The Panama Canal Authority (ACP) does not anticipate the expected 2026 El Nino weather phenomenon to materially impact vessel transits at the Panama Canal through the end of the year, but it could create the need for water-saving measures in 2027, according to an update it shared in late May.
The same weather pattern was responsible for the 2023/2024 drought that encouraged the ACP to enact draft restrictions from early 2023 that severely reduced transits via the freshwater canal. This ultimately shifted the Panama Canal from its traditional first-come, first-serve basis to its current pre-booked transit slot/supplemental auctions model.
But the timeline in 2026 is dissimilar to 2023, a year in which the ACP had already enacted its first draft restrictions by 1 March 2023.
These were focused on the largest and newest of the transit locks that lift vessels from the lower sea level into the higher freshwater canal, the Neopanamax locks. Draft restrictions mean vessels need to carry less cargo to sit higher in the water, allowing the ACP to further retain freshwater within the waterway overall. The draft restrictions for these larger vessels steadily increased that year as freshwater levels there steadily declined. But focusing on restricting larger vessels ultimately allowed the ACP to avoid restricting draft for the smaller vessels via the Panamax locks that make up 70pc of all transits via the Panama Canal.
That retention of freshwater is important during droughts, because the man-made Panama Canal itself is responsible for providing over 50pc of the country's population with potable water, according to the ACP.
The ACP reevaluated its operational capacity at the start of the rainy season, which typically begins in May, lasts through June and replenishes steadily declining water levels during the dry season.
"Current data does not forecast the need for transit restrictions through 31 December 2026", the ACP said. "History indicates that the most pronounced impacts of moderate or strong El Nino events tend to be reflected more clearly in the subsequent year. Accordingly, operational projects for 2027 are already being developed."
The ACP highlighted four water-saving measures that had contributed to higher average water levels in the man-made lakes, Gatun and Alhajuela, that feed the freshwater canal enacted in December 2025 alongside a dry season that was "the wettest on record since 1950". These included doubling up on small ships into a single lane when raising them from sea level, use of water-saving basins via the larger Neopanamax locks to effectively recycle some water from exits that would otherwise drain out to the sea, utilizing "interior gates" within the lanes of the locks for vessels smaller than the total size of those lanes to raise efficiency of water usage and the temporary suspension of hydroelectric power generation at Gatun lake, according to the ACP.
El Nino? Or 'El Hombre'
The severity of weather phenomena like El Nino are famously difficult to predict with accuracy, and the 2026 El Nino weather event, if it does occur, could be on par with the 2023 event or even stronger, according to World Meteorological Association (WMO) and the National Oceanic and Atmospheric Administration (NOAA) data.
The WMO estimates an 80pc chance of El Nino developing between June-August 2026, with "near or above" a 90pc chance of persisting until at least November.
"Although some uncertainty remains about El Nino peak strength and timing, most forecast models suggest it will be at least moderate — and possibly strong," the WMO said.
Meanwhile, the NOAA projected in May 2026 that between November, December and January the El Nino had a 37pc chance of hitting "very strong", the highest strength level assessed for the weather pattern. This marked the plurality of all options, with the next highest being "strong" at 30pc probability.
The WMO had previously described the 2023-2024 El Nino as peaking at "one of the five strongest on record".
A return to this level of severity could upend plans by the ACP of avoiding draft restrictions at the Panama Canal through the remainder of 2026, which would have knock-on effects on shifted global trade patterns. Asian buyers have increasingly relied on Atlantic basin supply, and Panama Canal transits, for energy commodities in the wake of the closure of the strait of Hormuz by Iran. Disrupted Panama Canal transits will create strong upward pressure on freight rates across segments, especially if Mideast Gulf flows remain largely cut-off from the global market when drought again grips Central America.
