History of the Country in Iceland: From Lava Land to the Cod Wars

Published on April 29, 2026 and written by Cyril Jarnias

Iceland likes to tell its own story as a country born of the sagas, forged by an outdoor parliament and grown to the rhythm of the sea. Behind this image lies a surprisingly coherent history: an almost empty territory that became, in a little over a millennium, a prosperous republic, passing through Norwegian and then Danish domination, the ordeal of famines, and confrontations as singular as the Cod Wars. Tracing the history of the country in Iceland means following the continuous thread that goes from the first Viking settlers to contemporary financial crises, passing through the conversion to Christianity, the long age of foreign monarchy, and the slow conquest of independence.

From Irish Hermits to the First Vikings

When written history begins, Iceland has no known human past. Medieval Icelandic sources claim that before the Norwegian settlers, Christian monks from Ireland – the papar – already lived on the island. They supposedly left behind books, bells, and bishops’ croziers, then left upon seeing armed pagans arrive.

The first Vikings, however, discovered the island almost by chance. A navigator from the Faroe Islands, Naddodd, was blown off course on his way to Norway and stumbled upon this snowy land, which he named _Snæland_, “Snowland”. Shortly after, a Swede, Garðar Svavarsson, circumnavigated the island, proving it was indeed an island, and renamed it _Garðarshólmi_, Garðar’s Isle. He wintered at Húsavík in the north and left a few men behind, including Náttfari, though it is unknown if they stayed permanently.

Ingólfur Arnarson and the Age of Settlement

Icelandic tradition records one name as the first permanent settler: Ingólfur Arnarson. Around 874, this chieftain from Norway threw his high-seat pillars overboard, vowing to found his farm where the sea cast them ashore. They were found in a bay steaming with geothermal vapor; he named the place Reykjavík, “Smoky Bay.” He settled there with his wife Hallveig Fróðadóttir. Excavations in the center of the modern capital have confirmed the existence of a large farm from that period.

Geneticists trace this dual origin: about 80% of male lineages trace back to Scandinavia, while about 62% of female lineages come from the British Isles. In other words, the men were mostly Norwegian, the women often of Irish or Scottish origin, and not always by their own free will.

Around 930, according to Íslendingabók (“The Book of Icelanders”) by Ari the Wise, the settlement was complete and the population reached approximately 25,000 people. It was at this time that one of the most original institutions in the history of the country in Iceland was established.

The Commonwealth: A State Without King or Police

Instead of creating a monarchy, the settlers set up a political system without equal in medieval Europe: the Icelandic Commonwealth. Around 930, the country’s chieftains met to establish a national assembly: the Althing (Alþingi), which would be held each summer at Þingvellir, the “Assembly Plains,” about forty kilometers from what would become Reykjavik.

The Althing was both legislative and judicial, but remained without executive power. No king, no army, no police. The heart of the system rested on the goðar (singular goði), district chieftains who held an office called goðorð. This office, far from being a public function, was private property that could be sold, inherited, or transferred. Initially, there were 39 goðorð, with as many goðar sitting in the Lögrétta, the legislative council of the Althing.

An Outdoor Parliament

Each summer, for about two weeks starting in mid-June, the valley of Þingvellir was covered in temporary camps, the búðir. Farmers, craftsmen, merchants, saga-tellers, litigants — the whole country converged on this site to settle affairs, conclude contracts, negotiate marriages, or hear news from abroad.

From there, the lögsögumaður – the “Lawspeaker,” reciter of the law – proclaimed the rules in force, announced the opening and closing of the assembly, and arbitrated procedures. Chosen for three years, he was the living memory of a law that was initially unwritten.

Lögsögumaður (Lawspeaker)

On the judicial side, the country was divided as early as 965 into four “quarters” (fjörðungar), each with a court of 36 judges sitting at the Althing. A fifth court, the Court of Five (fimmtardómur), created in the early 11th century, served as a supreme court for the most complex cases.

This experiment in a nearly stateless society still fascinates historians and legal theorists: no central power, but a common law, enforced by private individuals. The system functioned for nearly four centuries, not without growing tensions.

The Turning Point of Christianity

Originally, Icelanders venerated the Norse gods: Odin, Thor, Freyr, Freyja. Some settlers were already Christian, especially those from the British Isles, but the official religion remained pagan, especially since the goðar often combined the role of political leader and cultic official.

