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Peter Zeihan

Geopolitical Strategist

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Low water levels in Panama Canal could be devastating

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Peter Zeihan

Geopolitical Strategist

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A significant drought has struck the Panama Canal, creating disruptions in international supply chains and posing a potential threat to the upcoming holiday season. The vital international waterway, responsible for connecting the Atlantic and Pacific Oceans, manages about 5% of seaborne trade.

Straight Arrow News contributor Peter Zeihan sheds light on the grim conditions at the historic Panama Canal. Additionally, he offers a strategic solution aimed at easing the fallout from possible future crises.

Excerpted from Peter’s Nov. 14 “Zeihan on Geopolitics” newsletter:

Water levels in the Panama Canal are critically low, and the effects could be devastating. The canal represents one of the world’s most important trade routes and plays an essential role in the U.S. trade system.

Ship traffic in the canal has already fallen by 25%, and throughput capacity has been cut in half. This drought will only worsen as an intense El Niño winter rolls through.

Although there aren’t any great short-term solutions, this should be the kick in the ass the U.S. needs to reshore processing. Outside of mitigating future disruptions, everyone using the Panama Canal will just have to ride this wave (or use longer and more expensive routes).

Hey, everybody, Peter Zion here coming to you from above Denver and the tase topic is the Panama Canal and the impact on trade. Now that’s largely shut down or partially shut down. But before we get to the bad news, let’s cover some good news, I do have good news from time to time, we have had another matching sponsor come in, added another $10,000 to the match. So if you would like to donate to med shear, which is a charity that provides medical assistance to communities who cannot look after themselves for reasons that are not their fault, specifically, the Ukraine fund where the Russians have started bombing the power grid and attempt to kill as many civilians over the winter as possible, now is the time because the first $90,000 that is donated to the link were in the QR code that we’re attaching to this and all of our videos for the foreseeable future are going to be doubled for the month of November. So up to 90,000. I mean, basically, you’re doubling your money. That’s a better financial proposition than Bitcoin, in my opinion, but you know, buy guns. Anyway, now is the time, so please be generous. We’re doing everything we can the money is rolling in, it’s looking very positive, but every little bit helps. Okay, with that behind us, now, let’s talk about Panama. It hasn’t rained really in Panama in several months, they are in the middle of the most intense El Nino on record. And unlike most canals, that you know, go up and over and therefore have on continental lands. And so I have lots and lots of water to draw from Panama is going from ocean to ocean sea level to sea level and has to go up a few 100 feet. And which means that aside from the first and last lock, which touched the ocean, everything else is water that comes from the sky, and it is a business so and so there’s not a very large water catchment issue. And that catchment issue also has to supply all of the water for the city of Panama, which is about home to three quarters of the population of the country. So you get a prolonged drought event like they’re in the middle of and things are bad, if anything is worse than it sounds. Because we’re supposed to be in the middle of a wet season. Right now the dry season starts in about six to eight weeks. And so they know that this is going to get worse before it gets better. And the probably gonna have to wait till the next wet season, which isn’t gonna start until the beginning of next summer. In the meantime, the number of ships transiting the canal have already dropped by over a quarter of the ones that are still going through, they’ve had to reduce their draft by about a quarter, which means that the amount of weights that they can carry is reduced by about 40%. So the bigger ships aren’t going in at all the smaller ships are carrying less. And it adds up to very, very roughly ish, a 50% reduction in the throughput capacity of the canal. Now for the United States is kind of a big deal. This is the piece of international infrastructure that we use by far the most. Even more than the big bridge over the Great Lakes going to Canada, about 6% of global trade transits the canal. Most of that trade is from the United States very heavy in the commodity space, energy and especially foodstuffs, going from the Mississippi in the East Coast, into Panama and then crossed the Pacific, the alternative route is a few 1000 miles longer it crosses the Atlantic into the Mediterranean through Suez around India, and then up to East Asia. Much more expensive route takes couple weeks extra it’s not the best solution even you want to consider the extra costs. I keep in mind that really it all it takes is one Filipino crew on a container ship throwing a party at the wrong time in the middle of the canal and the ship can get stuck. And then that shuts down to there’s not a lot that anyone can do here building up the alternative infrastructure to ensure a backup water supply would require a few billion dollars and several years and you would still have to wait for it terrain to fill up those reserve reservoirs. So really all we can do here is wait about the only thing that I could suggest and this is something that I think it’s high time we do anyway, is for the United States to massively expand its production footprint in the processing of the raw commodities that exports not only would you then have a much denser value ratio to wait in bulk for the things that you export, but there’d be a lot more economic activity generated within the continental United States as well before even get to the export component. Anyway, that’s my two cents. That’s all I got for day everyone. Take care

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