Panama Approves Third Canal Lake Project to Tackle Droughts and Secure Waterway Future

Panama Canal Authority

$2 Billion Indio River Lake to Boost Resilience Against Climate Shocks

The Panama Canal Authority (ACP) has approved a $2 billion project to construct a third lake, aiming to strengthen the canal’s resilience against severe droughts. This new dammed lake, spanning 500 km² on the Indio River, will support the existing Gatun and Alajuela lakes. Recent droughts, intensified by the El Nino weather pattern, forced Panama to drastically cut canal transits in 2023 and 2024.

Project Details, Timeline, and Ongoing Challenges

Building the Indio River lake will take five years, offering water security for at least the next 50 years, according to the ACP. However, the canal may still face at least one more period of transit restrictions due to drought before the improvements are fully realized. The canal usually sees 36 transits per day, but this fell to 22 during last year’s crisis. A rebound in rainfall since July has allowed the ACP to restore transit levels, though the long-term threat from climate volatility remains.

Legal and Social Hurdles Complicate Expansion

Previously, legal restrictions blocked new reservoirs until Panama’s supreme court expanded the canal authority’s jurisdiction to include the Indio River basin. The project now faces resistance from about 2,500 local residents, mainly farmers, who oppose forced relocation and demand fair compensation. Intense negotiations continue, with rights organizations backing the residents’ cause. Meanwhile, geopolitical tension has emerged after former US president Donald Trump claimed the canal is controlled by China. Panama’s president, Jose Raul Mulino, has reaffirmed that the Canal Authority—an autonomous government agency—manages the waterway, not any foreign entity.

Panama Rejects Trump’s Demand for Free US Canal Access

Panama president, Jose Raul Mulino

Tensions Rise Over Control of Strategic Trade Routes

Panama's president, Jose Raul Mulino, firmly rejected US president Donald Trump's demand for free US military and commercial access through the Panama Canal. Trump, during an address on 26 April, asserted that the US deserves free passage, citing America's historic support in the canal’s construction.

However, Mulino clarified that the Panama Canal Authority (ACP), an autonomous entity, solely governs transit operations and fees. “The neutrality treaty and the organic law of the Panama Canal regulate all ship transits,” he stated. Mulino emphasized that no alternative agreement exists that would permit such free access.

The US and Panama jointly managed the canal until it was officially handed over to Panama in 1999. Since then, Panama has independently operated the canal under international law.

Trump's Renewed Focus on Canal Control

Trump’s recent remarks align with his broader agenda of challenging Panama's ownership of the strategic waterway. He reiterated claims that China holds undue influence over the canal's operations, an accusation he made both before and after assuming office in January.

Earlier this month, US Defense Secretary Pete Hegseth announced Washington’s pursuit of an agreement for increased warship access through the canal. Currently, US shipping lines account for 74% of the cargo volume passing through the canal, followed by Chinese lines at 21%, according to the ACP.

Moreover, Trump declared that the US is “reclaiming” the canal following BlackRock's announcement of plans to purchase two ports flanking the canal from Hong Kong-based CK Hutchison. Yet, Mulino denounced Trump’s claim as entirely false, defending Panama’s sovereignty and national dignity.

Rising Geopolitical Tensions

Meanwhile, Beijing expressed discontent over CK Hutchison’s intended sale, criticizing the move as a "betrayal of Chinese interests." China’s government has confirmed it is closely monitoring the situation, signaling potential diplomatic friction.

The battle over the Panama Canal symbolizes broader tensions in global trade, sovereignty, and geopolitical influence, with the US, Panama, and China all holding strong, conflicting interests.