From the end of the 10th century, pressure from the continent intensified. The Norwegian king Olaf Tryggvason, himself recently converted, intended to make the new faith a tool of unification. He sent missionaries one after another to Iceland: first an Icelander baptized abroad, Thorvald Kodransson, accompanied by a Saxon bishop, Fridrek. The pair faced mockery, brawls – Thorvald killed two opponents – and eventually gave up.

In 999 or 1000, at the height of tension, the Althing gathered once more at Þingvellir. Pagans and Christians arrived armed, each ready to fight. Rather than let violence erupt, both sides agreed to entrust the decision to a single arbiter: the lögsögumaður Þorgeir, though he was a pagan. After a day and a night spent pondering under his cloak, he announced his verdict: to preserve the unity of the country, “one law and one faith”. Iceland would officially adopt Christianity, and all Icelanders were to be baptized, but certain pagan practices – private sacrifices, consumption of horse meat, exposure of infants – could continue discreetly for a time.

This decision avoided armed conflict and gave the country a conversion by political compromise rather than by conquest. A few years later, under the influence of King Olaf II of Norway, the remaining concessions were abandoned. Two bishoprics emerged in the 11th century, at Skálholt in the south and Hólar in the north. The first Icelandic bishop, Ísleifur Gissurarson, obtained the institution of the tithe in 1097, ensuring the Church stable revenues… and often strengthening the families of goðar who controlled church lands.

The Age of the Sagas: When Iceland Tells Its Story

It was in this context of a Christian Commonwealth that what would become Iceland’s most famous cultural hallmark was born: the sagas. Between the 13th and 14th centuries, anonymous authors wrote, on parchment, long prose narratives recounting the lives of the first generations of settlers in the 9th–11th centuries. These “Sagas of Icelanders” or family sagas blend historical facts, detailed genealogies, precise descriptions of farms and fjords, and more legendary, even supernatural, episodes.

Among the most famous, Egil’s Saga follows the exploits of Egill Skallagrímsson, a poet-warrior from Borgarfjörður who, in York, composes a poem saving his life before King Erik Bloodaxe. Njál’s Saga, perhaps the most renowned, portrays the friendship between the warrior Gunnar Hámundarson, from the farm at Hlíðarendi, and the wise jurist Njáll Þorgeirsson, set against the backdrop of the Althing site at Þingvellir. Laxdæla Saga tells a love triangle in the Dalir region and around Breiðafjörður, while Gísla Saga follows the flight of an outlaw hunted through the West Fjords.

From Civil War to the Norwegian and Then Danish Yoke

The kingless Commonwealth system eventually began to crack. From the 13th century onward, the goðorð became concentrated in the hands of a few powerful families, while the Church, enriched by tithes and estates, became a full-fledged political actor. The period known as the Age of the Sturlungs, named after a great lineage of chieftains, was marked by private wars, shifting alliances, and pitched battles, including the largest in Icelandic history at Örlygsstaðir in 1238.

At the same time, Norway, under King Håkon IV, sought to extend its control. Some Icelandic chieftains, weakened by internal strife, turned to him for support and legitimacy. Snorri Sturluson, one of the most brilliant writers and politicians of his time, author of the Heimskringla (history of the Norwegian kings) and the prose Edda, navigated between loyalty to the king and personal ambitions, until he was murdered in his home at Reykholt in 1241, on orders from Norway.

Finally, between 1262 and 1264, the main Icelandic chieftains signed with King Haakon what is called the Gamli sáttmáli, the Old Covenant. By this text, Iceland renounced its independence and became a territory subject to the Norwegian crown. A new legal code, Jónsbók (1281), ratified this change. The Althing continued to exist, but now shared the legislative function with the king: any law passed at Þingvellir had to be ratified by the sovereign, and royal laws required, in principle, the consent of the assembly.

At the end of the 14th century, another shift occurred: Norway, and Iceland with it, came under the authority of the King of Denmark within the framework of the Kalmar Union. With the establishment of Danish absolute monarchy in 1660, confirmed in Iceland in 1662, the Althing lost most of its political role and became primarily a judicial body.

During these long centuries, life in Iceland remained harsh. The “Little Ice Age” cooled the climate, growing seasons shortened, barley cultivation became uncertain, and livestock farming depended more on winter fodder. A system of near-serfdom, the vistarband, tied rural workers to farms, limiting their mobility. The population faced epidemics (plague, smallpox), deadly volcanic eruptions, and storms that devastated pastures.

In the 16th century, the Protestant Reformation reached the country late. King Christian III imposed Lutheranism against the resistance of the last Catholic bishops: Ögmundur Pálsson at Skálholt was deported in 1541, and Jón Arason, the charismatic prelate of Hólar, was captured after the battle of Sauðafell. He and two of his sons were beheaded at Skálholt in 1550. The Church became Lutheran and remains, to this day, the national church.

