How does small, landlocked Paraguay get geopolitical leverage?

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This is the script for my video posted on October 8, 2026. Watch it on TikTok.

Paraguay is a landlocked country with no oil, no gas, and no coastline, so it has built its leverage another way, by selling electricity and through diplomatic strategy. But why does Paraguay exist to begin with, and what does it have to offer the rest of the world?

Before the Spanish arrived, the Guaraní peoples of the east lived in independent farming villages, while the flat, semi-arid lands west of the Paraguay River belonged to many distinct groups of hunter-gatherers and warriors.

But in 1537, the Spanish founded the city of Asuncion as a launching point for other colonial expeditions across the continent.

Jesuit missionaries established "reductions," or self-sufficient mission towns for Indigenous people, and along with the many colonial families who spoke it at home, this helped the Guaraní language survive into the present. Today about two thirds of Paraguayans speak Guaraní at home, even across social classes.

Over time, the locals came to reject Spanish colonial rule, and because they were afraid of being annexed by Buenos Aires or by Portuguese forces from Brazil, they pushed for full independence. In 1811, they overthrew the Spanish governor, and in 1813 the country declared itself a republic.

Within a few years, a lawyer named José Gaspar Rodríguez de Francia made himself dictator for life, and he became known as El Supremo. Under him, Paraguay enforced strict isolationism and absolute control of the state, largely because of the threat posed by its neighbors.

Carlos Antonio Lopez succeeded him and reversed those policies, opening up trade and modernizing the country with major infrastructure projects. Then his son Francisco took over in 1862 and continued those efforts, heavily investing in the military due to fears that Brazil and Argentina could destroy the country’s sovereignty.

But the region’s powers faced border disputes and struggled for control over the river trade routes they relied on, in Paraguay’s case for access to the sea. Nearby Uruguay was split into two factions, with Brazil and Argentina backing one and Paraguay backing the other, which happened to be in power. Then in 1864, Brazil invaded Uruguay to overthrow the Paraguay-backed Blanco government, and Paraguay declared war on Brazil.

Paraguay asked Argentina for permission to march troops through its territory to attack Brazil, but Argentina said no, so Paraguay declared war on Argentina too and invaded. In response, Argentina, Brazil, and the new Brazil-backed government of Uruguay signed a secret treaty to form the Triple Alliance and fight Paraguay together.

The Triple Alliance unsurprisingly won, culminating in the death of Francisco López at the Battle of Cerro Corá in 1870. Paraguay permanently lost about 40% of the territory it had claimed before the war, with the land going to Brazil and Argentina. It also suffered what many historians call the highest proportional loss of life of any modern war. Estimates range from under 20% to nearly 70% of the population, and afterward women outnumbered men by at least three to one.

Paraguay was occupied by foreign forces for years, and the war cemented Brazil as the dominant power in the region.

In the 1930s, Paraguay fought the Chaco War against Bolivia for control of the Chaco Boreal region, which was believed to be rich with oil and drew interest from foreign oil firms, though no commercial oil has ever been found on the Paraguayan side. Bolivia, like Paraguay, also needed access to the sea because it had lost its Pacific coastline to Chile decades before, and access to the Paraguay River required control of the Chaco Boreal.

Paraguay ultimately won about three quarters of the disputed region, while Bolivia kept a narrow strip of land reaching the Paraguay River, as well as free transit through a Paraguayan port. Still, the war was the bloodiest South American conflict of the 20th century, with over 50k deaths for Bolivia and 36k for Paraguay, largely due to dehydration and disease. The huge economic strain and military losses destabilized both governments.

In 1940, General Higinio Morínigo took power after the president died in a plane crash, and he ruled as a dictator under the authoritarian constitution he inherited. He banned the Liberal Party and clamped down on free speech and civil liberties, which led to labor strikes, student riots, and public pressure. After a brief political opening, Morínigo sided with the Colorado Party, and the rest of the opposition rose up in the 1947 Paraguayan Civil War.

