Panama Canal becomes new flashpoint in US-China rivalry

The Panama Canal has emerged as a new maritime flashpoint, with the United States and China trading barbs in recent weeks over influence at one of the world's most critical shipping routes.

Earlier this week, Washington and regional allies accused Beijing of detaining and holding Panama-flagged vessels, calling the actions a "blatant attempt to politicize maritime trade." On Wednesday, China vehemently denied the allegations, labeling them "hypocritical" and counter-accusing the US of politicizing global trade and violating sovereignty.

Analysts warn that any disruption at the canal, even temporary, could "significantly disrupt global trade." Ferdinand Rauch, an economics professor at the University of St. Gallen in Switzerland, told Al Jazeera this "would lead to temporary supply bottlenecks, stock market volatility, rising inflationary pressures and potentially a significant reduction in global GDP if prolonged."

This latest confrontation comes amid continued US-Iran tensions around another vital waterway, the Strait of Hormuz, which has been effectively closed for weeks since the US and Israel attacked Iran, with numerous ship attacks and seizures. Together, these conflicts signal a broader shift in international shipping, as major powers become increasingly willing to vie for control of global shipping lanes, raising questions about whether long-standing international laws governing the world's seas are beginning to unravel.

Developments at the Panama Canal

In a joint statement Tuesday with Bolivia, Costa Rica, Guyana, Paraguay, and Trinidad and Tobago, the US condemned what it called "China's targeted economic pressure" and actions "affecting Panama-flagged vessels." The countries accused China of detaining Panamanian ships at its ports, calling this a "blatant attempt to politicize maritime trade and violate the sovereignty of nations in our hemisphere."

China rejected the accusation. On April 29, Chinese Foreign Ministry spokesman Lin Jian said the US allegations are "completely unfounded and distort reality," questioning: "Who occupied the Panama Canal for a long time, invaded Panama militarily, and trampled the country's sovereignty and dignity?" He argued that "it is the US that has politicized and securitized the port issue."

Panamanian President Jose Raul Mulino welcomed solidarity from friendly nations but sought to defuse tensions, stating: "We do not want to be drawn into controversy and value respectful relations with all countries."

Origins of the crisis

In January, Panama's Supreme Court canceled the long-standing concession contract of a Hong Kong-linked company to operate the ports of Balboa and Cristobal. The decision came amid continuous US pressure on Panama to limit Chinese influence around the canal. US President Donald Trump repeatedly hinted that the US could regain control of the Panama Canal, accusing China of managing the strategic waterway without evidence.

China criticized the Panamanian court ruling, claiming Panama had "voluntarily submitted" to a major power. Since then, Washington has accused Beijing of detaining or delaying dozens of Panama-flagged vessels. According to the US Federal Maritime Commission, detentions of Panamanian ships have "soared, far exceeding historical averages" since the ruling. US Secretary of State Marco Rubio described China's actions as "bullying."

Other maritime crises

The Panama Canal dispute coincides with a broader erosion of maritime rules, particularly at the Strait of Hormuz. Tensions there have severely disrupted global energy markets since the US and Israel began bombing Iran on February 28. Tehran responded by closing the strait, which carries one-fifth of the world's oil and liquefied natural gas (LNG), sending oil prices soaring. Iran then began charging fees for passage through the strait, an unprecedented move.

Despite a fragile ceasefire, the US imposed a naval blockade targeting Iranian ships and ports. Approximately 2,000 vessels are stranded at both ends of the strait, while others have been rerouted, attacked, or seized. Last week, Iran captured two foreign container ships and fired on a third. Two days earlier, US forces seized the Iranian container ship Touska near the Persian Gulf.

Is this the 'new normal'?

Abdul Khalique, a professor at Liverpool John Moores University in the UK, argued that "increased geopolitical competition" is "spilling over into maritime chokepoints," creating "higher underlying risk, politicized shipping lanes and more frequent disruptions to trade flows and global insurance markets."

James Kraska, Charles H Stockton Chair of International Law at the US Naval War College, was more optimistic. He said the Strait of Hormuz crisis is "unlikely to become a permanent feature of global shipping" and could be resolved through negotiation, thanks to strong international opposition to the closure of major sea routes. Regarding the Panama Canal, he noted the canal operates under legal regimes entirely different from natural straits.

Khalique, on the other hand, pointed to signs that governments and businesses "have already adapted pragmatically: diversifying supply chains, adjusting risk premiums, increasing naval coordination and investing in alternative routes." Stephan Maurer, a professor at UPF Barcelona School of Management, warned that the consequences of disruption or closure of the Panama Canal "could be very severe, depending on the degree of disruption," hitting South American countries, the US, and Canada hardest.