This period was also marked by unexpected external intrusions: in 1627, pirates from North Africa, known as the Barbary corsairs, abducted about 300 Icelanders to sell them as slaves, in an episode still called the “Turkish raids.” Copenhagen, distant and unconcerned, reacted weakly.

National Awakening and Reconquest of the Althing

At the end of the 18th century, the old outdoor parliament at Þingvellir held its last sessions. In 1800, a royal decree officially abolished it. A High Court, sitting in Reykjavik – then a town of only 300 inhabitants – took over its functions. The link with the old parliamentary tradition seemed broken.

A central figure in this revival, Jón Sigurðsson, historian and politician, embodied the struggle for autonomy. In 1843, under pressure from the Icelandic elite, the king consented to re-establish an assembly, but only as a consultative body: the Althing was reborn, this time indoors, in Reykjavik, and held its first session in 1845. A fierce debate raged over its location: some nationalists wanted to stay at Þingvellir, a symbol of independence, while others, like Jón Sigurðsson himself, believed that placing the parliament in the city would help “Icelandize” a still very Danish capital.

Half a century later, the circle would be complete: in 1944, it was once again at Þingvellir, before the basalt cliffs, that the Republic of Iceland was proclaimed.

The Stages of Political Autonomy

To better follow this progressive rise in power, the following table summarizes some key political milestones.

An Economy Long Under Constraint, Then in Full Transformation

Economically, Iceland began the 20th century in poverty. It was then one of the poorest countries in Western Europe: a sparse, largely rural population living off livestock farming and subsistence fishing. Urbanization was delayed by Danish political choices that favored agriculture and maintained heavy constraints on labor mobility.

At the turn of the century, a first shift occurred: starting in the 1880s, exports of marine products surpassed those of livestock, reversing an age-old balance. The introduction of specialized sailing vessels, followed by the arrival of the first motorized fishing vessel in 1905, opened the era of a modern fishing industry. In 1885, the creation of the first state bank, Landsbanki, made it possible to finance this capital-intensive transformation. Iceland began exporting fresh fish to Great Britain and salted cod to Southern Europe, especially Portugal, already signaling the centrality of cod in its destiny.

World War II would change everything. The occupation first by the British and then by the Americans, combined with a surge in fish prices on allied markets, injected money into the island economy at an unprecedented level. Thousands of soldiers spent their pay in local shops, vast construction projects were launched – roads, bridges, port facilities, air bases – employment was almost full, and wages rose. By the end of the conflict, Iceland had moved, in just a few years, from the club of the poorest to that of the highest-income countries in the world.

The Sea, Heart of the 20th-Century Economy

Until the end of the 20th century, fishing remained the country’s economic backbone. In 1980, it still accounted for 59% of export revenues. Investments, often initiated or supported by the state, modernized boats, factories, and international marketing. But this dependence also created acute vulnerability to fluctuations in fish stocks and global prices.

Authorities long managed this fragility through a policy of massive support: in the 1950s, more than 40% of public spending was dedicated to subsidizing the fishing industry, keeping a sometimes oversized fleet afloat. The flip side was chronic inflation, which governments tried to curb through repeated devaluations of the krona.

The tensions over access to marine resources sometimes even spilled beyond the strictly economic framework to become a diplomatic crisis, notably with the United Kingdom. This is where, in the history of the country in Iceland, a unique type of conflict appears: the Cod Wars.

The Cod Wars: Small Confrontations, Big Effects

Between the late 1950s and 1976, Iceland faced off three times against the United Kingdom – and, to a lesser extent, West Germany – over fishing zones in the North Atlantic. They are retrospectively called the Cod Wars, Þorskastríðin or Landhelgisstríðin in Icelandic, Kabeljaukriege in German. Despite the name, these were not wars in the classical sense, but “militarized interstate disputes,” involving naval maneuvers, rammings, cannon fire, net cutting, and intense diplomatic tensions.

The stakes were vital for Iceland: its economy depended massively on fish exports, and its authorities saw stocks eroding, especially after the collapse of herring between 1958 and 1970. Under pressure from biologists and fishermen, Reykjavik chose to unilaterally extend its fishing zone, far beyond the three and then four nautical miles previously recognized.

