Alcohol is essential to free-form art in Iceland (7)
I believe the answer is:
martini
'alcohol' is the definition.
(I've seen this before)
'essential to free-form art in iceland' is the wordplay.
'essential to' indicates a hidden word (I've seen this in other clues).
'MARTINI' is hidden in the letters of 'free form art in iceland'.
'is' is the link.
(Other definitions for martini that I've seen before include "In glass, one's dry" , "James Bond's drink of choice" , "Sienese painter" , "Cocktail of gin and dry vermouth" , "obtained from a bottle" .)