Asunción, April 2, 2025 – Paraguay has recalled its ambassador to Brazil and suspended critical negotiations over the Itaipu hydroelectric dam, a joint venture with its larger neighbor, following explosive revelations of espionage by Brazil’s intelligence agency under former President Jair Bolsonaro. The move, announced Tuesday, marks a sharp escalation in diplomatic friction between the two South American nations, with Paraguay accusing Brazil of violating international law and undermining trust in their decades-long partnership.

A Shocking Disclosure

The crisis erupted after Brazil’s foreign ministry confirmed Monday that its intelligence agency, the Agência Brasileira de Inteligência (ABIN), conducted covert surveillance on Paraguayan officials between June 2022 and March 2023. The operation, ordered during Bolsonaro’s right-wing administration, reportedly involved infiltrating Paraguayan computer systems to gather sensitive data on tariff negotiations tied to the Itaipu dam—a massive hydropower facility on their shared border that supplies 80% of Paraguay’s electricity and 10% of Brazil’s.

Current Brazilian President Luiz Inácio Lula da Silva’s administration insisted it halted the spying upon discovery after taking office in January 2023, but offered no details on the operation’s scope or targets. Brazilian news outlet UOL reported that ABIN agents sought an edge in talks over energy pricing, a perennial sticking point in the binational agreement set for renegotiation in 2023. Paraguay’s Foreign Ministry, blindsided by the admission, launched an investigation and summoned Brazil’s ambassador in Asunción, Eduardo Saboia, for an explanation.

“It’s a violation of international law—the interference in one country’s internal affairs by another,” Paraguayan Foreign Minister Rubén Ramírez Lezcano told reporters Tuesday. “We are under constant attack, and we’re taking all necessary steps to defend our sovereignty.”

Diplomatic Fallout

Paraguay’s recall of Ambassador Fernando Masi from Brasília is a rare rebuke of its more powerful neighbor, with whom it shares deep economic and cultural ties. The government also froze months-long talks over Itaipu’s operational costs, a decision that could delay billions in revenue and strain energy supplies. “Until Brazil clarifies this intelligence action against our country, negotiations are off the table,” Lezcano declared, signaling a hardline stance.

The espionage revelations have stoked outrage in Paraguay, where leaders see the dam as a symbol of national pride and economic leverage. Posts on X reflect a mix of anger and disbelief, with users decrying Brazil’s actions as “bullying” and “a betrayal.” One wrote, “Lula claims he stopped it, but the damage is done—Paraguay won’t forget this.” Others speculate the spying aimed to undercut Paraguay’s push for higher energy tariffs, a long-standing grievance against Brazil’s dominance in the partnership.

A Regional Ripple Effect

The timing couldn’t be worse. The spat unfolds as U.S. President Donald Trump’s administration ramps up trade pressure on Latin America, with new tariffs on Brazil, Mexico, and Canada announced last month. Analysts warn that Paraguay’s pivot could complicate regional unity, especially as Trump’s “America First” policies loom over Mercosur, the South American trade bloc both nations belong to. “This is a self-inflicted wound for Brazil,” said Maria Acosta, a political scientist at the University of São Paulo. “Lula’s trying to rebuild trust, but Bolsonaro’s legacy keeps haunting him.”

Lula’s government has downplayed the rift, with Foreign Minister Mauro Vieira calling it “an unfortunate episode from the past” and pledging full transparency. Yet, Paraguay’s investigation—and its demand for accountability—suggests the wound won’t heal quickly. Lezcano hinted at further measures, including a potential appeal to international bodies like the United Nations, if Brazil’s response falls short.

A Test of Sovereignty

For Paraguay, a landlocked nation of 6.7 million often overshadowed by Brazil’s 215 million-strong population, the espionage scandal is a test of its resolve. The Itaipu dam, operational since 1984, has long been a flashpoint—Paraguay argues it deserves a bigger share of profits, while Brazil leverages its market size to keep costs low. The spying revelations add a layer of distrust to an already fraught relationship, with some in Asunción calling for a broader reevaluation of ties.

As the story unfolds, the region watches closely. Will Paraguay’s defiance force concessions from Brazil, or will it deepen a divide that threatens one of Latin America’s most vital partnerships? For now, the recall of an ambassador and the specter of a stalled dam deal have turned a quiet espionage admission into a top story with far-reaching stakes. NPR’s coverage continues as Paraguay digs for answers—and Brazil scrambles to contain the fallout.