Panama Canal Faces $270 Billion Disaster
Ships that go through the Panama Canal carry about $270 billion worth of cargo annually. In 2023 and 2024, the canal was partially closed due to drought, which backed up dozens of ships for weeks during transit. That, in turn, hampered the supply chain for several industries, which further cost the global economy. The threat of similar trouble could be much worse in the years ahead.
A research paper titled “Drying of the Panama Canal in a Warming Climate” forecasts that drought will further lower the level of Gatún Lake, which provides fresh water to work the canal’s lock system. Climate change, the authors write, will affect the annual rainfall in the area. Without a major change in how the canal is built or a slowdown in global warming, the risk of closures will persist for decades. “Our findings highlight the growing risk to one of the key links in the global supply chain and underscore the need for proactive adaptation or mitigation to maintain canal functionality.”
Oil Supply Chain
It is not possible to forecast the financial effects of a drop in the number of ships that go through the canal each year. However, supply chain restraints usually fuel inflation. Among the most obvious is the transit of ships that carry crude oil. A sharp drop-off in this traffic means supply to net importers of crude will fall. Income for producers will also be threatened.
The Panama Canal can be added to the list of major infrastructures whose functions are being compromised by climate change.
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