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With disruption continuing in the Strait of Hormuz due to the Iran conflict, an alternative thousands of miles away has emerged: the Panama Canal, connecting the Atlantic and Pacific Oceans.
The United States has issued warnings about China’s growing influence over the Panama Canal, suggesting it could pose challenges to global trade and security.
Beijing denies these accusations, accusing Washington of using the canal as a pretext to expand its own dominance.
In the midst of tensions, Panama has reaffirmed its sovereignty over the canal and emphasized the necessity of keeping it permanently neutral.
What is the Panama Canal and how does it operate?
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The Panama Canal is an 80-kilometer-long artificial waterway linking the Atlantic and Pacific Oceans, cutting through the narrow Isthmus of Panama.
It significantly reduces the maritime journey and transport costs by avoiding the long trip around Cape Horn.
Transit fees for ships depend on their size, type, and cargo, and the canal uses a structure similar to Egypt’s Suez Canal.
The canal employs locks to lift ships up to Gatun Lake, above sea level, where they then proceed to the other side and descend back down. Each transit uses millions of gallons of water.
Due to the reliance on freshwater, drought poses a risk. A water shortage could restrict ship drafts, reducing canal capacity.
Why are vessel transits through the canal increasing?
The Baltic and International Maritime Council (BIMCO), the world’s largest international shipping association, reports an 8% rise in ships transiting the Panama Canal, reaching 38 vessels daily by May 2026, nearing the canal’s full capacity.
BIMCO also indicated a 16% surge in traffic in the five weeks following the escalation of the Iran conflict.
The Strait of Hormuz tensions have disrupted oil trade, leading Asian buyers to increase crude oil and fuel purchases from suppliers along the US Gulf Coast.
Many of these cargo ships navigating the Atlantic-Pacific route choose the Panama Canal.
Growing traffic has created fierce competition for booking and transit priority, with some operators paying millions of dollars in auctions for transit slots.
Orlando J. Perez, a Political Science professor at the University of North Texas in Dallas, notes, “The Panama Canal is not the sole crucial choke point restricting major trade flows like Hormuz.” While it handles 5% of global maritime trade, it is responsible for about 40% of U.S. container shipping.
“If Hormuz is the energy choke point, the Panama Canal is a critical supply chain bottleneck for the economy. Both are significant.”
Image source, Getty Images
The canal is also facing increasing environmental challenges.
With surface water levels at Gatun Lake historically dropping, the Panama Canal Authority has had to impose restrictions. From September 15, the daily transit limit will reduce from 36 to 32 vessels.
Officials link this to broad climate phenomena like El Niño.
Analysts warn that further water shortages could lead to additional restrictions, adding pressure on global trade.
What is the history of the canal?
Built in the early 20th century, the canal remained under American control until 1977. The Torrijos-Carter Treaties signed during President Jimmy Carter’s administration established a timetable for Panama to assume control.
The handover was completed on December 31, 1999.
What are US concerns regarding China?
The dispute centers not so much on sovereignty but on dominance and influence.
Hong Kong-listed CK Hutchison controls the Balboa and Cristobal ports via its Panama Ports subsidiary.
Although Chinese companies currently do not operate the canal itself, U.S. officials express concern over Chinese-related waterways and infrastructure presence in the region.
Tensions heightened earlier this year after Panama’s Supreme Court declared unconstitutional a concession agreement with CK Hutchison.
Former U.S. President Donald Trump reiterated concerns about excessive Chinese influence, suggesting America might regain control over the canal. Panama, however, firmly rejected these claims.
How has China responded?
Chinese Foreign Ministry spokesperson Lin Xian stated the accusations are entirely baseless and politically distorted.
Beijing reaffirmed its commitment to respect Panama’s sovereignty and the neutrality of the canal.
In August 2025, Chinese Ambassador Fu Song declared at the United Nations: “The false and unfounded claims by the U.S. are merely excuses to maintain control over the canal.”
The President of Panama described the canal’s neutrality and sovereignty as the single best protection against global threats.
Who instigated this dispute?
The canal dispute originates from the broader US-China rivalry that preceded the Middle East crisis.
Concerns over China’s investments, strategic infrastructure, and regional influence span not just Panama but across Latin America, growing for decades.
Analysts view this dispute as a regional conflict intensifying broader geopolitical rivalries.
Professor Josef Heinle, emeritus of the Institute of International Studies in Chile, commented: “The war in the Middle East and disruptions in the Strait of Hormuz have increased pressure on Panama, with US-China tensions flaring over this issue.”
Perez concurs, stating: “We have witnessed such scenarios twice already, whether in Hormuz or the Red Sea.”
“Strategic waterways often become stages for geopolitical competitors to contest influence.”
In Panama, Yemen, and the Gulf countries, small and medium-sized nations controlling these critical maritime choke points frequently find themselves embroiled in conflicts driven by larger powers.
