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At the time, almost all war materials were transported by ship, not aeroplane. Halfway between the USA/Canada and Great Britain, Iceland was a strategic staging and transhipment point for the Allied war effort against Nazi Germany. Additionally, Allied heavy bombers and even fighter aircraft making way towards the UK from the USA/Canada used Iceland as a refueling depot and pilot rest area.

The above answer is not entirely correct. Iceland is not halfway between Britain and America/Canada. It is much closer to Britain. It also was not an important transshipment point. The idea was to get the Atlantic convoys through to Britain as rapidly as possible. Iceland as the contributor suggests, however, was vital in the Battle of the Atlantic. Before America entered the War, the German U-boats operated primarily in the eastern North Atlantic so as to avoid violating the Western Hemisphere security zone declared by President Roosevelt who eventually initiated an undeclared naval war. (Hitler was anxious to keep America out of the War until he defeated Britain and the Soviet Union and ordered his U-boat captains to avoid incidents with the Americans.) Iceland's primary importance was to provide air cover over the Western approaches to protect the vital Atlantic convoys which kept Britain in the War. U-boats could not attack while their were aircraft overhead because they became easy targets. American and British escorts also used Icelandic ports. After America entered the War, the U-boats could widen their attacks, but Iceland continued to be important in providing air cover over the Western approaches.

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