Panama and the Red Sea: Two Bottlenecks of International Trade

Þýðing: Lísa Margrét Gunnarsdóttir

Two of the most important arteries of international trade have been in a state of paralysis in the past weeks and months, resulting in significant disruptions of supply chains. On one hand is the Panama Canal in South America, connecting the Arabian Sea in the south with the Mediterranean Sea in the north, aided by the Suez Canal which extends from the Mediterranean to the Red Sea. When it comes to Panama, the consequences of climate change are apparent, as persistent droughts in the region have led to disruptions in the canal’s operations, prompting authorities to impose restrictions on ship traffic. On the other hand, armed conflicts are ongoing in the Red Sea where the Houthis, insurgents who recently seized power in Yemen, have been attacking ships in the area, purportedly in protest against Israeli attacks on Gaza. 

Red Sea Conflict: A Repercussion of the Invasion of Iraq?

Ships traveling from Asia to Europe often navigate through the Red Sea and the Suez Canal, with around 60 cargo ships passing through daily which account for around 30% of global maritime traffic, along with the transport of approximately 8 million barrels of oil. Many of these ships are now forced to take longer routes and travel around the south of Africa (via the Cape of Good Hope), which adds up to 11,000 kilometers to the journey or around two weeks. Houthi attacks on ships in the Red Sea have led many shipping companies to opt for the longer route, and in January, the amount of goods transported through the Red Sea decreased by 78%, according to the Kiel Institute for the World Economy.

The Bab el-Mandeb Strait at the southern end of the Red Sea is only 32 kilometers wide, which makes it relatively easy for the Houthis to control ship traffic through there, who have carried out around 40 attacks on ships in or near the strait since November. The Houthis claim to be supporting the Palestinian cause - since October 7th last year, Israel has been waging a bloody war in Gaza which has resulted in the deaths of over 30,000 Palestinians. However, those familiar with Yemen’s history and politics doubt that sympathy for Palestinians is the main reason for these Houthi attacks, suggesting instead that the Houthis may be seeking to strengthen their position in Yemen and gain international recognition, as their government has not yet been recognized by any country. Additionally, there is significant sympathy for the Palestinian people among Yemeni citizens, and the Houthi rhetoric has proven to be an effective means of gaining public recognition.

Who Are The Houthis?

The first Houthis were insurgents from North Yemen who resisted the authoritarian rule of President Ali Abdullah Saleh in the late 20th century, originally named after their leader Hussein al-Houthi. They were a relatively small group of rebels, supported by a small percentage of the country’s population, who gained popularity in the wake of President Saleh’s harsh measures against them as well as the rampant corruption within his government. The war on terrorism and the invasion of Iraq led by George W. Bush in 2003 further radicalized the Houthis and fueled the Yemeni public’s resentment against the United States. As a result, the Houthis emerged as a resistance movement, fighting against corrupt domestic governments as well as aggressive American forces abroad. In that sense, the current Houthi attacks in the Red Sea are part of a long history of indirect consequences of the invasion of Iraq. 

President Saleh finally managed to eliminate Hussein al-Houthi in 2004, but his followers remained adamant after his disappearance and the resistance continued. The Arab Spring in 2011 further emboldened the Houthis. When Saleh resigned in 2012, Vice President Abdrabbuh Mansour Hadi took over, whom the Houthis liked even worse. As fate would have it, a new alliance was formed after the Houthis and Saleh, who had thus far been sworn enemies, rallied against Hadi who quickly became a very unpopular leader in the country.

Political Instability, Air Raids and a Bloody Civil War

A civil war erupted in 2014, and the Houthi-allied rebel coalition quickly gained control of larger territories, leading to the capital Sanaa falling into the hands of the rebels in January 2015. However, the authorities in Saudi Arabia were not pleased with the success of the Houthis, backed by Saudi Arabia’s arch enemy Iran, and so they subsequently initiated a war against the Houthis alongside some allies - including the United States under the Obama administration, which resulted in massive airstrikes in Yemen. Shortly thereafter, Saleh turned against the Houthis once again and was eventually killed.  

Today, the Houthis control the majority of western Yemen, but the civil war has led to famine and suffering for a large portion of the country’s population, who already lived in one of the poorest countries on earth prior to the war. By presenting themselves as saviors amidst the oppression of America, Saudi Arabia and Israel, the Houthis have managed to assume the role of David in the fight against Goliath, which has garnered them a significant amount of public support. The Red Sea and the Bab-el-Mandeb Strait are one of the most important battlefronts in their struggle for power and recognition. 

