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The Panama Canal is becoming more valuable just as it is becoming harder to manage. War in the Middle East has redirected energy shipments towards the Americas, pushing demand for the waterway close to its daily limit. Longer-term shifts in trade could keep that demand high. Yet drought and rivalry between the United States and China threaten the reliability and political independence on which the canal’s success depends.

An energy route gains importance

Only 5-6% of world maritime trade passes through the canal, but that share understates its strategic role. After fighting closed the Strait of Hormuz, countries sought more American energy. The number of liquefied-natural-gas cargoes using Panama nearly doubled in April from a year earlier, while the canal approached its capacity of 36-40 transits a day. It already carries about 1m barrels of liquefied petroleum gas daily, much of it moving from the American Gulf Coast to Asian petrochemical plants.

Panama hopes to turn this surge into more than a temporary windfall. The canal authority has launched projects worth \$8.5bn, including two container terminals and a pipeline that could move up to 2.5m barrels of liquefied natural gas across the isthmus each day. The goal is to make the country a broader trading hub rather than merely a passage between oceans.

Recent prices show the opportunity. Auctioned transit slots rose from roughly \$135,000-140,000 before the Hormuz disruption to \$385,000-425,000 in April and May; one company paid \$4m for a single passage. In the fiscal year ending in September 2025, the canal contributed almost \$3bn to Panama’s treasury, more than one-fifth of state revenue. Some of that boom may fade if Hormuz reopens, but researchers expect energy-trade patterns to retain at least part of their new shape.

Water is the physical constraint

The canal’s locks depend on freshwater lakes replenished by rain. During the severe drought of 2023-24, the authority cut daily transits to as few as 18. Liquefied-natural-gas carriers shifted to the much longer route around the Cape of Good Hope, and many have yet to return. Another strong El Nino could bring similar disruption.

Panama is finally addressing the shortage with a reservoir on the Indio river. The project will displace around 2,000 people, but officials say that by 2032 it should provide enough water for about 11.5 additional daily transits in a dry year and secure the canal’s operation for decades. This investment is not simply an expansion plan: it is insurance for an economy unusually dependent on a single climate-sensitive asset.

A commercial asset becomes a geopolitical prize

The more immediate danger is that the canal is being pulled into great-power competition. More than 70% of its traffic travels to or from the United States. Donald Trump has repeatedly threatened to “take back” the waterway, arguing that Chinese influence around it endangers American supply chains. Foreign companies do not operate the canal itself, but Chinese firms have held important concessions nearby, including ports at both ends.

Panama has already moved towards Washington. Its Supreme Court struck down the contract of the Hong Kong-based company operating those ports, and the government withdrew from China’s Belt and Road Initiative. Beijing has responded by detaining Panama-flagged ships at Chinese ports, an apparent attempt to impose costs on a small country trying to satisfy its much larger neighbour.

The canal has stayed open through a pandemic, drought and geopolitical turmoil, a record that supports Panama’s claim to competent stewardship. But reliability alone will not resolve its dilemma. The same trade shifts that increase revenue also make the waterway more important to competing powers. Panama can profit from its chokepoint only if it invests enough to keep water flowing and preserves enough autonomy to avoid becoming the prize in someone else’s contest.