The Panama Canal Ports Dispute

Infrastructure Concessions as Flashpoints in Great-Power Competition
February 2026 | International Relations & Strategic Studies
Fact Detail
Ports Involved Balboa (Pacific) & Cristóbal (Atlantic)
Concession Holder Panama Ports Company — subsidiary of CK Hutchison (Hong Kong)
Concession Period 1997–2022 (renewed 2021 for 25 years)
Traffic Share ~39% of all Panama container traffic
Workforce ~7,000 employees at the two ports
Arbitration Claim USD 1.5 billion (sought by Panama Ports Co.)
Legal Basis for Seizure Panama Supreme Court ruling — concession unconstitutional (Jan 2026)
Key Actors Panama, USA, China / Beijing, CK Hutchison, Panama Canal Authority

1. Case Study Background
   The dispute over Balboa and Cristóbal ports offers a textbook illustration of how infrastructure concessions in strategically vital locations become instruments of great-power competition. This case study traces the origins of the concession, the domestic legal process that unwound it, and the international consequences that followed.
   1.1 Historical Context
   The United States constructed and operated the Panama Canal from 1904 until its formal handover to Panamanian sovereignty on 31 December 1999 under the Torrijos–Carter Treaties. The transfer included the canal’s operating infrastructure but left terminal port concessions to be awarded through competitive tender.
   In 1997, Panama granted a 25-year concession for Balboa and Cristóbal terminals to Panama Ports Company, a local entity incorporated as a subsidiary of CK Hutchison Holdings — the Hong Kong-based conglomerate with diversified interests across ports, telecoms, retail, and energy. The concession was renewed in 2021 for a further 25 years, despite an audit by Panama’s Comptroller-General alleging financial irregularities and significant lost revenues to the Panamanian state.
   1.2 Strategic Significance of the Ports
   Panama itself is not a major exporter or importer of goods. Its value in global trade logistics derives entirely from the canal. The Balboa terminal on the Pacific side and Cristóbal on the Atlantic together handle approximately 39 percent of all Panamanian container traffic. Thousands of cargo vessels transit annually, most carrying goods destined for onward redistribution — to South American markets, Caribbean ports, or back across the Atlantic.
   Critically, the canal also accommodates US Navy warships, making it a dual-use asset of considerable strategic sensitivity. Both ports sit at the literal entrances to the waterway. For the United States, having a company with corporate ties to Hong Kong — and therefore potentially subject to influence from Beijing — operating these gateways has long been a source of concern, even absent direct evidence of Chinese state interference.
   1.3 Precipitating Events (2025–2026)
   Pressure on the concession intensified from multiple directions in 2025. US President Donald Trump, even before commencing his second term, publicly accused China of effectively running the Panama Canal — an assertion the Panamanian government firmly rejected. US Secretary of State Marco Rubio made Panama the destination of his first overseas visit as the nation’s top diplomat, delivering an unambiguous message that Chinese-linked port operations adjacent to the canal were unacceptable from a US national security standpoint.
   Panama’s Supreme Court ruled in late January 2026 that the concession to Panama Ports Company was unconstitutional, citing irregularities in the 2021 renewal. Within days, Panamanian authorities physically occupied both terminals and designated interim operators to maintain continuity of port services. Investigators simultaneously removed documentary evidence from Panama Ports Company offices.

Legal Strategy Note
Panama’s use of a Supreme Court ruling — rather than executive cancellation — gave the government legal insulation against the most obvious charge of arbitrary expropriation. Whether this distinction will survive international arbitration remains uncertain, but it reflects a deliberate effort to clothe a geopolitically motivated outcome in domestic constitutional legitimacy.

