploration in the North Atlantic and Arctic, and a 
resurgent Russia will make the High North (and Iceland) more 
strategically significant in the future, not less.  Post has 
countered that the current status quo--ongoing support for the 1951 
Agreement combined with first class maintenance of base military 
facilities, periodic exercises, and an agile U.S. and NATO force 
structure--keep our options open. 
 
¶11.  (C) To that end, our military engagement with Iceland should 
continue along current lines.  Regular exercises and operational unit 
visits will demonstrate the U.S. interest in and ability to live up 
to our bilateral commitment.  We should show support and provide 
training opportunities for the Icelandic units most likely to be 
called on in a crisis.  Initial discussions for the NORTHERN VIKING 
2008 exercise have focused on a USN role with the possibility of USCG 
involvement, which meshes perfectly with this aim.  While 
arrangements for a more robust intelligence relationship depend on 
Icelandic domestic political decisions, we should continue to offer 
our assistance and make clear what is available once local obstacles 
are overcome.  Similarly, post will continue to explore ways to 
increase Icelandic participation in U.S. training opportunities, of 
which the GOI has not thus far taken full advantage.  A crucial tool 
in our progress thus far has been EUCOM's provision of an activated 
reserve officer to support Embassy Reykjavik.  This position serves 
as the key link between the USG and Icelandic government institutions 
recalculating their strategic worldview and seeking to improve their 
security capabilities.  Embassy Reykjavik believes funding for this 
position beyond spring 2008 will be essential in helping Iceland's 
transformation into a more active and capable NATO ally. 
 
¶12.  (C) Politically, we should continue to support Iceland's efforts 
to increase its defense ties with other NATO Allies and neighbors. 
We also want to quietly but strongly support efforts to improve the 
quality of the national discussion on defense and security affairs, 
such as the FM's appointment on 8 November of a working group to 
study Iceland's strategic environment.  Continued expert- and 
high-level discussions under the Security Dialogue rubric are a 
further means of engagement and should be maintained, particularly as 
Iceland faces up to the possibility of winning election to the UN 
Security Council for the 2009-2010 term.  We should accommodate the 
request for a second series of discussions at the U/S level, in late 
winter/early spring, if possible in the U.S.  These steps will help 
ensure that we and the Icelanders will be in sync as the security 
environment in the High North evolves. 
 
van Voorst