With the Strait of Hormuz choked by war, the Panama Canal reaps the benefits

(CNN) — With fuel and freight prices skyrocketing as war chokes the Strait of Hormuz, the Panama Canal is seeing more business than usual.

The canal, which connects the Atlantic and Pacific oceans at a narrow point between North and South America, is receiving a “slight increase” in vessels, according to the Panama Canal’s deputy administrator, Ilya Espino de Marotta.

“The latest thing we’ve seen is an increase — a slight increase in the number of transits,” Espino de Marotta explained in a statement to CNN. “Let’s remember that now, with higher fuel prices, the Panama Canal definitely becomes a more attractive route because it’s shorter.”

At roughly 50 miles long, the Panama Canal is less than half the length of the 120-mile Suez Canal in Egypt.

Espino de Marotta added that, thanks to an unusually moist dry season this year, “we’ve been able to accommodate 40 to 41 daily transits, compared to the normal 36.”

The extra transits are especially notable considering the extreme drought that Panama experienced during the El Niño weather phenomenon in 2023 and 2024.

The Panama Canal is essentially a water elevator, moving ships up and down through its locks by controlling the levels of water at each station. But during El Niño, drought brought the water levels in Lake Gatun, which feeds the canal, to historic lows, cutting transits from 36 a day to 24.

“Forty-one or 42 transits are not sustainable over time,” Espino de Marotta said, “but we can maintain about 38 consistently, so we are supporting the industry’s needs.”

When asked about where the canal’s new customers come from, the deputy administrator said she did not have precise data.

“Obviously they’re using us as an alternative route to the one they used before,” she said.

Another route for Asia’s fuel?

Though the Middle East’s energy market is casually synonymous with oil, liquefied natural gas (LNG) accounts for a huge portion of the fuel that normally traverses the Strait of Hormuz. According to the US Energy Information Administration, roughly a fifth of the planet’s LNG trade goes through the waterway.

As the war has strangled the strait, freight rates for American LNG have quadrupled, and the Asian market has become a new center of gravity for the fuel as Asian countries scramble for new energy sources. Eighty percent of Asia’s fuel comes through the strait, and since the war began, at least four cargoes of US LNG have turned toward Asia from their original destinations in Europe.

Regarding the possibility that buyers from Asia might use the Panama Canal to transport LNG, Espino de Marotta said the canal could indeed see some of that business.

“But we must also remember that right now, Russia is in a situation with Europe,” she said, referring to the war in Ukraine. “So it is more profitable for the United States to send LNG from the East Coast of the US to Europe.”

Still, as the war spirals and the Strait of Hormuz remains severely restricted to traffic, the administrator said she is confident that Panama’s canal is prepared to receive more of the world’s fuel.

CNN’s Stephanie Yang contributed to this report.

The-CNN-Wire
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