PANAMA CANAL 

A recent drone attack on a chemical tanker in the Red Sea, coupled with ongoing unrest in the Suez and Panama canals, raises concerns about a turbulent start to global goods trade in 2024. This perfect storm comes amidst slowing Western demand and China's property crisis, casting a shadow on the already shaky economic landscape.

• The Panama Canal is a 51-mile waterway in Panama that connects the Atlantic and Pacific Oceans. It's considered one of the most impressive engineering feats in history, shortening the shipping distance between these two oceans by 8,000 miles. Construction began in 1881 by the French and was completed by the United States in 1914.
• The canal operates using a system of locks that raise and lower ships between different water levels. Ships enter the canal at either the Atlantic or Pacific end and are then guided through a series of three locks, each raising the ship 26 feet until it reaches Gatun Lake, the highest point of the canal. From there, ships travel through the Gaillard Cut, a man-made trench carved through the mountains, before descending through another set of three locks to reach the other ocean.
• The Panama Canal is vital for global trade, as it allows ships to avoid the long and dangerous journey around South America via Cape Horn. It's estimated that the canal saves the shipping industry billions of dollars in time and fuel costs each year.
• The construction of the Panama Canal had a significant impact on the environment, including the displacement of indigenous communities and the destruction of rainforests. However, the canal also offers some environmental benefits, such as reducing greenhouse gas emissions by shortening shipping distances.

3. How the Red Sea and Panama Canal Crises Threaten Global Trade?

• Shipping via the Panama Canal has experienced a significant decline exceeding 50%, primarily attributed to drought conditions along the 51-mile stretch of the canal. The shortage of water has compelled ships travelling from Asia to the US to opt for the Suez Canal, resulting in a longer transit time of six days compared to the Panama Canal.
• Panama is grappling with one of its driest rainy seasons in decades, heightening concerns of prolonged canal bottlenecks. This climatic challenge has further exacerbated the impact on shipping through the canal.
• Facing constrained water levels, LNG vessels are resorting to expensive auctions to fast-track their transit through the Panama Canal. Reports from S&P Global indicate that one vessel paid nearly $4 million for an open slot in an auction held in early November.
• The number of Very Large Gas Carriers transiting the Panama Canal is expected to decrease by almost half by February 2024. Moreover, there are growing concerns that these transits might dwindle to zero by January, indicating a challenging outlook for maritime traffic through this crucial waterway. The interplay of environmental factors and economic implications underscores the pressing need for strategic interventions to mitigate disruptions and uphold the efficiency of global trade routes.

5. Resilience of Indian Oil Flows Amid Red Sea Disruptions