Panama Canal traffic to be reduced due to El Niño drought, impacting global trade and Asian energy supplies

The Panama Canal faces significant disruptions as extreme drought, fueled by the El Niño phenomenon, forces a reduction in ship traffic. Starting September 3, the Autoridad del Canal de Panamá (ACP) will limit daily transits to a maximum of 34, down from the current 36, with a further reduction to 32 planned for mid-September.

ACP reported a 34 percent decrease in rainfall between May and August compared to historical averages. This has severely impacted the water levels in the reservoirs that supply the canal's locks, with inflows dropping by 44 percent during the same period. The ACP warns that El Niño could lead to prolonged low rainfall, threatening the canal's long-term viability and the region's water supply.

This development is a "new piece of bad news for global trade," according to Harald Oberhofer, a foreign trade expert at WU. He noted that existing restrictions in the Gulf region have already caused problems. The Panama Canal is particularly crucial for energy supplies to Asian countries, which normally receive 80 to 90 percent of oil and gas exports from the Gulf. Due to the closure of the Strait of Hormuz, these nations have faced an energy crisis and have increasingly turned to U.S. LNG gas. "LNG gas for the Asian market is loaded on the coast of the Gulf of Mexico in Texas. Smaller tankers then travel through the Panama Canal towards Asia," Oberhofer explained.

While the current capacity reduction is manageable, the situation could worsen. Panama's driest season is expected in January, and in a worst-case scenario, the canal could face temporary closures. "If the maritime problems in the Gulf are resolved by then, it won't be so bad. If the situation remains as it is now, it will become even more difficult and expensive for Asian economies to obtain energy," Oberhofer added.