AMOC and the Dollar – Shutting Down the Panama Canal and Freezing Europe

At its core, weather is the transfer of energy from one location to another. Changes in the Global trends can be very disruptive as the local trends are built on top of them. Recently three headlines caught my eye because they all supported the discovery of a major global shift in thermal energy. I am not writing to discuss climate change or possible reasons for climate change. I am writing to explore financial events that you should look for if these recent measurements support the conclusions that the AMOC is weakening.

What is the AMOC
The AMOC stands for Atlantic Meridional Overturning Circulation and is the “engine” for a conveyor belt of ocean currents that regulate the Atlantic’s temperature. To be more precise, a portion of the warm waters from the gulf stream break away from Northern Europe towards Greenland and are then cooled by the glaciers. The cooled water becomes denser than the surrounding water, falls rapidly to the ocean floor and initiates a deep ocean current in a more southerly path carrying cooler temperatures and oxygen. At the other end of this conveyor belt, waters are forced up from the sea floor and nutrients are brought up along with cooler waters to then travel along the ocean’s surface currents.

At a very basic level, the benefits of these two-level conveyer belt current systems are that they bring oxygen down into the deeper waters, bring nutrients up to the surface from the ocean floor and help regulate ocean temperatures. The oxygen / nutrient elevation trade supports an unimaginable amount of life, but it’s the effects of the small ocean temperature shifts that we will probably feel first in our weather across North America and Europe.

What is the “Cold Blob?”
Where the warm gulf currents intersect the glaciers in Greenland and the actual AMOC occurs, it is common for there to be a cold spot on the surface temperature map of the Atlantic. The cool spot on the map is called the “cold blob” by the press because it sounds more monstrous, but a growing cold blob is definitely something we want to pay attention to.

Is a Growing Cold Blob Worrisome?
As the cold blob becomes larger on the map than expected, it is seen as an indicator of a slower AMOC and accelerated global warming. The concern is that if too much glacier melt occurs, the cooling areas for the Gulf Stream current in the Atlantic will be flooded with less dense freshwater and the newly formed brackish water will not sink to the floor of the ocean with the same volume or velocity. This is concerning because less volume and velocity of water means a weaker ocean floor current, and the overall conveyor belt cycle will start to slow down. This overall slowing down of the conveyor belt is also supported by the Western Antarctic ice shelf melting, which is what sparked this article. The real problem is that some of these systems cause reinforcing feedback loops that possibly risk the collapse of the AMOC in shorter timelines. If this all sounds familiar it may be because it was the focus of the 2004 dramatic climate thriller, “The Day After Tomorrow,” where man-made climate change rapidly accelerated arctic glacier melt, halted the currents of the oceans and within 48-hours threatened life on earth. The apocalypse is not where I am headed with this piece, but there are two interesting scenarios that may affect us in the next 6-months IF the measurements of a significant AMOC slowdown have been accurately determined.

Scenario 1 - Lake Gatun and The Panama Canal
The predictions on how a slowing of the AMOC could affect lake Gatun are that it will combine with the El Nino effect and increase the intensity of the drought. Lake Gatun is the lake whose waters feeds the locks of the canal as well as the hydro-electric power plants used to operate the canal. The lake is currently running on a deficit of water and forcing the Panama Canal Authority (ACP) to issue restrictions on the number of ships and the draft of those ships crossing the canal. At the end of September there was an 89 ship “log-jam” waiting to cross, which was down from 160 in August. This additional traffic is based on 30% reduction in allowable ships a day through the canal. When the ships eventually do make the crossing there is also a new depth restriction that reduces some ships cargo by as much as 33%.  Both the depth and the cap restrictions are expected to stand until mid-July 2024 and there is even speculation that the cap will be lowered again in the coming months. The understanding of this problem grows even larger when the economics of the canal are understood.

