Panama Canal
Cargo ships wait in Panama Bay for transit through the Panama Canal. Agustin Herrera/Associated Press

The Panama Canal is battling one of the most severe droughts to ever hit Central America, and is set to deal the country a strong economic blow.

The drought, which began last year, has forced authorities to cut Panama Canal ship crossings by 36%. According to Ricaurte Vásquez, the Panama Canal administrator, the drop in traffic will cost the counrty between $500 million and $700 million in revenue in 2024 — much more than the $200 million originally estimated.

"It's vital that the country sends a message that we're going to take this on and find a solution to this water problem," he said.

This disruption has caused chaos along the 50 mile trade route. As vessels continue to wait to cross, the situation has raised concerns on the canal's reliability for international shipping and its effect on global trade.

The forced drop in traffic capabilities couldn't come at a worse time for global trade, as another key route in the Red Sea has been affected by geopolitical tensions. Attacks on commercial ships by Yemen's Houthi rebels have impacted a trade in the area as well. The combination is having extensive effects on global trade by delaying shipments and raising transport costs.

Vásquez believes that the drop in traffic is necessary and that more efficient water management and the jump in rainfall in November should keep the canal sustained until the end of April, just in time for the next rain season.

Canal authorities believe the drought is a product of the El Niño weather phenomenon and climate change. The El Niño phenomenon causes below- normal precipitation for Panama.

The drought is not only affecting the canal but also Panama's citizens. Canal authorities warned it was urgent for Panama to seek new water sources, as canal water comes from the same lakes that provide water for over half of the country.

"The water problem is a national problem, not just of the Canal," Vásquez said. "We have to address this issue across the entire country."

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