Settlement and Commonwealth 874–1262

According to both Landnámabók and Íslendingabók, Celtic monks known as the Papar lived in Iceland before Scandinavian settlers arrived, possibly members of a Hiberno-Scottish mission. Recent archaeological excavations have revealed the ruins of a cabin in Hafnir on the Reykjanes peninsula. Carbon dating indicates that it was abandoned sometime between 770 and 880. In 2016, archeologists uncovered a longhouse in Stöðvarfjörður that has been dated to as early as the year 800.

Swedish Viking explorer Garðar Svavarsson was the first to circumnavigate Iceland in 870 and establish that it was an island.[18] He stayed over winter and built a house in Húsavík. Garðar departed the following summer but one of his men, Náttfari, decided to stay behind with two slaves. Náttfari settled in what is now known as Náttfaravík and he and his slaves became the first permanent residents of Iceland.

The Norwegian-Norse chieftain Ingólfr Arnarson built his homestead in present-day Reykjavík in the year 874. Ingólfr was followed by many other emigrant settlers, largely Scandinavians and their thralls, many of whom were Irish or Scottish. By 930, most arable land on the island had been claimed; the Althing, a legislative and judicial assembly, was initiated to regulate the Icelandic Commonwealth. Lack of arable land also served impetus to the settlement of Greenland starting in 986. The period of these early settlements coincided with the Medieval Warm Period, when temperatures were similar to those of the early 20th century. At this time, about 25% of Iceland was covered with forest, compared to 1% in the present day. Christianity was adopted by consensus around 999–1000, although Norse paganism persisted among some segments of the population for some years afterwards.

The Middle Ages:

Ósvör, a replica of an old fishing outpost outside Bolungarvík

The Icelandic Commonwealth lasted until the 13th century, when the political system devised by the original settlers proved unable to cope with the increasing power of Icelandic chieftains. The internal struggles and civil strife of the Age of the Sturlungs led to the signing of the Old Covenant in 1262, which ended the Commonwealth and brought Iceland under the Norwegian crown. Possession of Iceland passed from the Norwegian Empire to the Kalmar Union in 1415, when the kingdoms of Norway, Denmark and Sweden were united. After the break-up of the union in 1523, it remained a Norwegian dependency, as a part of Denmark–Norway.

In the ensuing centuries, Iceland became one of the poorest countries in Europe. Infertile soil, volcanic eruptions, deforestation and an unforgiving climate made for harsh life in a society where subsistence depended almost entirely on agriculture. The Black Death swept Iceland twice, first in 1402–1404 and again in 1494–1495. The former outbreak killed 50% to 60% of the population, and the latter 30% to 50%.

Reformation and the Early Modern period:

Around the middle of the 16th century, as part of the Protestant Reformation, King Christian III of Denmark began to impose Lutheranism on all his subjects. Jón Arason, the last Catholic bishop of Hólar, was beheaded in 1550 along with two of his sons. The country subsequently became officially Lutheran and Lutheranism has since remained the dominant religion.

In the 17th and 18th centuries, Denmark imposed harsh trade restrictions on Iceland. Natural disasters, including volcanic eruption and disease, contributed to a decreasing population. Pirates from several countries, including the Barbary Coast, raided its coastal settlements and abducted people into slavery. A great smallpox epidemic in the 18th century killed around a third of the population. In 1783 the Laki volcano erupted, with devastating effects. In the years following the eruption, known as the Mist Hardships (Icelandic: Móðuharðindin), over half of all livestock died in the country. Around a quarter of the population died in the ensuing famine.

Independence movement 1814–1918:

In 1814, following the Napoleonic Wars, Denmark-Norway was broken up into two separate kingdoms via the Treaty of Kiel but Iceland remained a Danish dependency. Throughout the 19th century, the country’s climate continued to grow colder, resulting in mass emigration to the New World, particularly to the region of Gimli, Manitoba in Canada, which was sometimes referred to as New Iceland. About 15,000 people emigrated, out of a total population of 70,000.

