The tl;dr of Iceland's colonization is: Norse settlers arrive, placement in society is based on how big of a farmer you are. Thus they overgraze and unlike their native Scandinavia they're doing this on a volcanic island with really thin topsoil, so the overgrazing leads to runaway topsoil erosion and dustbowlification. This leads to desperate logging of the last of the trees around for firewood and housing.

It's never remotely recovered, but that process is slowly starting just now. I was trying to find a photo like the one you just posted but couldn't. There's lots of examples like that where the plant biodiversity in an area where the sheep can't get to is night & day compared to the area right next to it where they can.

Which is not to say that those specific trees are old growth forest or anything like that. Icelanders pretty much lived in mud huts until after WWII in large parts of the country. If the sheep didn't get to a place like that some guy would have certainly swam over there to gather firewood. But it'll have been left alone by sheep and man in the last several decades, which as you can see makes a huge difference.

Edit: Here's an even more stunning photo of an island in the middle of a river that because of the depth of the river has been left alone by both man & grazers: http://www.skogur.is/media/frettir-2014/myndasafn-storar/Vid...

The accompanying article (in Icelandic, but it translates ok-ish) says that compared to the land around it it has a lot more biodiversity and a better topsoil, similar to other areas in the country protected from grazers that they've studied: http://www.skogur.is/um-skograekt-rikisins/vidburdir/2014/04...

Another part about Iceland vegetation is that developing soil on top of fresh lava takes a long time. Tens of thousands of years in some cases. Large sections of Iceland gets covered up with lava flows pretty often. But you can get some great biodiversity on the lava pretty quickly in a wet place like Iceland with lots of moss and lichen growing. On an 8,000 year old lava flow in the middle of Iceland near Leirubakki, the moss is half a foot thick[1] in places. You find a few old gnarled birch growing here and there in the hollows where wind blow dirt accumulates, but mostly just huge mats of moss and lichen with a bit of grass.

[1]https://njarboe.com/iceland/IcelandMoss.jpg

Thank you for your insightful comment, you learn something everday :)

Grazing by sheep and goats in California devastated native flora in California's Central Valley and foothills, and also introduced the Mediterranean grasses that put the Golden in California's current landscape.

Src:Allan A. Schoenherr's A Natural History of California

It’s theorized that CA’s golden hills used to be entirely covered with wildflowers. I find it sad that no photosynthesis can occur all summer due to the dead grasses. Such lost potential. But we get some amount of beef and dairy in exchange for the dramatic loss of efficiency and biodiversity.

That photo is a sharp (and fascinating) reinforcement of the grazing sheep point. Is there any other reason those trees would grow clustered right there and nowhere else? Was that area not accessible by sheep?

As you can see somewhat in the photo, this island is isolated from grazing by the river and the steep rocky sides of the island. You could probably get a mountain goat to climb up there with some prodding, but sheep and horses that range on the slopes behind wouldn't.

Interesting. Speaking of those fosses, Gulfoss is pretty cool.

https://en.wikipedia.org/wiki/Gullfoss

Images:

https://www.google.co.in/searchq=gullfoss&tbm=isch

Often when I read about Iceland, it reminds me of the Jules Verne novel "Journey to the Centre of the Earth", which I read as a kid. Good novel.

Journey to the Center of the Earth is set in Iceland, if you weren't aware.

Yes, I was aware of it, thanks though. That is why I mentioned the novel in the first place. Was going to mention the jökulls too, as sibling comment does. One of them was Vatna or some such, need to check - it was long back that I read it :)

Update: Checked, that's the name:

https://en.wikipedia.org/wiki/Vatnaj%C3%B6kull

Update 2: There are some interesting points in that Wikipedia article.

The the Icelandic volcano Snæfellsjökull is the entrance into the Earth, to be more precise.

That is a cool shot. I like how the trees are perfectly camouflaged and even the shape of their foliage matches the rolling hills