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Writer's pictureJohnson Odakkal, PhD, CEO
3 minutes ago6 min read

Travails of the Panama Canal

“Global Canvas” by JOI resumes in 2025

Imagine a vital waterway, intricately weaving together the fabric of global trade, suddenly thrust into the glare of geopolitical debates and environmental challenges. The Panama Canal, often operating quietly behind the scenes, has resurfaced in the international spotlight following provocative remarks by former U.S. President Donald Trump. Labeling it a forgotten cornerstone of American strategy, Trump suggested reclaiming control over the canal—a proposal that sparked global intrigue. But beyond this rhetoric lies a rich tapestry of history, environmental urgency, and unsung contributions, waiting to be uncovered.


Context and Background


The Panama Canal, officially managed by the Panama Canal Authority (Autoridad del Canal de Panamá - ACP), represents a vital artery of global trade, connecting the Atlantic and Pacific Oceans. This iconic structure has a storied past that reflects ambition, failure, and eventual triumph:


  • 1881: The French first broke ground on the Panama Canal.

  • January 20, 1882: Active construction began under French leadership.

  • February 23, 1904: The United States acquired the project from France.

  • May 4, 1904: U.S. engineers officially resumed construction.

  • November 6, 1906: President Theodore Roosevelt became the first U.S. president to visit a foreign country while in office, visiting Panama.

  • May 10, 1913: The Atlantic and Pacific Oceans were connected for the first time.

  • August 15, 1914: The SS Ancon completed the first official transit, marking the canal’s opening to global traffic.

  • Throughout the 1900s: Continuous improvements included widening and deepening the canal and installing lighting systems.

  • September 15, 1977: A treaty was signed to eventually transfer control to Panama.

  • December 31, 1999: The U.S. formally handed over control to Panama.

  • September 2007: Expansion work officially began.

  • June 2016: The expanded canal was inaugurated, significantly boosting its capacity.


Key Players and Stakeholders


Panama Canal Authority (ACP). The ACP, established as an autonomous agency in 1999, shoulders the immense responsibility of managing the Panama Canal's operations, maintenance, and profitability. It plays a dual role of a business entity generating substantial revenue for Panama and a strategic operator balancing global trade dynamics. Recent challenges like record-breaking droughts have forced the ACP to adopt innovative solutions, such as exploring desalination technologies and imposing strict restrictions on ship sizes to conserve water. The ACP’s ability to navigate these crises underscores its critical role in ensuring the canal's relevance in a rapidly changing world.


Global Shipping Corporations. Leading shipping corporations such as Maersk, Evergreen, and MSC are heavily dependent on the canal for cost-efficient trade routes. The canal facilitates the movement of goods worth billions of dollars annually, directly influencing global supply chains. However, increasing restrictions on ship transits due to water shortages have caused significant delays, prompting shipping giants to explore alternative routes like Arctic passages or expanded rail networks. This reliance highlights the canal’s indispensable yet precarious position in international trade.


United States. Historically instrumental in the canal's construction and operation, the U.S. continues to view the Panama Canal as a pivotal asset for its trade and military strategy. Discussions surrounding sovereignty and geopolitical influence persist, with some factions advocating for renewed American involvement to safeguard its interests in Latin America.


China. In its growing global maritime reach, China has intensified investments in Latin America, including infrastructure projects like Nicaragua’s proposed canal. These efforts aim to diversify trade routes and challenge traditional U.S. dominance in the region. China’s growing influence underscores a shift in power dynamics, with the Panama Canal remaining central to this contest.


Other American Neighbors. The canal’s efficiency and sustainability have far-reaching impacts on the economies of neighboring countries such as Colombia, Costa Rica, and Mexico. These nations depend on the canal for regional trade and logistical operations. Collaborative initiatives addressing shared challenges like climate change and economic integration are crucial, as the canal’s health influences the broader economic stability of Latin America. Neighboring countries are also closely monitoring geopolitical developments to assess their implications for regional autonomy and growth.