Panama Canal: When Climate Chokes Human Infrastructure

The problems that have arisen with the Panama Canal are of a completely different nature than those listed above. In this case, climate change is the primary culprit, as the prerequisite for the canal to continue its operations is sufficient rainfall in the surrounding area, which unfortunately has not been the case in recent years. Annually, about 5% of global maritime traffic passes through the Panama Canal, including ships travelling from the West Coast of the United States to Europe, but the longer route around South America adds up to 15,000 kilometers - or the equivalent of 18 days.

Due to the crucial role the canal serves when it comes to maritime transport, the Panamanian authorities can charge significant fees for the right to transit through it. In 2022, Panama earned over 4 billion US dollars in tolls from the canal, equivalent to about 6,5% of Panama’s GDP. Panama’s society relies heavily on the canal, as most of the country’s inhabitants live along its banks and the small state is one of the wealthiest in South America. However, droughts began to take their toll in 2023 and 2024 and since then, traffic through the canal has decreased significantly.

A Large-Scale Salmon Ladder

To navigate through the 82 kilometres of land that separates the Pacific Ocean from the Atlantic Ocean, ships must traverse a series of giant locks, where they can ascend and descend through a series of locks, allowing them to adjust to changes in water levels. Once ships have passed through these locks, they sail through Lake Gatun, which stands 26 meters above sea level, and then descend through similar locks on the other side of the lake (see image). 

In order to raise and lower water levels in the locks, water must be released from man-made reservoirs (Lake Gatun and Alajuela Lake) and into the sea. Each transit through the canal requires 200 million litres of water to be released into the ocean. In a typical year, rainfall is sufficient to replenish the reservoirs, but if rainfall is scarce, the canal dries up, as it was designed and built over a hundred years ago and climate change was not taken into account by its engineers. Persistent droughts have caused an unprecedented drop in the surface level of Lake Gatun. Panama’s citizens hope for a better rainy season this year, but meteorologists warn of high probabilities of continued droughts throughout 2024.

Drinking Water or Ship Traffic: a Stingy Dilemma

As well as supplying the canal with necessary flow of water, Lake Gatun is also the main water supply for Panama’s inhabitants (4.5 million people). This means that the country’s authorities must decide between restricting water supply to the canal - resulting in economic losses for the nation as a whole - or limiting the population’s access to drinking water. Each transit through the canal is equivalent to a daily supply of water for 500.000 people. Authorities have thus far chosen to restrict canal operations by imposing increasingly stringent restrictions on ship traffic through the canal. Normally, 36 ships are allowed to sail through the canal each day, but the quota was decreased to 31 and then 24 ships this past January. However, the situation improved somewhat in March, and the quota was raised back up to 27 ships. As lighter ships require less water, weight limits have also been imposed on ships passing through, resulting in up to 40% less cargo than usual. These restrictions have caused significant disruptions and delays in shipping between continents.

From the Frying Pan and Into the Fire

Until 2023, ships could choose between booking passage through the canal a few weeks in advance or arriving at the site and queuing up, with waiting times rarely exceeding a couple of days. This situation has changed dramatically in recent times: by the end of 2023, following traffic restrictions, wait time could stretch to as long as 12 days, and huge queues with up to 120 cargo ships formed at the canal, forcing ships that wanted to bypass the queue to book passage several months in advance. 

Ships arriving at the canal now have three options to choose from: bribing the authorities to bypass the queue (in November of 2023, a Japanese ship paid a record amount to skip the line, nearly 4 million dollars). Many shipping companies, however, have chosen the second option, simply bypassing the canal altogether and sailing around South America south of Cape Horn, around Africa south of the Cape of Good Hope, or through the Red Sea and the Suez Canal (although this option became akin to jumping from the frying pan into the fire after the Houthis began the attacks discussed above). The third option is to simply wait in line for several weeks. 

The situation in Panama and the Red Sea means that many cargo ships must undergo much longer journeys than before, resulting in significant financial losses for shipping companies and therefore higher shipping costs and inflation. The globalization of the world economy has made it highly vulnerable to such crises, which will undoubtedly continue to happen and may even become more common and increasingly severe due direct and indirect consequences of climate change.