2. Geopolitical Analysis
   2.1 The United States’ Position
   Washington’s concerns are rooted in a dual-use logic. The Panama Canal is not merely a commercial artery; it is a strategic corridor for the projection of US naval power between the Atlantic and Pacific. From the American perspective, permitting a Hong Kong-linked company to operate ports at both canal entrances creates a theoretical chokepoint vulnerability — the ability, in a crisis scenario, to obstruct, monitor, or disrupt transit.
   The Trump administration framed the issue as part of a broader contest with China over global infrastructure influence, consistent with long-standing US pushback against Beijing’s Belt and Road Initiative port acquisitions in Piraeus, Hambantota, and elsewhere. Rubio’s visit signalled that Panama’s concession policy had become a bilateral irritant of the highest order.
   2.2 China’s Response
   Beijing’s reaction was swift and multi-layered. The office overseeing Hong Kong affairs issued a sharp statement accusing Panama’s authorities of yielding to ‘hegemonic powers,’ and warned of political and economic consequences if Panama persisted. Panama Ports Company simultaneously initiated international arbitration proceedings, alleging investor rights violations and seeking compensation of USD 1.5 billion.
   China’s response illustrates the dilemma facing smaller states caught between competing great powers: the threat of economic retaliation (trade, investment, diplomatic pressure on regional partners) can be just as coercive as military posturing, and often more difficult to resist.
   2.3 Panama’s Position and Vulnerability
   President Mulino’s public response — ‘they need us more than we need them’ — reflected domestic political necessity but understated Panama’s structural exposure. Panama’s fiscal revenues are heavily dependent on canal tolls and port-related economic activity. Any disruption to shipping confidence, insurance ratings for the corridor, or bilateral trade with China carries direct fiscal consequences for a country of just four million people.
   Panama also lacks the strategic depth of larger states. It cannot easily substitute Chinese trade or investment with alternatives, and its leverage over Beijing is asymmetric. At the same time, Mulino’s government has clearly calculated that the benefits of alignment with Washington — in terms of investment, trade, and security guarantees — outweigh the costs of confrontation with Beijing, at least in the near term.

Analytical Framework
This case fits the ‘gray zone infrastructure competition’ paradigm identified by strategists such as Hal Brands. Port concessions, submarine cable landings, and telecoms contracts have become contested terrain in the US-China rivalry short of direct military conflict. Panama represents a case in which a small state’s domestic legal institutions became the mechanism through which this competition was resolved — at least temporarily.

