WASHINGTON—The closure of the Strait of Hormuz and flaring tensions in other nearby maritime chokepoints are reconfiguring global shipping. Amid the disruption, shipping companies have diverted their vessels to other, safer trade routes—or to other destinations entirely. At the same time, countries have raced to find sources of oil outside of the Middle East, with some finding what they’ve needed in the United States, driving US fuel exports to record highs.
These shifts have sharply increased demand for transit through the Panama Canal, arguably the most important waterway in the Western Hemisphere. This edition of Economic Pulse of the Americas explores what exactly is unfolding there and what the Panama Canal Authority (and its forthcoming administrator, Ilya Espino de Marotta) must do to take advantage of the opportunity.
Rising demand
The Panama Canal is one of the world’s smaller maritime chokepoints. Only an estimated 6 percent of global seaborne trade passes through the canal. The average yearly number of ships traveling through it is only around thirteen thousand. For the Strait of Hormuz, that figure was around 35,000 before the recent conflict.
Yet, that hasn’t stopped the Panama Canal from earning a reputation among energy-seeking countries and shipping companies for being indispensable, irreplaceable, and reliable. The canal is particularly important for the United States, since roughly 70 percent of the canal’s traffic is either coming from or going to the United States, compared to 20 percent going to or coming from China.
Daily traffic at the Panama Canal is up by an estimated 20 percent compared to the end of February (from thirty-four daily transits up to peaks of forty-one transits on some days). The graphs below show that since the Iran war began, crossings by deep-draft vessels have risen notably. Energy-transporting ships—particularly tankers—have driven that growth. Comparing the canal’s fiscal year thus far (October 2025 to today) to the same months in the previous fiscal year, the number of vessels carrying liquefied natural gas has doubled, while the number of tankers carrying oil has risen up to 37 percent.
Panama’s payday
With all the additional traffic, the Panama Canal’s revenues have increased by up to 15 percent. That has produced a windfall for Panama’s government, which gets around a quarter of its revenue from the canal.
When shipping companies make last-minute plans to transit the canal or fail to make a reservation, they can submit bids for the auction-based transit slots offered each day. There are very few of those—usually one to three each day. Vessels have paid up to four million dollars for one of those slots, which they pay in addition to already-established tolls.
Before the Iran war, these auction prices averaged about $135,000. In March and April, the average winning bid was closer to $385,000. This makes it clear that businesses are willing to pay big premiums for the certainty of a safe passage.
Put that money to work
For Panama, the surge in demand is an opportunity to recover the traffic it once lost due to climate adversities. In 2024, the volume of US liquefied natural gas bound for Asia via the canal dropped by 80 percent compared to averages in the immediately preceding years, whereas the volumes sailing around the Cape of Good Hope increased.
That coincided with a drop in the canal’s water levels. In 2023 and 2024, an El Niño plunged Panama into severe drought, and transits across the canal dropped by up to forty percent (only eighteen ships per day) due to water supply constraints.
This year, the world is forecasting a Super El Niño. With that, and the rising demand for passage, the Panama Canal Authority must manage its water adeptly. The challenge lies in the canal’s lock-based system. For each crossing, canal workers rely on pumping large amounts of fresh water to raise ships from sea level to the level of Gatún Lake. In periods of high demand and dry conditions, the process squeezes the region’s water supply. This forces the canal authorities to control the number of crossings to preserve the scarce resource.
At the same time, increased demand for transit could strain the canal’s critical infrastructure, including the culverts and valves under the locks, which would need to be drained—ideally without stopping ship traffic—for repairs. The Panama Canal Authority is already advancing an important modernization plan. Currently, it is slated to take ten years to complete.
As demand for passage continues to surge, Panama must use its revenues smartly by reinvesting in upkeep and in solutions that efficiently use the limited water resources.
This article is part of “Economic Pulse of the Americas,” a series of explainers about the overlooked economic and trade trends in Latin America and the Caribbean, written by the Atlantic Council’s Adrienne Arsht Latin America Center. To get notified about future editions and other related work on the region, sign up here.