Failed American Leadership Is Making Panama a Pawn of Our Enemies

I n the past decade, as U.S. investment and diplomatic engagement in Central America waned, China has strategically bolstered its presence in Panama, providing a lifeline for another major U.S. adversary — the Islamic Republic of Iran. Assisted by Panama’s lax regulatory oversight, Iran circumvents international sanctions by smuggling oil, a key revenue source for its nuclear-weapons program, and support to its proxy terror groups such as Hamas, Hezbollah, and the Houthis. The United States must confront this dynamic by holding Panama accountable for enabling the ongoing flow of Iranian oil under its watch.

In November 2020, there were 70 foreign vessels suspected in the illicit transfer of Iranian crude oil and petroleum products. Three and a half years later, that number surged to a staggering 364. Many of the vessels identified employ a deceptive tactic known as “flag-hopping,” whereby seacraft involved in criminal activities change their registered flag to obscure their origins and destinations. While Panama receives an influx of foreign investment from China — by far the top purchaser of Iranian oil — nearly half of all tankers transporting illicit Iranian oil fly the Panamanian flag.

In the case of Iranian oil smuggling, vessels commonly and repeatedly switch or flag-hop their registration to Panama. Today, United Against Nuclear Iran (UANI) reports that 47 percent of the vessels suspected of transporting Iranian oil, primarily to China, did so under the Panamanian flag. China’s ever increasing command and control over Panama will only facilitate ever larger Iranian oil exports.

China has already helped facilitate the transport and ultimate sale of most of the $80 billion in Iranian oil since President Biden took office in 2021, using supposedly “semi-independent” “teapot” petroleum refiners. Ongoing negotiations for a trade agreement between Panama and China, combined with China’s Belt and Road Initiative involving Tehran, provide further avenues for the Iranian regime to evade sanctions.

In 2017, Panama severed ties with Taiwan. The next year, it initiated negotiations to establish a China–Panama Trade Agreement. Concurrently, major Chinese entities began to ramp up their investments in the country, with major telecommunications companies including Huawei, ZTE, and Xiaomi solidifying their presence in Panama. Huawei, in particular, has emerged as a primary user of the Colón Free Trade Zone for regional distribution.

During the Covid-19 pandemic, China donated thermal-sensing cameras to the Panamanian government, which were subsequently installed in strategic logistics areas. Other investment projects include the construction of a fourth bridge over the Panama Canal, the construction of the Amador Pacific coast terminal, and substantial investments in Panama’s mining industry.

All of these developments beg for stronger U.S. leadership, including strengthened enforcement mechanisms against nations that abet the illegal smuggling and sale of sanctioned Iranian oil. Additionally, the Biden administration must apply greater pressure on Panama — using the incentive of enhanced diplomatic cooperation and even foreign aid — to ensure that the critical Central American nation exercises the necessary due diligence to prevent vessels flying the Panamanian flag from facilitating the apparatus that funds Iran’s global terror networks.

The American-built Panama Canal is a lynchpin for shipping in the Western Hemisphere, with 40 percent of all U.S. container traffic passing through its waters every year. However, like nature, geopolitics abhors a vacuum, and when the U.S. fails to back up sanctions with enforcement, it signals to China and Iran that there will be no consequences for the world’s largest flag state — Panama — abetting the illegal transfer and sale of Iranian oil. The fact that Panama ascended to the chair of the U.N.’s International Maritime Authority (IMO) this year provides an additional veneer of legitimacy.

Without the U.S. taking decisive action to restore order and stability, Panama will continue in its failure to exercise due diligence over its flagged vessels. This would allow Iran and other belligerent nations to defy embargoes and fiscally support their nuclear-weapons programs and the terror groups that are now wreaking havoc on the United States and its allies throughout the Middle East. Sanctions are only as valuable as the enforcement behind them, and it is incumbent upon the Biden administration to reassert U.S. leadership in Central America before Panama transforms into a regional Chinese-backed adversary.

Jeb Bush was the 43rd governor of Florida. Mark D. Wallace served as U.S. ambassador to the United Nations for management and reform during the administration of President George W. Bush. They are, respectively, an advisory board member and CEO of United Against Nuclear Iran.