Please give the following message to the Prime Minister  for his Most Secret and Personal information- 1. Following is a summary of the situation as we see it regarding Iceland.
2. The successful establishment of a German force in Iceland would be gravely detrimental to our economic blockade of Germany and would also increase Germany's ability to interfere with our trade.
The establishment of a German base at Trondheim, together with the French collapse, have materially increased the likelihood of an early German attack on Iceland which might take the form of a diversion in connection with an invasion of the United Kingdom or might be undertaken as a separate operation. We could not be certain of intercepting a German seaborne expedition from Norway to Iceland and must therefore maintain a sufficiently large garrison to repulse any light scale attack undertaken as a diversion and in the event of a large scale attack to prevent the enemy getting firmly established before reinforcements could arrive.
3. It has therefore been decided that the garrison of Iceland should be increased to the size of one infantry division together with certain additional anti-aircraft and coast defence equipment.
One of the nine battalions required for this division has already been provided by Canada and two further battalions are being despatched from Canada on the 25th June. The remainder of this division has been provided from the United Kingdom. Negotiations are now in progress with the Canadian Government for the whole of the Canadian second division to be stationed in Iceland. Should this be agreed, the majority of the military units which have been despatched to Iceland from this country to make the force up to the strength of a division would probably be withdrawn and employed in the defence of the United Kingdom. Certain reconnaissance aircraft, a small air striking force and additional local naval defence vessels are also being despatched to Iceland from the United Kingdom.