Three Crises for 200 Miles

The first Cod War broke out in 1958, when Iceland extended its fishing zone to 12 nautical miles. London refused to recognize this limit and sent frigates to protect its trawlers. Icelandic coast guards boarded foreign vessels, sometimes firing warning shots. From the first days, the ICGV Ægir collided with the frigate HMS Russell, and Icelandic coast guard vessels like the María Júlía and the Þór fired on British trawlers, for example the Kingston Emerald and the Hackness. After three years of standoff, an agreement was reached: London recognized the 12-mile limit, while obtaining a transitional fishing regime for three years in certain areas.

The third Cod War, from 1975 to 1976, was the most violent. Reykjavik declared a 200-nautical-mile exclusive economic zone (EEZ), anticipating what would later become the global norm with the 1982 United Nations Convention on the Law of the Sea. The British reaction was fierce: frigates and trawlers engaged in veritable “ramming duels.” In six months, 35 collisions were recorded. In January 1976, the frigate HMS Andromeda and the coast guard vessel Þór collided, the latter being rammed multiple times to the point of nearly sinking. Icelandic coast guards fired cannon, notably at the trawler Star Aquarius. In February, Iceland went so far as to break off diplomatic relations with London.

Cold War Pressures and Icelandic Victory

What might have been only a fisheries quarrel between two countries took on a strategic dimension in the heart of the Cold War. Iceland was a NATO member, without its own army, but hosted a major US base at Keflavik. Its position controlled the “GIUK gap”, the corridor between Greenland, Iceland, and the United Kingdom crucial for anti-submarine warfare between the Eastern and Western blocs. Reykjavik repeatedly threatened to leave NATO and expel US forces if its demands were not met.

Under this dual pressure – Icelandic determination and American insistence – London finally gave in. In June 1976, an agreement was reached under NATO auspices. It temporarily allowed 24 British trawlers to catch up to 30,000 tons (some figures mention 50,000) inside the Icelandic EEZ, but after this transitional period, the British lost all fishing rights within a radius of 200 miles around the island, ending more than five centuries of near-free practice.

The Century of Independence and the “Nordic Tiger”

Parallel to these maritime conflicts, Iceland continued its political trajectory toward full sovereignty. The Act of Union of 1918, approved by referendum, made the country a sovereign kingdom in personal union with Denmark: the same king, but its own government. Copenhagen continued to manage diplomacy and defense, and Iceland declared itself neutral. The Act’s revision clause provided for renegotiation after 1940 and a possibility of dissolution after three years of deadlock.

When Nazi Germany invaded Denmark in April 1940, the situation changed de facto. The next day, the Althing decided to assume the prerogatives previously held by the Danish king: foreign policy, coast guard, and the appointment of a regent, Sveinn Björnsson. Iceland tried to maintain its neutrality, even refusing a British offer of military “aid.” But London, fearing that Germany, already in Norway, would take the island as a base in the Atlantic, decided to act unilaterally.

On paper, Iceland remained neutral throughout the conflict, but in practice cooperated with the Allies: air bases for anti-submarine patrols, port stops for convoys to Murmansk, radio listening stations to track U-boat transmissions in the North Atlantic. The human cost was not negligible: about 230 Icelanders died in the conflict, mainly sailors victims of mines, submarines, or air attacks. A few civilians were also killed by Allied soldiers, rare but documented incidents.

Domestically, the presence of tens of thousands of soldiers transformed society. The phenomenon of relationships between Icelandic women and British or American servicemen, nicknamed ástandið (“the Situation”), triggered a police investigation, name lists, and family tensions. About 255 children were born from these unions, later called “children of the Situation.” Simultaneously, the capital was transformed: new streets, shops, restaurants, and modern services appeared, attracting inhabitants from the countryside.

From Monarchy to Republic

When the Act of Union of 1918 came up for renewal in 1943, the war made renegotiation with an occupied Denmark impossible. The Icelandic authorities therefore unilaterally decided to end the union. A referendum held in May 1944 recorded massive support for breaking with the Danish crown and establishing a republic: turnout exceeded 98%, and over 95% of voters approved the new republican constitution.

On the international stage, Iceland quickly asserted itself. It joined the UN in 1946, the OECD in 1948, and became a founding member of NATO in 1949, despite hostile demonstrations in Reykjavik. In 1951, a defense agreement was signed with the United States, which would maintain a base at Keflavik until 2006.

From Dirigisme to Liberalization

The post-war decades were marked by rapid growth – around 4% per year from 1945 to 2007 – but also by spectacular macroeconomic instability: runaway inflation, cycles of expansion and recession autonomous from the rest of the OECD. The heavy dependence on natural resources, especially fish, and the state’s tendency to use monetary and fiscal policy to support employment were the main causes.

