As Iran's war continues to disrupt the Strait of Hormuz, one of the world's most important shipping lanes, another strategic chokepoint thousands of kilometers away has also become a new focus of contention, that is, the Panama Canal, an important passage connecting the Atlantic and Pacific Oceans.
The latest round of confrontations took place last week at the United Nations. The United States has warned that China's growing influence around the Panama Canal could threaten global trade and security.
Beijing refutes the claim and accuses Washington of using it as an excuse to expand control of the canal.
Panama, sandwiched between the two countries, reaffirmed its sovereignty over the canal and emphasized that the canal would remain neutral forever.
What is the Panama Canal? How does it work?
The Panama Canal is an 80-kilometer-long man-made waterway that spans the Isthmus of Panama and connects the Atlantic and Pacific Oceans.
Ships no longer need to detour around Cape Horn, the southernmost tip of South America, significantly shortening voyage distances and reducing transportation costs.
When ships use the canal, they need to pay tolls based on factors such as size, type of ship and cargo. Egypt's Suez Canal also uses a similar toll system.
The Panama Canal uses a system of locks to lift ships above sea level into Lake Gatun, then gradually lower them to sea level on the other coast. Each ship passing through the canal uses millions of gallons of fresh water from Lake Gatun and nearby reservoirs.
This reliance on fresh water makes the canal vulnerable to drought. When the water level drops, authorities can limit the maximum draft of ships, forcing ships to reduce cargo capacity and reducing the transportation capacity of the entire waterway.
Why are the number of ships passing through the canal increasing?
Data from the Baltic International Shipping Association (Bimco), the world's largest international shipping association, show that as of the end of May, the total number of ships passing through the Panama Canal increased by 8% year-on-year, with an average of 38 ships per day, which is close to the canal's maximum capacity.
Bimco also pointed out that in the five weeks after the outbreak of the Iran war, the number of passengers passing through the Panama Canal increased by 16% year-on-year.
The Strait of Hormuz carries about one-fifth of the world's oil trade. As the fighting makes it more difficult for ships to pass through the waterway, Asian buyers have increasingly turned to U.S. Gulf Coast suppliers for crude oil and refined products.
Many of these goods travel between the Atlantic and Pacific Oceans via the Panama Canal, increasing demand during canal traffic hours.
The surge in boat traffic has also led to longer waiting times, fiercer competition for reserved access slots, and record premiums for priority access. Operators have reportedly paid millions of dollars in auctions to get through the canal faster.
Orlando J Pérez, a professor of political science at the University of North Texas at Dallas, said: "Panama is not a chokepoint related to transportation volume like Hormuz. The nature of the things it carries is different, accounting for about 5% of global seaborne trade, but nearly 40% of the container transportation in the United States passes through here."
"Hormuz is an energy chokepoint and Panama is a supply chain chokepoint for a major economy. Both are important."
The Panama Canal also faces growing environmental constraints.
Water levels in Lake Gatun remain below historical averages, prompting the Panama Canal Authority to impose draft restrictions on ships. Officials linked the situation to reduced rainfall caused by broader climate change, including El Niño.
The restrictions are yet another reminder of the severe drought in 2023. At that time, the number of ships passing through was limited, resulting in a large number of ships waiting for a long time and supply chains being disrupted.
Analysts warn that if water levels drop further, canal traffic could be restricted again, putting greater pressure on global trade.
What is the history of the Panama Canal?
The United States built the Panama Canal in the early 20th century and continued to control the canal and the surrounding Panama Canal Zone until 1977, when the Torrijos-Carter Treaty was negotiated during the term of US President Jimmy Carter, setting a timetable for transferring control of the canal to Panama.
The handover was completed on December 31, 1999.
Today, the Panama Canal Authority operates the waterway under a treaty that guarantees the canal's neutral status and international shipping rights of passage.
What worries does the United States have about China?
The dispute is less about who owns the canal than who has influence over it.
For decades, Hong Kong-based CK Hutchison Holdings, through its Panamanian Ports Company, has operated the Ports of Balboa and Cristobal at the Pacific and Atlantic entrances of the canal under concession agreements with the Panamanian government.
While neither CK Hutchison nor China is involved in operating the Panama Canal itself, U.S. officials are increasingly concerned about the presence of Chinese-linked companies around the canal, particularly in ports, logistics and transportation infrastructure.
Tensions were further heightened earlier this year when Panama's Supreme Court ruled that the legal framework under which the CK Hutchison Ports concession was based was unconstitutional.
"Washington views China-linked port operators as establishing a foothold near a strategic asset that the United States once controlled; Beijing's view is that Panama, as a small country, is being pressured to overturn a legitimate contract," Perez said.
He added that the canal's neutrality was now being tested.
However, Jorge Heine, emeritus professor at the Institute of International Studies at the University of Chile, described the controversy as "completely unnecessary" and pointed out that CK Hutchison's involvement in port operations around the Panama Canal dates back to 1997, a few months before Hong Kong's sovereignty was handed over to China.
"All they do is manage containers and related port operations," he said. "They don't operate the canal itself."
U.S. President Donald Trump has repeatedly stated that China’s influence in Panama has become too great and has proposed that the United States could regain control of the Panama Canal, but Panama has strongly rejected this idea.
The Trump administration has also accused Beijing of retaliating by increasing inspections of Panamanian-flagged ships at Chinese ports.
How does China respond?
In April this year, Chinese Foreign Ministry spokesperson Lin Jian described the accusations as "made out of nothing and confusing right and wrong" and accused Washington of "pan-politicizing and pan-security" the port issue.
He asked rhetorically: "Who has occupied the Panama Canal for a long time, invaded Panama with arms, and wantonly trampled on Panama's sovereignty and dignity? Who is coveting the Panama Canal, trying to turn an international waterway that should be permanently neutral into its own water channel, and despising the sovereignty of regional countries? The answer is self-evident."
Beijing says it respects Panama's sovereignty and the neutral status of the canal.
In August last year, at a public debate at the United Nations, China's Permanent Representative to the United Nations Fu Cong criticized the United States: "The United States concocts lies and attacks China for no reason, just to find excuses for its control of the canal."
Meanwhile, Panamanian President José Raúl Mulino stressed Panama's sovereignty over the canal and described the canal's neutral status as "the only and best defense" against individual and global threats.
What's fueling the controversy?
The small and medium-sized countries and regions responsible for managing these chokepoints, such as Panama, Yemen and the Gulf countries, often have to bear the "costs of great power disputes but have little ability to stay out of them."
