Larger Nicaragua Canal Looms Over Panama

Panama's greatest fear, other than the rise of another Manuel Noriega or of a somewhat lesser risk, the return of another Mussolini-like Ricardo Martinelli, is the threat of competition to its world-famous and immensely lucrative Canal (revenue of about two billion US dollars or so each year).  And who uses this "Eighth Wonder of the World" the most are the world's larger ships. Not the biggest ones, mind you, because they are too big to fit into it. 

That's why Panama embarked a couple of years ago on a second canal that's going to cost the country 5 or 6 billion dollars, assuming they can finish the thing after the people building the locks suddenly said they needed tons more money because they lied about the building costs in order to get the contract in the first place. 

Putting all of that aside for the moment, here's Panama's main problem. It seems that it ain't gonna be big enough. There's this company called Maersk that happens to make humongous container ships, the world's biggest, and they just happen to be the just about the world's largest shipping company. And there's been floating around this idea to build a really big canal that will not only handle these biggest of the biggest container ships, but is also about 800 kilometers further north to where everything goes, so much further in fact that it's, unfortunately, not in Panama but in Nicaragua. 

Well, there goes the ball game. Maersk has decided to throw its considerable weight behind the idea of building the Nicaraguan Canal, a project that has until now been surrounded by distrust from the outside world and, not at all the least, from its competitor in Panama. This represents the first time that one of the world's shipping carriers has publicly voiced its support in favor of the colossal construction project.

"Building a Nicaragua Canal seems to make good sense. The canal is projected to have room for the biggest ships, while also saving 800 kilometers on a journey from New York to Los Angeles. We generally support infrastructure improvements. It brings improved opportunities for transport, and thus trade. When we built container ships 20 years ago they were scaled according to the Panama Canal, but the ships today are bigger than the 4,500 ton that could fit on the biggest ships back then. Even after the expansion of the Panama Canal, the biggest ships won't fit there," says Keith Svendsen, Head of Daily Operations at Maersk Line. He adds that there is currently a waiting period for sailing through the Panama Canal, and that the expansion of the canal - expected finished in early 2016 - will only make it possible to handle ships of up to 336 meters. Maersk Line's new Triple-E series clocks in at 400 meters, and estimates in the maritime community say that this magical barrier will soon be breached, so that ships will become even longer.

The Nicaragua Canal will be three times the length of the Panama Canal, and - according to plan - the new canal will cross the major Lago de Nicaragua, one of the largest freshwater reservoirs in the region, a fact that has led to criticism from various environmental organizations.

The somewhat unknown Chinese business man and investor Wang Jing, backed by several state-owned Chinese companies, has managed to win the 50-year concession for the canal, which is estimated to have a construction cost of USD 40 billion in 2014-prices. Estimates say that the feasibility studies alone are approaching a price of around USD 1 billion.

Meanwhile, as Russia continues to take strategic initiatives that put the United States on the defensive, Russian President Vladimir Putin has teamed up with China to help construct the new canal, giving Moscow an even greater foothold in Washington’s area of influence. The prospect comes as Moscow not only intends more massive arms sales in Latin America but, is also moving to establish a base in Nicaragua besides using existing facilities for refueling for aircraft and port calls for Russian warships. (In addition to Nicaragua, Moscow also is looking to establish bases in Cuba and Venezuela.)

The establishment of permanent Russian bases and a major Russian presence in the Western Hemisphere will challenge U.S. policies and threaten to diminish Washington’s influence in the region. And like a repeat of events leading up to the 1962 Cuban missile crisis, it will give Moscow a basis to stage offensive weapons in the Western Hemisphere, placing another formidable challenge to U.S. homeland defenses from potential missile threats. “The Russian Federation considers itself to be a global power that is active everywhere and that, whatever Russia’s leadership might publicly claim, is challenging the United States anywhere that it can,” said Stephen Blank of the Washington think-tank Jamestown Foundation. “One such arena is Latin America,” Blank said. “Even as the Ukrainian crisis rages, Moscow is steadily trying to increase its profile throughout the Western Hemisphere.” And Moscow’s Latin American focus for establishing a base will be Nicaragua. 

The current plan is that China would do the construction while Russia would provide security and take on other yet undefined roles in connection with the canal. In bringing in the Russians, Chinese businessman Wang Jing, who has a concession to build the canal in Nicaragua, also is said to hold a concession to build a deep water port in Crimea, a strategic area of Ukraine which recently was annexed to the Russian Federation. According to Blank, Nicaraguan opposition deputy Eliseo Nunez Morales said that the planned Nicaragua Grand Canal project doesn't have a “declaration of neutrality.”

In the event of a conflict, the maritime route would not remain neutral. In addition, the canal concession also allows for the establishment of a military base. “Therefore, granting Russia the security concession could be a cover for a military base, which, in turn, would afford excellent cover for the introduction of a host of covert agents and programs and for laundering criminally obtained profits,” Blank asserted.

Several of the biggest Western infrastructure companies are also working to evaluate the key elements necessary to realize the Nicaraguan project. American McKinsey is looking at the finances of the project. Australian mining company MEC Mining is reviewing the scope of the digging work through the country's jungle, while British ERM is handling the environmental consequences, and consulting engineers SBE, of Belgium, will present a proposal for the dimensions of the massive water locks necessary to realize the project.

Panama's economy over the last few years has been amazing, making Panamanians the second richest in all of Latin America (Only Chile has a higher per capita income). Most of this wealth has come either directly or indirectly from the ships that use the Panama Canal. Even with the new Canal expansion, the world's largest ships will still not be able to cross the middle of Central America. If the Nicaragua Canal is built, those ships will use it instead. Panama will face competition in an area it can not compete. Add the fact that by mid-century, because of global warming, even ordinary shipping vessels will be able to navigate previously inaccessible parts of the Arctic Ocean, and the future of Panama and its Canal may not be as robust as in the past.