A national consciousness arose in the first half of the 19th century, inspired by romantic and nationalist ideas from mainland Europe. An Icelandic independence movement took shape in the 1850s under the leadership of Jón Sigurðsson, based on the burgeoning Icelandic nationalism inspired by the Fjölnismenn and other Danish-educated Icelandic intellectuals. In 1874, Denmark granted Iceland a constitution and limited home rule. This was expanded in 1904, and Hannes Hafstein served as the first Minister for Iceland in the Danish cabinet.

Kingdom of Iceland 1918–1944:

The Danish–Icelandic Act of Union, an agreement with Denmark signed on 1 December 1918 and valid for 25 years, recognised Iceland as a fully sovereign state in a personal union with Denmark. The Government of Iceland established an embassy in Copenhagen and requested that Denmark handle Icelandic foreign policy. Danish embassies around the world displayed two coats of arms and two flags: those of the Kingdom of Denmark and those of the Kingdom of Iceland.

During World War II, Iceland joined Denmark in asserting neutrality. After the German occupation of Denmark on 9 April 1940, the Althing replaced the King with a regent and declared that the Icelandic government would take control of foreign affairs and other matters previously handled by Denmark. A month later, British armed forces invaded and occupied the country, violating Icelandic neutrality. In 1941, the occupation was taken over by the United States so that Britain could use its troops elsewhere.

Independent republic 1944–present

British and Icelandic vessels collide in the Atlantic Ocean during the Cod Wars (Icelandic vessel is shown on the left; the British vessel is on the right)

On 31 December 1943, the Danish–Icelandic Act of Union expired after 25 years. Beginning on 20 May 1944, Icelanders voted in a four-day plebiscite on whether to terminate the personal union with Denmark, abolish the monarchy, and establish a republic. The vote was 97% to end the union, and 95% in favour of the new republican constitution.  Iceland formally became a republic on 17 June 1944, with Sveinn Björnsson as its first president.

In 1946, the Allied occupation force left Iceland. The nation formally became a member of NATO on 30 March 1949, amid domestic controversy and riots. On 5 May 1951, a defence agreement was signed with the United States. American troops returned to Iceland as the Iceland Defence Force, and remained throughout the Cold War. The US withdrew the last of its forces on 30 September 2006.

Iceland had prospered during the war. The immediate post-war period was followed by substantial economic growth, driven by industrialisation of the fishing industry and the US Marshall Plan programme, through which Icelanders received the most aid per capita of any European country (at USD 209, with the war-ravaged Netherlands a distant second at USD 109).

The 1970s were marked by the Cod Wars — several disputes with the United Kingdom over Iceland’s extension of its fishing limits to 200 miles offshore. Iceland hosted a summit in Reykjavík in 1986 between United States President Ronald Reagan and Soviet Premier Mikhail Gorbachev, during which they took significant steps toward nuclear disarmament. A few years later, Iceland became the first country to recognize the independence of Estonia, Latvia, and Lithuania as they broke away from the USSR. Throughout the 1990s, the country expanded its international role and developed a foreign policy oriented toward humanitarian and peacekeeping causes. To that end, Iceland provided aid and expertise to various NATO-led interventions in Bosnia, Kosovo, and Iraq.

Iceland joined the European Economic Area in 1994, after which the economy was greatly diversified and liberalised. International economic relations increased further after 2001, when Iceland’s newly deregulated banks began to raise massive amounts of external debt, contributing to a 32% increase in Iceland’s gross national income between 2002 and 2007.

Economic boom and crisis:

In the years 2003–2007, following the privatization of the banking sector under the government of Davíð Oddsson, Iceland moved toward having an economy based on international investment banking and financial services. It was quickly becoming one of the most prosperous countries in the world but was hit hard by a major financial crisis. The crisis resulted in the greatest migration from Iceland since 1887, with a net emigration of 5,000 people in 2009. Iceland’s economy stabilised under the government of Jóhanna Sigurðardóttir, and grew by 1.6% in 2012. Many Icelanders, however, have remained unhappy with the state of the economy and government austerity policies. The centre-right Independence Party was returned to power in coalition with the Progressive Party in the 2013 elections.