Iceland established its foreign service in 1940 when Denmark became occupied by Nazi Germany and ties between the two countries were severed. The Republic of Iceland was founded in 1944. The Icelandic foreign service grew slowly in the post-WWII period, but increased rapidly after the mid-1990s. Iceland's closest relations are with the Nordic states, the European Union and the United States. Iceland has been a member of the United Nations since 1945 and NATO since 1949. In terms of European integration, Iceland is a member of EFTA, EEA and Schengen.
From 1951 to 2006, there was an American military base and troop presence in Iceland. During the Cold War, Iceland had a close but contentious relationship with the United States, leading some scholars to describe Iceland as a "rebellious ally" and "reluctant ally." Iceland repeatedly threatened to leave NATO or cancel the US defence agreement during the Cold War. As a consequence, the United States provided Iceland with extensive economic assistance and diplomatic support.
Iceland's principal historical international disputes involved disagreements over fishing rights. Conflict with the United Kingdom led to the so-called Cod Wars in 1952–56 because of the extension of the fishing zone from 3 to 4 nautical miles (6 to 7 km), 1958–61 because of extending the fishing zone to 12 nautical miles (22 km) in 1972–73 because of its further extension to 50 nautical miles (93 km) and in 1975–76 because of its extension to 200 nautical miles (370 km). Disagreements with Norway and Russia over fishing rights in the Barents Sea were successfully resolved in 2000.
Certain environmentalists are concerned that Iceland left the International Whaling Commission (IWC) in June 1992 in protest of an IWC decision to refuse to lift the ban on whaling, after the IWC Scientific Committee had determined that the taking of certain species could safely be resumed. That year, Iceland established a separate commission – along with Norway, Greenland and the Faroe Islands – for the conservation, management, and study of marine mammals. Since then, Iceland has resumed whaling for scientific purpose and has rejoined the IWC (in October 2002). The Icelandic Fisheries Ministry issued a permit to hunt 39 whales for commercial purposes on 17 October 2006. 25 states delivered a formal diplomatic protest to the Icelandic government on 1 November concerning resumed commercial whaling. The protest was led by the United Kingdom and supported by others such as Finland and Sweden.
Recognition of post-Soviet states
Iceland was the first country to recognize the regained independence of Lithuania, Latvia, Estonia, Georgia, Armenia and Azerbaijan from the USSR in 1990–1991. Similarly, it was the first country to recognize Montenegro's independence from its former union with Serbia. Iceland was also the first country to recognize Croatia, having done so on 19 December 1991. Significantly, Iceland was also the first Western state to recognisePalestine when it did so in 2011. Iceland also is the greatest Nordic contributor per capita to NATO-led troops in Bosnia and Kosovo, to the police in Bosnia and to Bosnian/Kosovan reconstruction, resettlement and relief efforts.
Iceland was given the opportunity to join the League of Nations after becoming sovereign in 1918, but opted not to, primarily due to limited administrative resources. Iceland joined the UN in 1945 but took until 1965 to establish a permanent mission.
Iceland has an ongoing dispute with Denmark (on behalf of the Faroe Islands) on the one hand and with the UK and Ireland on the other hand, concerning claims to the continental shelf in the Hatton–Rockall area of the North Atlantic under the UN Convention on the Law of the Sea (1982). Iceland's claim covers virtually the entire area claimed by the other three countries, except for a small portion in the south-east corner of the Irish claim, while the Faroes claim most of the area claimed by the UK and Ireland. Negotiations continue between the four countries in the hope of making a joint proposal to the United Nations Commission on the Limits of the Continental Shelf by May 2009.
Following the collapse of Icesave sparking the 2008–2012 Icelandic financial crisis, the U.K. and the Netherlands offered to insure the deposits of the bank's customers. They then sought repayment from Iceland, which held a referendum on the issue in 2010 and 2011, both of which failed. The two governments then said they would take the issue to European courts to seek redress they alleged is owed to them. In January 2013 the EFTA court cleared Iceland of all charges.
