Iceland’s new infrastructure tax could push cruise ships away, threatening local economies and long-term tourism growth

Posted on November 3, 2025

Iceland’s recent imposition of a new infrastructure tax is expected to disrupt the cruise tourism industry, potentially turning away cruise ships and severely impacting local economies that rely on it. The $18 daily fee for passengers has already raised concerns, with forecasts showing a decline in port calls and bookings, especially in smaller rural communities. Given that tourism is an economic mainstay in these regions, the tax threatens not only direct revenues, but also Iceland’s long-term growth as a leading cruise destination.

The fee, part of Iceland’s broader strategy to improve port infrastructure and promote sustainable tourism, was expected to generate revenues of more than $10 million. However, backlash from the cruise industry has been swift, with many operators wondering whether the new costs will make Iceland a less attractive destination. Already facing rising operating expenses, cruise lines are now re-evaluating their itineraries and, in some cases, completely pulling back from port calls in Iceland.

One immediate consequence was a sharp decline in bookings for the coming years. According to industry reports, some Icelandic ports have already seen a sharp decline in advanced bookings for 2027, with some locations seeing a 50 percent drop in expected cruise traffic. While larger ports like Reykjavik may not feel the same impact, small communities that rely on cruise access are facing severe economic setbacks. For these areas, the absence of cruise passengers — who typically contribute to local economies through spending on excursions, shopping and dining — can lead to job losses and significant loss of revenue.

The timing of the tax also raises concerns within the industry. Iceland has long been a popular stop on Arctic expedition itineraries, attracting visitors with its stunning landscape, unique geothermal features and dramatic coastal scenery. Cruise lines, especially those operating small expedition ships, have been particularly drawn to Iceland’s raw natural beauty, which sets the country apart from other destinations. The tax is seen as a potential deterrent for these vessels, which often have limited budgets and must take port fees into account when planning their routes.

Beyond the immediate financial implications, the tax raises broader questions about Iceland’s tourism strategy. Some believe the fees are necessary to help fund much-needed improvements to port infrastructure, ensuring Iceland can accommodate the increasing number of cruise ships visiting the country each year. However, others argue that the new tax could stifle the very industry Iceland hopes to develop, especially in small ports that rely on cruise arrivals for economic survival.

Despite government assurances that the new levy will be used to fund upgrading vital infrastructure and promoting sustainable tourism practices, critics warn the tax could have the opposite effect. Rising operational costs could prompt cruise lines to look for alternative destinations, especially as competition for cruise passengers across the Arctic and Northern Europe increases. For example, countries such as Greenland, Norway and the Faroe Islands offer similarly scenic experiences but without the added financial burden of infrastructure fees, making them more attractive to cruise operators.

In response to the tax, industry leaders have expressed concerns about the long-term impact on Iceland’s position as a leading cruise destination. Many cruise operators have already indicated that high fees may cause them to reconsider their future itineraries, and some are even threatening to drop Iceland from their planned itineraries. For example, major cruise companies with established Arctic itineraries have suggested that the tax could act as a disincentive to future bookings, especially for those ships with limited budgets or already high operating costs.

While the goal of the tax is to support sustainable tourism and protect Iceland’s unique environment, the direct impacts on the local economy cannot be ignored. Cruise ships have long been a significant source of income for Iceland’s coastal communities, and any decline in the number of cruise arrivals could have far-reaching consequences for these areas. Local businesses that cater to cruise passengers, such as restaurants, shops and tour providers, could face a sharp decline in business, and the economic ripple effect could be felt across sectors.

As Iceland faces these challenges, the government may need to reassess the impact of infrastructure fees to avoid a prolonged downturn in the cruise tourism sector. Some experts suggest that a more balanced approach – one that takes into account the needs of both the cruise industry and local communities – may be necessary to maintain Iceland’s position as a desirable cruise destination. Ensuring that revenues generated from the tax are reinvested in ways that benefit the environment and the local economy will be crucial in mitigating the damage caused by the new tax.

Iceland’s new infrastructure tax could turn away cruise ships, threatening local economies and long-term tourism growth. The $18 daily fee risks reducing bookings and port calls, especially in rural communities that rely heavily on cruise tourism.

The future of Iceland’s cruise tourism industry is now uncertain. While the country remains a top destination for Arctic exploration, the introduction of infrastructure fees has raised concerns about its long-term viability as a cruise hub. Cruise operators, local communities and government officials will need to engage in ongoing dialogue to find a solution that balances the economic benefits of tourism with the preservation of Iceland’s natural wonders. If the tax continues to push cruise lines away, Iceland could risk losing its position as a top destination in the Arctic cruise market. Only time will tell whether infrastructure fees will be viewed as a strategic investment in the country’s tourism future or a costly misstep that undermines the very industry it was meant to support.