The surge in transit costs traces two separate disruptions hitting at once. The Strait of Hormuz, which normally carries about 20% of the world's oil shipments, has been effectively closed to large commercial vessels since late February 2026 following a war triggered by U.S. and Israeli strikes on Iran. Asian buyers of crude oil and petroleum products that previously sourced from the Middle East have shifted to U.S. Gulf Coast suppliers, and the Panama Canal offers the shortest route between the Gulf and Asia. The Red Sea's Bab el-Mandeb Strait remains dangerous amid sustained Houthi attacks, pushing additional traffic toward Panama.

At the same time, a developing El Niño pattern is reducing rainfall across Central America, lowering water levels in Gatun Lake, the reservoir that feeds the canal's lock system. NOAA's Climate Prediction Center has put the odds at 81% that this El Niño will reach "very strong" strength by late 2026. The Panama Canal Authority has cut the maximum draft allowed for Neopanamax vessels five times this year, most recently to 48.5 feet on August 15, with further cuts already scheduled. Lower draft limits mean ships must carry less cargo per transit, intensifying competition for the slots that remain.

The Panama Canal Authority is pursuing two long-term projects to reduce its exposure to drought: a 76-kilometer pipeline to move LPG across the isthmus without using the locks, and a new reservoir on the Rio Indio River to supplement Gatun Lake's water supply. Unfortunately for both shippers and consumers, neither of these measures are expected to be operational before 2030. Until then, the canal's capacity will continue to depend on rainfall patterns that are increasingly shaped by El Niño cycles, meaning further disruptions of this kind remain a real risk for global shipping operators.