3. Outlook
   3.1 Arbitration and Legal Proceedings
   Panama Ports Company’s international arbitration claim is likely to be pursued through investor-state dispute settlement mechanisms, potentially under bilateral investment treaties or through ICSID (the International Centre for Settlement of Investment Disputes). The government’s use of a constitutional court ruling as the basis for termination complicates but does not eliminate the company’s claim. Precedents from comparable infrastructure seizures — including Sri Lanka’s Hambantota port dispute — suggest these proceedings can drag on for years and result in substantial awards against the seizing state.
   Panama’s Economy Minister Felipe Chapman has acknowledged the company is seeking USD 1.5 billion in compensation. Even if Panama prevails on some grounds, the reputational and financial costs of prolonged arbitration could be significant.
   3.2 The Concession Rebid
   The most consequential near-term development will be the rebidding of the port concession. The composition of the winning consortium will signal whether Panama’s pivot is durable or merely cosmetic. Strong US government pressure to exclude Chinese-linked bidders is anticipated. Candidates likely to receive US encouragement include operators such as DP World (UAE), PSA International (Singapore), and established US or European logistics firms.
   If a Singapore-linked operator such as PSA wins a stake, it would be geopolitically significant — positioning Singapore as a neutral party capable of managing sensitive infrastructure in contested corridors, a role consistent with Singapore’s broader foreign policy posture.
   3.3 China’s Retaliatory Options
   Beijing’s economic leverage over Panama includes bilateral trade flows, investment in Panamanian infrastructure (Panama switched diplomatic recognition from Taiwan to the PRC in 2017), and soft-power instruments. China could reduce or redirect trade routed through Panamanian ports to competitors in Mexico or Colombia. More indirectly, it could apply pressure through Panama’s regional neighbours who depend heavily on Chinese investment, creating political costs for Mulino’s government.
   However, China’s options are constrained by its own interest in a smoothly functioning global logistics network, of which the Panama Canal is an integral part. Direct disruption of canal operations would harm Chinese exporters as much as anyone. This mutual dependence limits the severity of likely retaliation.
   3.4 Precedent Effects
   The Panama case will be observed closely by other small states hosting Chinese-linked port infrastructure — from Sri Lanka to Djibouti, from Greece to the Pacific Islands. It could embolden governments facing similar US pressure to use domestic legal mechanisms to unwind concessions. Alternatively, if arbitration produces a large award against Panama, it may deter others from following the same path. The legal mechanism chosen matters: constitutional court invalidation, as used here, is a more defensible approach than simple executive cancellation.
4. Policy Recommendations and Solutions
   4.1 For Panama
   Pursue a transparent, competitive rebid process for the port concession with clear, publicly stated criteria that are applied consistently across all bidders, including Chinese-linked entities. This limits the political exposure from accusations of discriminatory treatment.
   Engage proactively with the US on a bilateral investment framework that offsets Panama’s economic vulnerability to Chinese retaliation — for example, enhanced access to US trade finance, infrastructure guarantees from the US Development Finance Corporation, or preferential trade terms.
   Invest in diplomatic outreach to regional partners (Colombia, Costa Rica, Mexico) to create a buffer against Chinese pressure on Panama’s neighbourhood.
   Establish an independent, professionally staffed Ports Regulatory Authority to depoliticise future concession management and provide a credible institutional counterweight to political interference from any direction.
   4.2 For the United States
   Avoid publicly dictating which companies should win the rebid, which would undermine Panama’s sovereign legitimacy and hand Beijing a propaganda victory. Instead, provide economic incentives for preferred outcomes through the DFC and EXIM Bank.
   Offer Panama a comprehensive security and economic partnership package — rather than episodic, pressure-driven engagement — to reinforce Panamanian confidence that alignment with Washington is durable and mutually beneficial.
   Use this case to accelerate a multilateral framework for ‘trusted operator’ criteria in critical infrastructure concessions — potentially through the G7 Partnership for Global Infrastructure and Investment (PGII) — that provides smaller states with credible alternatives to Chinese capital.
   4.3 For the International Community
   The World Bank and IMF should develop clearer guidance on infrastructure concession governance for small states, including model transparency requirements, audit mechanisms, and dispute escalation procedures, to reduce the frequency with which concession irregularities create geopolitical flashpoints.
   Regional bodies such as ECLAC (Economic Commission for Latin America and the Caribbean) should develop a Latin American critical infrastructure resilience framework to help member states navigate US-China infrastructure competition with greater collective bargaining power.
5. Impact on Singapore
   5.1 Singapore as a Global Logistics Hub
   Singapore is the world’s second-busiest container port by throughput and the most important transshipment hub in Southeast Asia. The Port of Singapore, operated primarily by PSA International, handles a vast proportion of Asia-Pacific trade. Any disruption to major canal routes, or any reconfiguration of global logistics hierarchies, carries direct implications for Singapore’s economic model.
   5.2 Direct Trade and Shipping Implications
   The Panama Canal is a critical artery for Singapore’s trade with the East Coast of the United States and with parts of Latin America. Disruption to, or uncertainty around, canal-adjacent port operations could affect shipping schedules, insurance premiums, and transshipment patterns. If US-China tensions result in deliberate bifurcation of supply chains — with Chinese goods increasingly routed away from US-influenced chokepoints — Singapore’s role as a neutral transshipment node could be both strained and enhanced, depending on how the geopolitical fault lines settle.
   5.3 PSA International: Risk and Opportunity
   PSA International, a Temasek-linked entity, is one of the world’s largest port operators and a credible bidder for Panama port concessions. A successful PSA bid would be commercially significant and strategically meaningful — positioning Singapore as a neutral, professionally managed operator of sensitive infrastructure in a contested corridor. It would also reinforce Singapore’s brand as a trusted, apolitical logistics partner, a key component of the city-state’s foreign policy positioning.
   However, a PSA bid would not be without risk. Beijing might interpret PSA’s involvement — given Singapore-US economic ties — as effectively a US-aligned outcome. Singapore would need to manage this perception carefully, consistent with its long-standing policy of not choosing sides between major powers.

