ISTEX was formed in October 1991 to take over the scouring plant and yarn division of woolen manufacturer Alafoss...Istex is the only company in Iceland which selects its wool directly from farmers for washing and spinning into top-quality Lopi yarn. At sorting stations around the country, wool is gathered to be expertly graded according to colour and quality before being taken for washing at the company's scouring plant in the garden town of Hveragerdi.
While processing the wool, the use of detergents and artificial substances is kept to an absolute minimum, ensuring the preservation of natural wool fats.
Neither the ISTEX nor the Alafoss pages give much information on how the wool is treated. I found quite a lot about Icelandic sheep, however.