How India Became Iceland's Fastest-Growing Trade Partner

Energy-Driven Trade Surge Reshapes India-Iceland Economic Ties

Bilateral merchandise exports from India to Iceland nearly doubled year-on-year in the first half of 2025, reaching $82.3 million — a trajectory that signals a fundamental shift in how Europe's island economy sources refined fuels, chemicals, and specialty goods from the world's fourth-largest economy.

The increase in bilateral trade in 2025 has been acknowledged by both governments during recent Foreign Office Consultations, underlining the strategic importance of a relationship that stretches across Arctic cooperation, fisheries, and now cross-border manufacturing supply chains.

The story is one of tariff-driven acceleration. The Trade and Economic Partnership Agreement (TEPA) between India and the European Free Trade Association entered into force on 1 October 2025, just months before the surge in Indian shipments arrived on Reykjavik's docks. EFTA offered tariff concessions on 92.2 percent of tariff lines, covering 99.6 percent of India's exports, giving Indian exporters of pharmaceuticals, textiles, chemicals, machinery, and engineering goods dramatically improved access to advanced European markets.

Fuel and Chemicals Drive the Numbers

Energy products dominate the bilateral flow. Iceland imports 100% of its oil and coal, and Indian refineries have positioned themselves as a competitive supplier. The data shows mineral fuels, oils, and related products account for $29.9 million of the $82.3 million total—more than one-third of all Indian exports to Iceland in the recent period.

Organic and inorganic chemical products follow, worth $9.5 million. Chemical manufacturing in India is mainly concentrated in Maharashtra and Gujarat, with other major producing states including West Bengal and Tamil Nadu. The industry employs around 2 million people in India and ranks 14th globally in chemical exports with 2.5% contribution to global chemical sales. Under TEPA's framework, EFTA has offered zero or reduced tariffs on more than 95% of India's exports, including a wide range of chemical products.

Electrical machinery and metal products round out the top five sectors, valued at $6.6 million and $5.7 million respectively. Textiles and apparel products—both knitted and woven garments—contribute a combined $6.7 million.

From Mill to Market: How Trade Reaches Iceland's Economy

Chemical manufacturing clusters in Maharashtra and Gujarat serve as the primary source for Iceland-bound organic compounds and specialty chemicals. Textile shipments originate from India's garment manufacturing hubs across Tamil Nadu, Karnataka, and Telangana. In the April-October period of FY 2024-25, textile and apparel exports marked a growth of 7% compared to the same period of FY 2023-24, signalling broader momentum across European markets including Iceland.

The supply chains are increasingly MSME-driven. India's trade agreements reinforce commitment to inclusive growth, benefiting farmers, artisans, workers, and MSMEs while safeguarding core national interests. According to the sector profile provided, MSMEs comprise approximately 70% of India's exporters to Iceland across these sectors, meaning small and medium family-run enterprises are the backbone of the bilateral trade flow.

Jobs and Livelihoods: The Human Side of the Numbers

For every $100,000 in bilateral trade value, the sectors driving India-Iceland commerce support an estimated 5 direct jobs in manufacturing, processing, and logistics—primarily in chemical plants, textile mills, and oil refining facilities. Indirect employment—truck drivers, warehouse workers, quality inspectors, logistics coordinators—adds another estimated 10 jobs per $100,000 in export value.

At the current $82.3 million annual export level, this means Iceland-bound trade supports roughly 410 direct jobs and 820 indirect jobs across India's export industries. These are concentrated in Gujarat and Maharashtra's chemical industrial zones, where the chemicals sector has received cumulative FDI equity inflows amounting to US$ 23.21 billion during FY2000–01 to FY2024–25, and in Tamil Nadu's textile corridor, home to some of India's largest apparel and fabric manufacturers.

Women comprise approximately 25% of the workforce in these export-oriented sectors, working in quality control, yarn production, chemical testing, and garment cutting. Communities around Ahmedabad and Surat in Gujarat rely on chemical exports as a primary source of wage income, while Tiruppur's textile cluster in Tamil Nadu depends on apparel shipments to European markets.

A Trade Agreement Unlocks Latent Demand

The agreement includes binding commitment worth $100 billion over 15 years aimed at boosting FDI in India and generating one million direct jobs. For Iceland specifically, the entry of TEPA into force eliminates tariff friction exactly when Indian manufacturers are scaling capacity to serve European demand.

Iceland's Permanent Secretary of State at the Ministry of Foreign Affairs noted that TEPA opens vast opportunities to expand bilateral trade, with potential for collaboration extending from renewable energy to fisheries. The agreement's investment chapter creates legal certainty that encourages Indian chemical and textile companies to commit capital to expand shipment capacity.

The trajectory is unmistakable. From $39.9 million in 2023 to $43.3 million in 2024 to $82.3 million in 2025—a trajectory that suggests Iceland's sourcing strategy is shifting away from traditional suppliers toward an Indian supply base that combines cost competitiveness with TEPA's tariff advantages.

Data source: Hagstofa Islands (Statistics Iceland), 2022–2025. Trade figures represent merchandise exports from India to Iceland.