Starting in the 1960s, a first wave of reforms began: devaluation of the krona, reduction of fishing subsidies, creation of unemployment compensation schemes. The state invested massively in infrastructure (roads, ports, hydro- and geothermal energy), and in large public or cooperative enterprises (banks, power plants, dairies, slaughterhouses). Despite this, the 1970s and 1980s saw inflation reach stratospheric levels, fueled by oil shocks and intensive demand-support policies.

In the 1990s, a new direction emerged, driven by governments dominated by the Independence Party. The economy was progressively deregulated, many state-owned enterprises were privatized, capital controls were eased with entry into the European Economic Area in 1994. The corporate tax rate fell from about 50% at the start of the decade to 18% by the end, the wealth tax was abolished, and inheritance taxes were reduced. Inflation, long endemic, fell to “normal” levels below 4%.

The economy diversified: software, biotechnology, financial services, nature tourism, energy-intensive industries backed by dams and geothermal fields (particularly aluminum). People then spoke of a “Nordic tiger” to describe this new Iceland, both highly developed – it ranked at the top of the Human Development Index – and very liberal, praised for its exceptional level of economic and civil freedoms.

From Financial Miracle to Great Crisis, Then to Resilience

The dark side of this success appeared in the 2000s. The banks, privatized at the beginning of the decade, embarked on a frenzied international expansion, benefiting from a low-interest-rate environment worldwide and a booming reputation. In ten years, the size of the banking system went from about 100% of GDP to… 900% in 2008. The three main institutions then held assets nine times greater than the wealth produced annually in the country.

The political reactions were sharp: London went so far as to seize certain Icelandic assets and temporarily classify Reykjavik under anti-terrorist legislation, to the great scandal of Icelanders. The negotiations over the repayment of Icesave deposits with the Netherlands and the United Kingdom poisoned the country’s diplomacy for several years.

Iceland had to urgently seek help from the IMF and several European countries. The Monetary Fund, aware of the specificities of the situation and the social context, forwent the usual harshest measures: Iceland was allowed to let public deficits run in 2009 and maintain most social benefits. Capital controls were reintroduced to stabilize the currency. The central bank raised interest rates to 18% at the end of 2008 in an attempt to curb inflation.

Simultaneously, a new engine started: tourism. The island’s spectacular landscapes – volcanoes, glaciers, northern lights – combined with a global image of a creative and safe country, attracted visitors by the millions. By the mid-2010s, tourism revenues surpassed those of fishing. At the same time, Iceland increasingly exported knowledge-based services: software, pharmaceuticals, high-tech equipment, music, design.

In 2025, the country has a GDP of about $35 billion, with a wealth per capita among the highest in the world, electricity produced 100% from renewable sources – hydroelectricity and geothermal – and one of the lowest rates of youth not in employment, education, or training in the OECD. The “Nordic tiger” experienced a violent fall but recovered faster than many expected.

The table below summarizes some emblematic economic characteristics at three key moments.

History of the Country in Iceland: Continuity Despite Breaks

From the first Norwegian hut near the hot springs of Reykjavik to the glass skyscrapers of the banks, from the open-air Althing to the traders’ screens, from the isolated turf hut to the high-tech museum about the battle of Örlygsstaðir, the history of the country in Iceland has seen profound ruptures. But it also shows surprising continuous threads.

The first is the centrality of law and collective deliberation. The Althing, born in 930, abolished in 1800, restored in 1845, transformed into a modern parliament in 1874, remains at the heart of political legitimacy. It was before it that the conversion to Christianity was decided, the project of independence was discussed, and the Republic was declared. Even deprived of power under Danish absolutism, it survived as a symbol, before being reinvested in the 19th century.

The third thread is that of the sea. It brought the first settlers, the lost monks, the Barbary corsairs, the British whalers, the German sailors, the British and American troops, and the ferry tourists. It nourished the country for centuries, founded its economic power in the 20th century, was at the heart of the Cod Wars, and today attracts whale-watching enthusiasts and sport fishermen.

The history of the country in Iceland is therefore not just a succession of dates or dominations endured. It is the continuous narrative of a small society, born on an island of lava and ice without indigenous people to subdue, which early invented a parliament, recorded its own birth in sagas, endured famines and monopolies, and knew, repeatedly – in 1000, 1262, 1845, 1918, 1944, 1976, 2008 – how to turn crises into decisive turning points. A history where cod, calfskin manuscripts, and lava fields count as much as treaties and cannons.

Cyril Jarnias

Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.

On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.

Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.

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