Maritime Affairs Program (MAP) Handbill Spotlight

The clearest and most direct maritime impact of El Niño occurs at the Panama Canal, whose operations depend on freshwater from Gatún and Alajuela Lakes. When El Niño leads to reduced rainfall and falling reservoir levels, the Panama Canal Authority may need to reduce the number of vessels allowed to pass through or lower maximum draft limits, requiring ships to carry less cargo. Since the canal handles approximately 5% of world trade and connects around 1,700 ports in 160 countries, these operational restrictions can significantly reduce available capacity through the canal, particularly on its major trade routes between Asia and the U.S. East and Gulf coasts. 

Recent Events

On September 10, the U.S. National Oceanic and Atmospheric Administration (NOAA) substantially raised its expectations for the developing 2026–2027 El Niño, estimating a greater than 90% chance that it will become “very strong” during the Northern Hemisphere fall and winter. The developing event had even been described as a “Super El Niño.” 

The effects are already visible at the Panama Canal. Between May and August, El Niño-related dry conditions left rainfall in the canal watershed 34% below the historical average, while inflows into its reservoir system were 44% below normal. In response, the Panama Canal Authority reduced the number of available daily transit slots to 34 in early September and then to 32 beginning September 15. The Authority has also lowered the maximum authorized draft for Neopanamax vessels from the normal 50 feet to 48 feet, forcing some vessels to carry less cargo. 

These restrictions are arriving at a time when demand for canal access is already unusually high. Disruptions in and around the Strait of Hormuz have constrained Middle Eastern energy shipments, prompting international buyers to reroute cargoes and seek more oil and gas from alternative suppliers, including those in the Americas. In April, as curtailed traffic through Hormuz boosted demand for U.S. supply, U.S. LPG exports reached a record 3.3 million barrels per day. 

As Asian demand for alternative energy supplies became more urgent, cargoes moving from the U.S. Gulf and the wider Atlantic basin to Asian markets began using the Panama Canal more frequently. Under normal market conditions, many crude shipments would instead travel on fully loaded very large crude carriers around South Africa’s Cape of Good Hope. The urgent need to secure supplies has made Asian buyers more willing to use smaller or partially loaded tankers and pay the additional cost of the shorter Panama route, increasing the number of tankers and gas carriers competing for limited transit slots. For example, in September, an LPG carrier reportedly paid more than $5 million as an auction premium for a single canal reservation.

Keep In Mind

El Niño’s direct effects on shipping are regional rather than global. Its effects vary substantially by region, depending on how changes in rainfall, storms, and temperature interact with local geography and infrastructure. As a result, its effects may remain limited across much of the global shipping network while becoming particularly severe at exposed chokepoints such as the Panama Canal.

The current pressure on the canal also demonstrates how climate and geopolitical risks can reinforce one another. Although disruptions in the Middle East remain the primary driver of the current rise in transit premiums and freight costs, El Niño is tightening Panama Canal capacity at precisely the wrong time. Geopolitical disruption is redirecting more energy cargoes toward the canal, while drought is reducing the number of vessels it can accommodate. By adding another constraint to an already disrupted shipping network, El Niño will place further upward pressure on international shipping costs and delivered energy prices, potentially intensifying inflationary pressures across the global economy.

The key period for assessing whether El Niño will cause more severe disruption to the Panama Canal and the wider shipping market will be late 2026 and early 2027. The current El Niño is expected to peak between November 2026 and January 2027, with China expecting the largest on record, overlapping with Panama’s December-to-April dry season. The existing restrictions are a response to below-normal rainfall, but they are also intended to preserve water ahead of potentially more difficult conditions. If El Niño remains strong and reservoir inflows continue to decline during the dry season, the current measures may prove to be only an early warning of more severe constraints. The Panama Canal Authority is already projecting a 5% decline in transits in 2027. The full impact of El Niño on Panama Canal operations is probably yet to come.