October 10, 2014 — If you want to understand why economic sanctions are silly, look no further than the Faroe Islands, the unexpected beneficiary of Russia's ban on Western food imports.
Back in August, Russia responded to Western sanctions by banning a long list of food imports from the offending countries. The ban has created problems for all involved, causing prices to surge in Russia and creating gluts in the West that have exacerbated deflationary pressures.
The trade in fish has been among the most affected. Russia was the biggest export market for salmon producers in Norway, a non-European Union country that fell under the ban because it chose to participate in punishing Russia for its aggression in Ukraine. In August, its seafood exports to Russia fell 82 percent from a year earlier. Crafty Norwegian fishermen appear to be redirecting some of the exports through Belarus, which has a customs union with Russia. Nonetheless, the constrained supply has affected fish prices. In Russia, they were up 14 percent in September from a year earlier. In Norway, salmon prices dropped sharply.
Meanwhile, those who chose not to play the sanctions game stand to gain. Consider the tiny Faroe Islands, an autonomous part of Denmark with a population of 50,000. Though they are part of EU member Denmark, which handles defense, policing, monetary policy and foreign affairs, they have kept out of the EU because the local government disagrees with the bloc's common fisheries policy. So the Faroes were not bound by Denmark's decision to join the Ukraine-related sanctions against Russia.