Major Concerns and Consequences


Climate Change. The Panama Canal faces an existential crisis due to shifting climate patterns. Prolonged droughts, particularly the record-breaking drought of 2024, have reduced water levels in its reservoirs, threatening its ability to accommodate large ships. The Gatun and Alhajuela Lakes, vital for its operations, have seen sharp declines in water levels. Freshwater shortages have led to drastic restrictions on the canal’s capacity, including limitations on ship sizes and the number of daily transits. This situation has created significant bottlenecks in global trade, with reports of ships waiting weeks for passage. Engineers and environmental experts are exploring options like desalination plants to address these challenges. However, the reliance on rainfall-fed reservoirs underscores the vulnerability of this vital waterway to climate change.


Economic Impacts. Disruptions to the canal have cascading effects on global trade. Increased shipping costs and delays ripple through supply chains, impacting industries from manufacturing to retail. For Panama, the canal’s economic contributions face pressure as operational costs rise and transit volumes decline. According to estimates, the drought of 2024 alone caused billions of dollars in trade losses worldwide, highlighting the interdependence of global economies on this narrow waterway.


Geopolitical Tensions. Trump’s suggestion of regaining U.S. control over the canal reflects its enduring strategic importance. While Panama retains sovereignty, the canal remains a focal point of power dynamics. China’s increasing presence in Latin America, coupled with its investments in Arctic trade routes, underscores its ambition to reshape global trade networks. Meanwhile, the U.S. continues to view the canal as integral to its trade and military logistics, adding to the complexity of regional and global geopolitics.



Political Perspectives and Understanding

Realist theory underscores the canal’s role as a strategic asset. Control over the canal historically granted the U.S. significant leverage in global trade and military logistics. Current discussions on sovereignty and influence echo these power dynamics, with nations vying for dominance over vital trade routes.


According to Liberal Internationalism theory, the peaceful transfer of the canal to Panama in 1999 exemplifies liberal ideals of cooperation and diplomacy. It highlights how international treaties and agreements can resolve contentious issues, setting a precedent for shared governance of global commons.


As per Environmental Politics, the canal serves as a case study in the interplay between development and sustainability. Addressing climate challenges requires multilateral cooperation, blending engineering innovation with ecological stewardship. The canal’s plight emphasizes the need for global strategies to balance economic growth and environmental preservation.


Did You Know of an Interesting Indian Connection?


During the construction of the Panama Canal, Bhag Singh, a laborer from Bhatinda, Punjab, made a remarkable contribution. As part of a global workforce, Singh endured extreme conditions, contributing to this monumental project. His life tragically ended in a landslide, a sacrifice rediscovered over a century later. Singh’s story highlights the Indian diaspora’s unsung role in global infrastructure development, a legacy often overlooked in history.


At present, India has strengthened ties with Panama, recognizing the canal's strategic importance in global trade. The canal facilitates Indian exports like pharmaceuticals, textiles, and machinery to American markets. Shared discussions on water management and climate resilience further enhance this partnership, reflecting India’s growing engagement in Latin America.


Takeaways

For students of geopolitics, this case study serves as a compelling example of the intersections between trade, sovereignty, and environmental challenges. The Panama Canal is not just a marvel of engineering but also a symbol of global interconnectedness and resilience. Its challenges—from the specter of climate change to geopolitical debates—underscore the need for international collaboration. Revisiting its history and addressing its future can inspire solutions for other shared global challenges.

Compiled by Commodore (Dr) Johnson Odakkal (with support from Ms Supriya Mishra) 

Stay Tuned for More!

As the Global Canvas series continues, we’ll explore more pivotal moments where technology and geopolitics intersect. For those interested in contributing or learning more about the influence of non-state actors on global politics, visit us at www.johnsonodakkal.com   or email us at ceo@johnsonodakkal.com  . Stay engaged with us as we delve deeper into the ever-evolving digital landscape and its role in shaping global politics.

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