I wrote this article a few months back and since then some things changed. Somebody also enlightened me about the cooperation of Iceland with the US government [1], although no source has been linked. I think governments spying on data is something you can prevent with strong encryption and keeping the data out of the those countries that are known for it a.k.a. Five Eyes. That's what we do with our customers data.
I agree with your statement that "xyz never happens in Iceland" shouldn't be a reason for choosing a country. I'm still very confident it's better not to put our servers in any Five Eyes country.
For the speed I do think Iceland is not optimal. See the pings from this comment [2]. I realized this after moving to Iceland that the speeds where indeed slower than from Digital Ocean in Amsterdam.
I don't think your argument about the connection with cables are relevant. If you send your data encrypted it will not be possible to read the packets, right? Or maybe I don't get your point.
I'm thinking of moving our servers to Germany or The Netherlands. There are a few downsides with that for example the environmental impact. We are looking into other solutions to have no carbon footprint with Simple Analytics [3].
[1] https://news.ycombinator.com/item?id=19530972