I don't do 'cold' camping but if your bag's too warm you can always stick a bit out to keep cooler. If you're too cold - you're stuck! I would have thought you would be able to check online for night time temps in Iceland for the time of year you're travelling and then just cross check against your bag's rating. Hopefully somebody else may have more specific 'yes/'no' advice from first hand experience of camping in Iceland
Your bag is rated for -7. Expectations are for around -1. Plan is fine if nothing changes. If warmer you are ok, might have to open a zip a bit. If it goes the other way though you do not have much of a margin.
Have you actually used this bag in -7 conditions to see if YOU are comfortable in the bag at that temp? My experience is that personal comfort and tags/labels can be two different things!! As a precaution you might want to consider bringing along a bag liner to give you some additional margin for error... depending upon the make and material an additional 3 to 8 degrees can be achieved.
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