Iceland has had a close relationship with the European Union (EU) throughout its development, but has remained outside (instead, joining the European Free Trade Area or EFTA). In 1972, the two sides signed a free trade agreement and in 1994 Iceland joined the European Economic Area which let itself and other non-EU states have access to the EU's internal market in exchange for Iceland contributing funds and applying EU law in relevant areas. The EU is Iceland's most important trading partner with a strong trade surplus in 2008/9 in terms of goods, services and foreign direct investment. Iceland also participates in the Schengen Area (as well as relevant police and judicial cooperation) and has non-voting representation in some EU agencies.
However, after Iceland's financial crash in 2008, it has sought membership of the EU and the euro. Iceland applied on 16 July 2009 and negotiations formally began 17 June 2011. After an agreement is concluded, the accession treaty must be ratified by every EU state and be subject to a national referendum in Iceland. Since the application was submitted, popular support has declined and contentious issues around Icelandic fisheries may derail negotiations. However the Icelandic government is confident an agreement can be reached based on the flexibility shown by the EU in its previous negotiations with Norway.
In 2014, Iceland froze their application to join the European Union.
The Agreed Minute was a statute governing the nature of the U.S. military presence in Iceland. The Agreed Minute was last renegotiated in 2001. At the time, the U.S. Air Force committed itself to maintaining four to six interceptors at the Keflavík base, supported by a helicopter rescue squad. The Air Force, in order to cut costs, announced plans to remove the four remaining jets in 2003. The removal was then delayed to address Icelandic demands for continued presence of the jets. After an unfruitful series of negotiations and two reshuffles of the Icelandic government the issue lay dormant until early 2006 when the U.S. Air Force issued an official statement that withdrawal of the aircraft was already being prepared. U.S. officials have since then argued that Iceland is in no need of a military presence.
NATO allies since then conduct air policing after the U.S. Air Force withdrawal.
Iceland's first embassy was established in Copenhagen in 1920. The second and third embassies were opened in London and Sweden in 1940. That same year, a consulate-general was installed in New York (a year later, an embassy was opened in Washington D.C.). The Icelandic foreign service grew slowly (both in terms of missions and staff) in the post-WWII period, but increased rapidly after the mid-1990s. The Icelandic foreign service is vastly smaller than those of its Nordic neighbors.
On 29 November 2011, the parliament of Iceland passed a resolution that authorized the government to officially recognize the state of Palestine within the 1967 borders.
As of 15 July 2013, Iceland is the first and only Western European country to recognise the independence of Palestine. Full diplomatic relations exist between the two states. Iceland's representative to Palestine is a non-resident based at the Ministry for Foreign Affairs in Reykjavík, while Palestine's ambassador to Iceland is also a non-resident based in Oslo, Norway.
Iceland has its representation in the Philippines through its embassy in Tokyo, Japan, and the Philippines' ambassador in Oslo, Norway is also accred to Iceland; although both countries established honorary consulates in Reykjavík and Makati City, Metro Manila, respectively.
The establishment of diplomatic relations between the Republic of Iceland and the Republic of Korea began on 10 October 1962.
The Republic of Iceland and the Republic of Korea relations are primarily based on cooperation over maritime issues such as whaling and bottom trawling and on bi-lateral trade in technology and fish products although there are various other ways in which the two countries interact.
Greece is represented in Iceland through its embassy in Oslo (Norway) and through an honorary consulate in Reykjavík. Iceland is represented in Greece through its embassy in Oslo (Norway) and through an honorary consulate in Athens.
Both countries have close ties in financing, which has strengthened the relations between the two. Iceland also called Russia as its "new friend" after having been turned down by its traditional allies for an emergency loan to boost the balance sheet of its second largest commercial bank.
^L., G. (1956). "Iceland: Reluctant Ally". The World Today. 12 (8): 321–330. JSTOR40392924.
^ abSteinsson, Sverrir (1 July 2017). "Neoclassical Realism in the North Atlantic: Explaining Behaviors and Outcomes in the Cod Wars". Foreign Policy Analysis. 13 (3): 599–617. doi:10.1093/fpa/orw062. ISSN1743-8586.
^"Iceland seeks Russian comfort". The Moscow News. Archived from the original on 31 May 2009. Retrieved 26 June 2009. Russia received a similar official request late on Tuesday and the country's Finance Minister Alexei Kudrin was quoted by Interfax as saying: "We will consider it. Iceland has a reputation for strict budget discipline and has a high cr rating. We're looking favorably at the request." Negotiations on the loan are supposed to start on October 14.