Until the early twentieth century, Iceland was poor, isolated, and of little concern to European powers. That changed with the two world wars. In 1918, Icelanders gained full autonomy within the Danish Kingdom. World War II brought yet more change. On 9 May 1940, British forces occupied the island, primarily in order to keep Germany from seizing it and to protect shipping routes in the North Atlantic. Although Icelanders protested this action, they preferred a British presence to that of Nazi Germany. U.S. President Franklin Roosevelt considered Iceland of vital importance to the security of the United States. Thus, on 7 July 1941, U.S. forces landed in the island Iceland, gradually taking over defense duties. This was done with the full agreement of British and Icelandic authorities, who welcomed the change from occupation to a mutually agreed-upon protectorate. During the war, up to 45,000 American servicemen were stationed on the island. The locals enjoyed an economic boom, but social tensions were also evident.
During the Cold War, Iceland came to occupy an important strategic position. For the West, it was a vital stepping stone for both defensive and offensive military operations. Icelanders, however, were always a reluctant ally. Having so recently gained independence, they were loath to have foreign troops on their soil. When they deemed this to be virtually inevitable, however, they were determined to make the most of the foreign presence materially and politically, sometimes to the chagrin of their allies.
The United States sought to maintain its presence in Iceland following World War II by requesting the right to lease military bases for ninety-nine years. Icelanders flatly rejected the request and sought protection in neutrality. In 1946, a compromise was reached that allowed a U.S. civilian contractor to continue to operate the large airfield at Keflavík, deemed vital for reconnaissance purposes. The following year, Iceland participated in the Marshall Plan.
At this time (and especially after the communist coup in Prague in early 1948), many pro-Western politicians in Iceland began to fear that the security of the island could not be protected by a pledge of neutrality. When the North Atlantic Treaty Organization (NATO) was formed in 1949, Iceland decided to join on the condition that foreign troops would not be stationed in Iceland during peacetime. Pro-Moscow Icelandic socialists, who regularly garnered up to 20 percent of the general election vote, condemned the move, and riots broke out when the parliament agreed on Iceland's NATO membership.
In 1950, increased tensions because of the Korean War convinced Icelandic pro-Western politicians that the country could no longer afford to be without military protection. On 5 May 1951 Iceland and the United States signed a defense pact, and two days later U.S. servicemen returned to the island.
In 1956, a left-wing coalition in Iceland declared that the world situation had so improved that American forces could leave. This declaration, which was never codified, was reversed after the Soviets invaded Hungary to quash the Hungarian Revolution. Western loans also helped to bring the Icelanders around. During 1958–1961, a major fishing limits dispute between Iceland and Britain, the first of the Cod Wars, temporarily upset Iceland's relations with its Western allies.
In 1960 all U.S. Army units were withdrawn from Iceland, and the following year the U.S. Navy replaced the U.S. Air Force as the host military service in Iceland. Although the country was no longer as important for offensive and defensive purposes as it had been in the early Cold War, it remained a key stepping stone in communications between the United States and Western Europe and a vital link in the North American Early Warning System (NORAD) and the GIUK (Greenland, Iceland, UK) sea-air surveillance barrier.
During 1971–1974, a new left-wing Icelandic regime again declared its intention to expel American forces. As before, however, the effort was halfhearted, and the majority of Icelanders would not have supported it because of both their pro-Western orientation and the economic benefits that sprang from the U.S. base at Keflavík. Still, two further Cod Wars with Britain in the 1970s created strains in the alliance. As in the first conflict, Icelanders made good use of their nation's strategic importance to extract concessions. After the last Cod War in 1976, Iceland's relations with its Western allies were generally trouble-free. An increase in Soviet naval activity ensured the importance of surveillance facilities in Iceland.
The end of the Cold War, however, dramatically reduced Iceland's strategic role. Since the early 1990s, the United States has systematically reduced its presence in Iceland. By 2004, only some 2,000 U.S. servicemen were based there. Radar stations had been dismantled, reconnaissance aircraft were no longer based permanently at Keflavík, and only four fighter jets were stationed there. In the words of a NATO official, in strategic terms Iceland had moved "to the edge of nowhere."
Ingimundarson, Valur. The Struggle for Western Integration: Iceland, the United States, and NATO during the First Cold War. Oslo: Norwegian Institute for Defence Studies, 1999.; Jóhannesson, Gudni. "To the Edge of Nowhere? U.S.-Icelandic Defense Relations during and after the Cold War." Naval War College Review 57(4) (2004): 114–137.; Nuechterlein, Donald E. Iceland: Reluctant Ally. Ithaca, NY: Cornell University Press, 1961.; Whitehead, Thór. The Ally Who Came in from the Cold: A Survey of Icelandic Foreign Policy, 1946–1956. Reykjavík: University of Iceland Press, 1998.