Based on Prime Minister Oddsson's affiliation with the Independence Party of Iceland, he is expected to continue Iceland's membership in NATO. Relations with Europe and especially the EU are expected to remain strong. While surveys in 2002 showed a majority of Icelanders favoring negotiations on EU membership, no party has put the issue high on their agenda. The question of full EU membership hinges upon Iceland extending fishing rights within their own fishing zone to other EU member-states. This is seen as impossible, as the fisheries are the cornerstone of the Icelandic economy. In matters of foreign affairs, human rights, and the environment, however, Iceland continues to work within EU-accepted guidelines.
Perhaps more than the other Nordic countries, Iceland's foreign policy agenda is as heavily oriented toward the United States as it is toward Europe. Iceland maintains very friendly relations with the United States, and this warm relationship has expanded under Oddsson's leadership. While Oddsson's support for maintaining the U.S. military base in Iceland and signing a U.S.-Icelandic security agreement separate from NATO were contentious 10 years ago, these policies have subsequently garnered widespread support among Icelanders.
Iceland's relations with the former Soviet Union became strained under the previous prime minister's government when the Althing voted in February 1991 to establish diplomatic relations with the Baltic states that were seeking independence. The Union of Soviet Socialist Republics recalled its ambassador to Iceland in protest and accused Iceland of interfering in the USSR's internal affairs. In August 1991, Oddsson's government was the first to officially recognize the sovereignty of Lithuania, Latvia, and Estonia.