Morínigo won. Loyal army units and Colorado militias, including artillery under a young officer named Alfredo Stroessner, defeated the revolutionaries and left the Colorados as the only party in power. The five-month conflict killed thousands and drove a large portion of the population into exile, primarily in Argentina.

Of course, Morínigo was soon ousted by the same Colorados he had come to depend on, leading to a period of instability that culminated in Alfredo Stroessner taking power in a 1954 coup. Under Stroessner, Paraguay became a staunch anticommunist ally of the US. In 1957, the country established diplomatic relations with Taiwan, and that relationship has gone uninterrupted ever since.

Notably, in 1973 the military dictatorships of Brazil and Paraguay signed the Itaipú Treaty to jointly build and operate a dam that would become one of the world's largest hydroelectric power plants. Each country owns half and is entitled to half the power, but Paraguay doesn't use all of its share, and by treaty it has to sell the rest to Brazil. Keep that in mind, because it will come back up later.

Under Stroessner, the government illegally handed millions of hectares of public land meant for landless farmers to political allies, military figures, and corrupt elites. Very little of it has ever been recovered, and it's still at the center of Paraguay's fights over land reform and agribusiness.

But in 1989, amid rising debt, economic decline, public pressure, and factionalism within the Colorado Party, General Andres Rodriguez led a military coup to get rid of Stroessner. He took over as provisional president and opened the country up to democracy, freedom of speech, and even public dissent. That year Paraguay held its most competitive presidential election in decades, which was won by Rodríguez, and a new constitution and civilian rule were established in the early 1990s.

That period didn't come easy. In 1999 the vice president was assassinated, protesters were shot in the streets, and the president resigned. But once things calmed down, Paraguay settled into a representative democracy with regular elections. The Colorado Party has lost the presidency only once since, to Fernando Lugo in 2008, and the Paraguayan Congress impeached him four years later.

As you can see, Paraguay has some very rough history and very difficult geography. It's learned to be wary of its much larger neighbors, and at the same time it is forced to rely on them because every export has to cross their land or float down their rivers. It has no oil to sell and no port to ship from, so it has had to be pragmatic with the resources it does have.

Paraguay is one of only 12 countries that recognize Taiwan over China, and the only one in South America, so it has doubled down on that relationship even as China expands its influence on the continent. Taiwan gives Paraguay meaningful market access, aid, and investment in exchange. In May 2026, President Santiago Peña made his first state visit to Taiwan, where he signed a mutual assistance treaty on crime and memoranda on cybersecurity and a joint AI and computing infrastructure project.

But Paraguay is also home to substantial organized crime. Brazil's two biggest gangs, the PCC and Comando Vermelho, operate across the border, and the city of Ciudad del Este is one third of the so-called Triple Frontier, a contraband hub where the US Treasury has sanctioned people and businesses for raising money for Hezbollah.

That, along with plain ideological alignment, has pulled Paraguay closer to the US. In October 2025, Paraguay declared the PCC and Comando Vermelho terrorist organizations months before the US did, and that same month the US lifted corruption sanctions on Colorado Party leader Horacio Cartes.

Then in March 2026, a new Status of Forces Agreement took effect, setting the legal rules for US troops in Paraguay during joint training and humanitarian missions. It rules out permanent bases, but Paraguay's foreign minister sold it as a tool against organized crime and terrorism, so it gives the US a real legal foothold.

Paraguay is moving closer to Argentina too, since Peña and Argentine President Javier Milei are close ideological allies.

But the real test is Itaipú. In 2024, Peña got Brazil to agree to a higher Itaipú tariff through 2026, worth hundreds of millions of dollars a year to Paraguay. Then Brazil admitted that its intelligence agency had spied on Paraguayan officials about the dam, and Paraguay froze talks for months. Now that deal expires at the end of this year, Brazil's director at the dam has said the price will drop by as much as half, and Peña says there will be no news until Brazil's presidential runoff on 25 October. In other words, ideology buys Paraguay friends in the US and Taiwan, but its real leverage is still electricity, and on 1 January 2017, we'll find out what that leverage is actually worth.

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