SHIPPING has spent the past few years grappling with the compound interest of successive geopolitical shocks. But it is becoming increasingly clear that climate may prove just as disruptive.

The industry is still absorbing the consequences of the Iran war, which has curtailed Middle East Gulf energy exports and disrupted trade flows through the Strait of Hormuz and Bab el Mandeb. At the same time, a strengthening El Niño is emerging as a second systemic threat, one that could amplify congestion, reshape commodity demand and further tighten vessel availability across multiple sectors.

The warning signs are already visible in Panama.

The Panama Canal Authority’s decision to cut daily transits from 36 vessels to 32 by mid-September marks a significant escalation in its response to worsening drought conditions. Rainfall in the canal watershed is running sharply below normal and forecasts now point to a very strong El Niño persisting far into early 2027. Auction prices for priority transits have surged to record levels, while vessels without reservations face delays measured in weeks rather than days.

What makes this episode different from the canal’s most recent drought crisis is the backdrop against which it is unfolding. In 2023 and 2024, Panama’s restrictions emerged largely as a standalone disruption. Today they arrive when global shipping networks are already under strain from Middle East instability and the large-scale reordering of energy trade.

The interaction between geopolitics and weather matters.

As Middle East exports become less reliable, long-haul energy shipments from the US Gulf and elsewhere are taking on greater importance. Many of those cargoes move through Panama. Any reduction in canal capacity therefore reverberates far beyond the immediate queue of waiting vessels.

Meanwhile, the same weather patterns threatening Panama are also reshaping commodity demand. Drought conditions across parts of Asia are reducing hydroelectric output just as power systems seek alternatives to disrupted energy supplies. India and Vietnam have already experienced significant declines in hydropower generation, reinforcing reliance on coal-fired generation. That is supportive for seaborne coal demand and adds another layer of demand for bulk shipping.

Extreme weather can also become a freight rate catalyst in its own right. Lower river levels, canal restrictions, port closures, flooding and storm-related congestion all reduce effective fleet supply by slowing vessel turnarounds. When these disruptions coincide with strong cargo demand, freight markets tighten even without substantial changes in fleet size.

For shipping, the lesson is increasingly clear. The industry’s biggest risks no longer fall neatly into either geopolitical or environmental categories. Climate events and geopolitical crises are interacting in ways that compound disruption. If the Iran war has demonstrated the vulnerability of energy supply chains, El Niño may demonstrate how vulnerable the transport system itself has become. The result is a shipping market entering another period where scarcity, not efficiency, is driving earnings.

Richard Meade
Editor-in-chief, Lloyd’s List

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