The battle over who runs the Panama Canal Ports is about to be decided

The case carries the weight of geopolitical competition between the U.S. and China. President Trump has said he wanted to take back control of the canal, which the U.S. built in the early 20th century and handed over to Panama in late 1999. China, meanwhile, has thrown up obstacles to the sale of the canal ports and other assets operated by Hong Kong’s CK Hutchison to a group led by BlackRock and Mediterranean Shipping Co.

A ruling is expected soon.

For Panama’s Supreme Court justices, the political pressure is immense. Allowing Hutchison to continue running the ports risks infuriating the Trump administration and exposes the vulnerability of the tiny Central American nation that uses the U.S. dollar and owes its 1903 independence to American intervention against Colombia.

Private lawyers and Panama’s comptroller filed lawsuits against Hutchison with the Supreme Court alleging the company breached Panama’s constitution by violating the interests of its government and taxpayers. A government audit showed up to $1.3 billion in lost government revenue since Hutchison’s arrival in the late 1990s, when it outbid companies such as U.S.-based Bechtel to win the 25-year license. The license was renewed for another 25 years in 2021.

“Hutchison’s relationship with Panamanian society over the past decades has been very tense and difficult," said Felipe Chapman, Panama’s finance minister, in an interview in Panama City.

Chapman and senior Panama government officials said that they are prepared to carry out the high-court ruling if justices order the termination of Hutchison’s license. A priority would be to ensure continuity of port operations by recruiting a company to manage the terminals until the government opens a new bidding process with new license terms, possibly separating the two ports to maximize value, officials said.

Panamanian President José Raúl Mulino said he would wait and comply with the court’s ruling but suggested last year that the status quo was untenable.

“I don’t see the continuation of the Panama Ports contract at the moment, amended or not," Mulino said in July after the comptroller filed the lawsuits with the high court.

A person close to Hutchison said the company considers the complaint to be politically driven, but that it is awaiting the high-court ruling. The company would take the case to international arbitration panels to protect its investment if justices rule against the company, the person said.

China’s foreign ministry said that it hoped for a fair and nondiscriminatory environment for companies from all countries. If Hutchison is stripped of its license, Beijing would likely look for ways to retaliate. Following the U.S. military raid in Venezuela, China is forming a Latin America task force that will study how to protect its interests in the region, said a person familiar with the plans.

Justices also could hit Hutchison with fines and remedy measures and allow it to continue running the ports. The company can’t appeal a Supreme Court ruling, but it can request clarifications that could delay its execution.

At least 5% of global trade flows through the Panama Canal, underpinning the country’s prosperity relative to its neighbors.

Panamanian officials say that they have assessed scenarios linked to the court ruling to prevent disruptions in its ports system.

“The continuity of operations is fundamental for the transshipment industry worldwide," said Alberto Alemán, who served as Panama Canal administrator and now advises the Mulino administration.

Amid rising U.S. pressure, CK Hutchison agreed to sell more than 40 ports globally to BlackRock and MSC for almost $23 billion. The two Panama container terminals—Balboa on the Pacific coast and Cristóbal on the Atlantic side—were the crown jewels of the deal.

China’s government opposed the transaction, demanding that Chinese state-run shipping company Cosco have a majority stake and veto power in the firm managing the global port assets. The deal is now at risk.

In Panama City, the Mulino administration watched the deal talks in astonishment because licenses granted by Panama don’t allow the participation of foreign state-owned firms. Neither Chinese government officials nor Hutchison executives approached the Mulino administration to provide information or seek Panama’s consent, officials said.

Panamanian officials had long grumbled about the terms of the CK Hutchison deal, and Trump’s complaints accelerated the simmering dispute. Hutchison had extracted better terms from previous administrations even as global trade boomed and Panama became a global transshipment hub for container cargo.

“There has been a lot of criticism and a flood of lawsuits with the high court since then," said Alemán, referring to the license renewal in 2021. “Hutchison has large, latent liabilities."

Other countries in the region are also erecting barriers to Chinese companies to avoid further tensions with Trump. Mexico’s government has sought to contain the rapid expansion of China’s BYD, the world’s largest electric-vehicle manufacturer, by imposing 50% import tariffs on Chinese-made vehicles and blocking BYD’s plans to open an assembly plant in Mexico.

Shipping companies manage containers much like airlines manage passengers with connecting flights and multiple destinations, with container terminals playing the role of a busy airport hub.

Panama invested billions of dollars in new, bigger canal locks as the infrastructure handed over by the U.S. more than two decades ago was nearly obsolete. It developed a state-of-the-art oceanic passageway that helped transform global shipping as supertankers and containerships grew bigger and bigger.

The canal connects north Asian ports with East Coast markets in the U.S. that import goods from China or Japan. Tankers move oil, petroleum products and liquefied natural gas from the U.S. Gulf Coast through the canal, while containerships transport Chilean wines or Ecuadorean bananas to large markets such as New York.

Along with the canal expansion, Panama developed a platform for the transshipment of containers. Panama’s port system handles as many containers as the New York and New Jersey terminals. Hutchison arrived in the country when the transformation was in its early stages. The country now handles more than nine million containers a year, compared with some 100,000 more than two decades ago.

Write to Santiago Pérez at santiago.perez@wsj.com