What Happened
Panama entered the first quarter of 2026 at the intersection of two major pressures: a global energy shock tied to the war in Iran and a deepening domestic governance crisis that has accumulated over several political cycles. The country’s role in international trade has gained new importance as shipping costs rise, while at home the political system remains marked by fragmentation, inefficiency and public distrust.
The war in Iran, which began on Feb. 28, 2026 after airstrikes by the United States and Israel on several Iranian cities, has shaken markets and alliances. The conflict has also triggered a sharp increase in oil prices after the closing of the Strait of Hormuz, through which more than 20% of the world’s oil passes. Brent crude rose from around $70 to more than $110 a barrel, with analysts warning prices could climb even higher if the conflict drags on.
The Canal Gains Strategic Weight
As fuel costs climb, Panama’s Canal becomes more competitive for shipping companies seeking to reduce travel time and fuel consumption. The waterway offers a shorter and safer route for cargo in a period when navigation costs are climbing, reinforcing its importance to world trade.
That advantage comes alongside risks for Panamanians at home. Higher oil prices are putting upward pressure on transportation, food, electricity and other goods tied to hydrocarbons. At the same time, unemployment remains high, at 10.4%, affecting more than 227,000 people.
Domestic Politics Remain Fragmented
Panama’s National Assembly continues to be described as deeply divided and polarized, with legislative gridlock still a real threat to governance. Problems of inefficiency, excessive spending and questionable hiring practices continue to undermine public confidence in the state.
Political tensions are also shaped by the influence of former President Ricardo Martinelli, who is in exile in Colombia, and by the Odebrecht case, which has implicated Martinelli, former President Juan Carlos Varela and other political figures tied to those administrations.
Corruption, Sovereignty and Public Trust
Panama scored 33 points in Transparency International’s 2025 Corruption Perceptions Index, placing it well below the average for the Americas. That figure reflects long-running frustration over corruption, nepotism and weak accountability since the country returned to democracy in 1989.
Debates over the sovereignty of the Panama Canal and the constitutionality of the Balboa and Cristóbal port concession to Panama Ports Company have also intensified political tensions. Those disputes, along with persistent mistrust in public institutions, have pushed the country further from the neutral posture that has long underpinned its international standing.
For Panama, the first quarter of 2026 underscored a difficult reality: the Canal remains vital to global commerce, but the country’s ability to benefit from that position depends on restoring trust, strengthening institutions and addressing long-standing governance failures.