Panama ports deal in jeopardy as U.S.-China proxy battle over strategic canal intensifies

Hong Kong’s CK Hutchison Holdings has threatened legal action against Danish shipping giant A.P. Moller-Maersk after Panamanian authorities tapped the group to temporarily take over operations of two strategic ports at either end of the Panama Canal.

In a statement on Thursday, CK Hutchison warned A.P. Moller-Maersk that “any steps” the Danish group or its subsidiary takes to operate the ports without its agreement will likely “result in legal recourse.” That’s according to CNBC’s translation of the Chinese statement.

The simmering dispute has become a geopolitical flashpoint between Washington and Beijing, with Panama caught in the crossfires.

After U.S. President Donald Trump alleged last year that China was “running the Panama Canal,” CK Hutchison negotiated a $23 billion deal with a BlackRock-led consortium to sell its non-Chinese port subsidiaries. Beijing swiftly intervened, describing the sale as  “kowtowing” to American pressure and stalling the transaction.

Tensions intensified last month when Panama’s Supreme Court ruled that the concession held by a CK Hutchison subsidiary to operate the two ports was “unconstitutional.” The company pushed back, saying it “strongly disagreed” with the ruling and launched arbitration proceedings against Panama.

CK Hutchison on Thursday also said it had notified Panama of the dispute under an investment protection treaty, saying it would pursue “all available recourse including additional national and international legal proceedings.”

APM Terminals, the Maersk subsidiary asked to take over the ports, reportedly said it was not party to the legal dispute and had only offered to step in temporarily “to mitigate the risks that could affect essential services for regional and global trade.”

Maersk shares fell over 3% in Copenhagen on Thursday.

The stakes around Panama ports have risen sharply this year. The Panama court’s ruling was seen as a major victory for the U.S., given that the White House has made blocking China’s influence over the global trade artery one of its top priorities.

In its strongest rebuke yet, Beijing warned on Wednesday that the Central American country “will inevitably pay a heavy price both politically and economically,” unless it changes course. Beijing’s Hong Kong and Macao Affairs Office called the court ruling “logically flawed” and “utterly ridiculous.”

China also directed state firms to halt talks over new projects in Panama and asked shipping companies to consider rerouting cargo through other ports, Bloomberg reported last week.

The standoff may prove more manageable for Washington than it appears, according to Reva Goujon, a director at advisory firm Rhodium Group. The U.S. retains significant leverage through its treaty with Panama, which could allow it to defend any intervention on national security grounds, she said.

But Beijing has claimed a partial victory, by derailing Washington’s initial plans to acquire CK Hutchison’s global port holdings outright, Goujon said.

China needs to make the U.S. “clawback in Panama as difficult as possible to avoid setting a precedent,” Goujon said, noting that Chinese state-owned shipping giant Cosco’s Chancay port in Peru — a key infrastructure investment by Beijing in Latin America — is also in U.S. crosshairs.

The U.S. has raised sovereignty concerns over the port of Chancay, a deep-water facility near Lima. In a post on X on Thursday, the U.S. State Department’s bureau of Western Hemisphere Affairs said Peru could be “powerless” to oversee the critical port which was “under the jurisdiction of predatory Chinese owners.”

For CK Hutchison, the lawfare will likely end in vein, analysts and law experts told CNBC.

“There’s little CK Hutchison can do even with behind-the-scenes support from Beijing,” Peter Alexander, managing director at Z-Ben Advisors.

Any legal claims — including wrongful interference with property — will ultimately hinge on whether CK Hutchison’s port concession is considered “live” or formally terminated, said Shahla Ali, a professor specializing in arbitration laws at the University of Hong Kong.

The duration of Maersk’s control over the ports will also be scrutinized, said Ali, who views the recent legal notice as “a deterrent” to keep the door open for further negotiation.

The Panama canal — a crucial trade passage that links the Atlantic and Pacific – handles roughly 40% of all U.S. container traffic each year. CK Hutchison’s subsidiary, Panama Ports Co., has operated them since 1997 and received a 25-year agreement renewal in 2021.

The canal was built in the early 20th century by the U.S. which operated it for decades before handing full control to Panama in 1999.

Analysts expected the dispute to drag on, potentially straining U.S.-China relations, already frayed by one year of tariff tensions, Beijing’s tightened grip on rare earth exports, disputes over Taiwan and Washington’s restrictions on tech exports.

CK Hutchison said Thursday that the continued operation of the two ports “depends solely on actions of the Panama Supreme Court and the Panamanian State,” which it cannot control.