Singapore’s Strategic Dilemma
Singapore’s entire foreign policy architecture rests on the principle of maintaining productive, independent relationships with both Washington and Beijing. The Panama ports dispute exemplifies the growing difficulty of this balancing act: as great-power competition intensifies, the space for genuinely neutral infrastructure operators narrows. Singapore must be deliberate about how it positions PSA’s bid — if it chooses to pursue one — to preserve its credibility with both sides.

5.4 Precedent for Singapore’s Own Infrastructure
Singapore should also consider the precedent this case sets for its own critical infrastructure. Singapore’s ports, telecoms networks, and financial systems include significant foreign participation. The Panama case illustrates that domestic legal frameworks can be mobilised — sometimes under external pressure — to unwind concessions previously regarded as settled. Singapore’s strong rule of law and institutional independence are the primary defences against such scenarios, and reinforcing these frameworks remains essential.
5.5 Diplomatic and Multilateral Implications
As ASEAN Chair in recent years and a consistent advocate for rules-based multilateralism, Singapore has a stake in the outcome of the Panama case insofar as it sets precedents for international investment law and infrastructure governance. A large arbitration award against Panama would reinforce investor protections Singapore itself benefits from. A ruling that endorses purely political concession cancellations would weaken those protections.
Singapore should use its position in multilateral forums — APEC, G20, the WTO — to advocate for clearer, more consistent international standards governing critical infrastructure concessions, reducing the frequency with which bilateral US-China tensions spill over into the legal frameworks underpinning global trade infrastructure.
5.6 Summary: Key Implications for Singapore
Dimension Implication for Singapore
Trade & Shipping Monitor Panama Canal route reliability; assess transshipment rerouting scenarios if US-China bifurcation accelerates
PSA International Evaluate Panama port concession bid carefully; weigh commercial opportunity against geopolitical optics with Beijing
Foreign Policy Reinforce Singapore’s ‘honest broker’ positioning; avoid being seen as a US proxy in infrastructure competition
Investment Law Support outcomes in arbitration that reinforce investor protections Singapore depends on
Domestic Infrastructure Strengthen institutional frameworks to ensure Singapore’s own critical infrastructure is resilient to analogous political pressures
Multilateral Advocacy Champion transparent, rules-based concession governance frameworks in APEC, G20, and relevant UN bodies

6. Conclusion
   The Panama Canal ports dispute is a microcosm of the defining geopolitical challenge of the coming decade: the growing entanglement of commercial infrastructure with great-power competition. Panama, a small state of four million people, has been thrust into the centre of a US-China rivalry it neither sought nor entirely controls, forced to make a strategic choice that will shape its economic and diplomatic trajectory for years.
   The case reveals the limits of the ‘commercial-only’ framing of infrastructure investment. Ports, cables, and pipelines are not merely economic assets — they are nodes of strategic leverage. As both Washington and Beijing recognise this, the competition for control over these nodes will intensify, and the states hosting them will face increasingly stark choices.
   For Singapore, the lesson is twofold. First, the commercial opportunities arising from this reconfiguration — including potential roles for PSA in contested corridors — are real and worth pursuing, but require careful political management. Second, Singapore’s long-term security depends not on any particular great-power alignment, but on the robustness of the international rules-based order that protects small state sovereignty and investor rights alike. Defending that order, in multilateral forums and in bilateral diplomacy, is therefore both a principled and a strategic imperative.