Role in WW2
Main articles: Iceland during World War II and Invasion of Iceland
Iceland was a free state at the outbreak of war in personal union with the King of Denmark acting as head of state. After the German invasion of Denmark (1940), Iceland lost all contact with the King. British forces invaded Iceland on 10 May 1940, to secure bases for themselves and to deny Germany the same option. A small armed force was present, but obeyed orders not to resist the British. The British proceeded to arrest a number of German nationals, including the German consul, Werner Gerlach, and seize radio and telephone services.
Iceland's government formally protested the occupation, but provided the British with de facto cooperation. During the height of the occupation, 25,000 British soldiers were stationed in Iceland, compared to roughly 40,000 inhabitants of Reykjavík. On 7 July 1941, control of Iceland was transferred from Britain to the USA. The U.S. was not yet at war, but Iceland needed to be denied to the Germans.
Iceland experienced an economic boom during the occupation, since many Icelanders took jobs working for the foreigners, and some say that bretavinnan (roughly, the British Jobs) provided some of the successes of the post-war Icelandic economy. On 17 June 1944, with American encouragement, Iceland became a permanently independent republic, and it cut all ties with Denmark. Despite being occupied, Iceland remained officially neutral throughout the duration of the Second World War. Icelandic air bases such as at Keflavík were important to the Allied fight against the German U-boats in the Battle of the Atlantic.
With its small population, Iceland was in no position to raise any armed forces. The close cooperation between the Americans and the Icelanders led to Iceland's giving up neutrality and becoming a charter member of the North Atlantic Treaty Organization (NATO) in 1949. Iceland has not had any armed forces (but see Cod Wars), but its contribution was bases for its allies: the American Air Force Base and Naval Air Station at Keflavík.