A former United States official has praised a new executive decree from Panama that is set to strip maritime vessels of their domestic licences and registrations if they face global sanctions.

On Tuesday, John Feeley, who served as the US ambassador to Panama from 2015 to 2018, told Al Jazeera the move was a “welcome step by Panama’s new government, which is working hard to improve the business climate”.

Panama — home to one of the busiest maritime shipping routes in the world, the Panama Canal — also boasts the largest ship registry since 1993.

But the country has faced a growing Western push to crack down on illicit trades like oil smuggling, particularly from Iran and Russia.

“There are basically just a few big registries in the world,” Feeley told Al Jazeera. “The international maritime authorities, as well as the US government and the European Union member states watch them closely… Reputation risk is at play.”

Protecting ‘prestige’ of Panama

In response to the pressure, Panama’s President Jose Raul Mulino issued an executive decree on October 18 that would revoke the national registration of maritime vessels if they were sanctioned by the US, the United Kingdom, the United Nations Security Council or members of the European Union (EU).

The decree explicitly said that such sanctions “may affect the prestige and reputation of the Panamanian flag”.

“In order to maintain a Panamanian Vessel Registry free of international sanctions”, the decree explained, “it is considered necessary to establish a regulatory framework that allows the immediate cancellation of the registry of those vessels”.

The Panama Maritime Authority (PMA) has been charged with carrying out any registry cancellations.

Feeley told Al Jazeera there are immediate consequences for ships that lose their licences.