@nomadic Thanks for the alternative. I have just done that and my problem is resolved, but the issue might not be. It's worth noting that when re-enabling sync, I set up a secure passphrase instead of an encryption key file, and then used it on the phone. At first, it failed with the same error message, I had to log out first for it to work.
I agree that it was either a problem with the file or a bug in Vivaldi iOS. The secure vault I use is a popular password manager offering secure storage for files such as this. I won't rule out that iOS is doing something to that file when it downloads it. I also used the same file to sync my Mac laptop without issues (just downloaded it in the same way), so it is also possible that there is a bug with the encryption key upload in the Vivaldi iOS app.
Either way, the Vivaldi team may want to look into it. From the other threads in this forum, I can see there are more people with a similar issue, and they may not have the option to reset.
Thanks again for taking the time to answer and offering some alternatives.