The Panama Canal is one of the busiest 51-mile shipping lanes in the world. Six percent of the world’s trade passes through it each year, which includes 40% of all US container ships. Of the ships that pass through it, 73% are coming or going from a US port. The cargo traveling through the canal represents about $270 billion dollars a year in goods. Shipping from Shenzhen China is 15% faster through The Panama Canal versus The Suez Canal and currently the average wait time has increased to 2.5 days and is expected to rise. It is easy to understand why the canal is considered to be one of two critical global shipping choke points for a large percentage of the world’s goods.

Why is this a US Economic Concern?
An intensified drought over the next 6-months means that the shipping world and the US consumer market may have to learn how to temporarily live without the use of The Panama Canal. Besides devastating the economy of Panama, this could add another layer of price increases to US goods by forcing them to take more expensive and longer routes by water or even more expensive options by pushing more goods into air and rail cargo. This problem may even be upon us for the pre-Christmas season where it will likely start getting picked up by the press.

Why is this a Conflict Concern?
Some of the more treacherous waters of the world are found in the lower latitudes. The Panama Canal allows most shipments to avoid going around the lower tip of South America and The Suez Canal prevents most shipments from having to go around the southern tip of South Africa. The odds of The Suez Canal shutting down due to conflict are mostly low, but this is definitely not a good time to lose one canal while at the mouth of the other we are looking at the possibility of a prolonged war effort involving the leading global superpowers.

Scenario 2 - UK & European Heating this Winter
Last winter Europe escaped with possibly one of its warmest winters in recent history. This was an extreme stroke of luck as access to cheap Russian gas was no longer an easy option. The problem with this winter is that with a reduction in the AMOC the El Nino weather pattern is more likely to intensify the cooling for Northern Europe from January to March.  

Why is this a US Economic Concern?
This is a bit of a trick question. In the short term the US has “taken steps” to make sure that this energy crisis is something we can benefit from while maintaining the sanctions that weaken Russia. A cold winter could be very tough on Europe and the UK but may be very profitable for the US. Each degree cooler than the average temperature could cost as much as $2.5 billion dollars in additional cooling fees, meaning an exceptionally cold winter could wipe out all possible gains in possible GDP growth for that quarter. Again, this is profitable for the US in the short-term, but in the long-term it could be dangerous to do anything that drains US allies of resources when Europe and the UK combine to be the US’s largest trading partners buying 22% of our exports and providing 15% of our imports.

Why is this a Conflict Concern?
This is also a tricky answer. Globally there is a battle for power as the US protection of global waterways has receded. It has become an East versus West game; with Europe, the UK and the US clearly falling on the West side of the equation. As much as the US may enjoy taking natural gas dollars away from Putin, the US is unfortunately selling their gas for a 70% premium over Russia’s prices and this may be short sighted as it will eventually weaken the businesses of the US dollar’s largest allies. The bigger concerns should be for maintaining the power of the US dollar when it comes to China, Russia and Iran. Anything that hastens the decline of the UK and Europe may hasten the decline of the dollar and sour trade with the US.

What are the odds of economic events from changes in ocean currents in the next 12-months?
It has been reported that the AMOC has slowed down by as much as 15% in the last eight months. It has also been shown in a paper published in the last two weeks that the waters around the Antarctic are warming much faster than expected as well. However, while researching this article I found many of the papers I read had strong qualifying statements as to the shortcomings of the measuring techniques that were used for drawing these conclusions. That said, it does appear that the consensus is that we are in for changes in the weather beyond what we have grown up with and that the weather will be a greater variable going forward than it has been in the past. The degree to which that statement is true is one that is debated by far smarter people than me.

I will leave you with a quote on Mother Nature versus armies.

“Mother Nature is the only true superpower. She can bring down the mightiest empires and humble the proudest of men. Just ask the Germans at Stalingrad.” – Stephen E. Ambrose

Written By: Christopher LaBorde
The Keyboard Chimp

Christopher LaBorde, his wife and their two children, live part time in the Middle East and part time in Louisiana. As a curious engineer and novice researcher that studies a multitude of topics, Christopher always welcomes feedback at Chris@silvertrading.net and www.TheSophisticatedChimp.com. All of Christopher’s writing is made possible by The Silver Trading Company www.SilverTrading.net, please allow us to help you with any of your precious metals needs domestically or abroad.