The recent border dispute between Costa Rica and Nicaragua is a sign of an ambitious plan by Venezuela, Iran and Nicaragua to create a "Nicaragua Canal" linking the Atlantic and Pacific oceans that would rival the existing Panama Canal.

Costa Rica says that last week Nicaraguan troops entered its territory along the San Juan River – the border between the two nations. Nicaragua had been conducting channel deepening work on the river when the incident occurred.

Open gallery view Mahmoud Ahmadinejad and Hugo Chavez, October 2010 Credit: AP Photo / Vahid Salemi

Sources in Latin America have told Haaretz that the border incident and the military pressure on Costa Rica, a country without an army, are the first step in a plan formulated by Venezuelan President Hugo Chavez and Nicaraguan President Daniel Ortega, with funding and assistance from Iran, to create a substitute for the strategically and economically important Panama Canal.

The plan has aroused concern in Washington, and the U.S. has started behind the scenes efforts to foil it.

Panama is a country with a distinctly pro-American orientation. Since its construction was completed in 1914, the Panama Canal has served as an irreplaceable link between the Atlantic and Pacific oceans. More than 14,000 ships pass through the canal annually and recently the one millionth ship passed the canal since its opening.

In recent years, the amount goods passing through the canal in each direction totaled about 190 million tons. The transit fees paid by the ships and other canal-related activities account for 75 percent of the annual revenues of Panama's economy. The Panamanian economy and Panamanian stability would be in real danger of collapse if another canal took away its monopoly on shipping between the Atlantic and Pacific oceans.

In recent years, the government of Ortega, a former Sandinista underground member, has tried to gain control of the San Juan River, which lies on the Nicaragua-Costa Rica border. Costa Rica brought the issue before the international court in The Hague, which after careful examination of historic maps, past agreements and terrain features, determined in July 2009 that the river belonged to Nicaragua, and that the border is located on the southern bank of the river. The court also ruled that Costa Rica had the right of free passage on the river.

However, the results of this ruling are not enough to allow for the implementation of the plan formulated by Venezuela and Nicaragua. In order to build a new canal linking the two oceans, they would also need to control the southern bank of the river and the point where the river meets the Atlantic Ocean.

Several weeks ago, Nicaraguan foreign ministry official informed Costa Rica of Nicaragua's plans to do work to deepen the channel of the San Juan River in order to improve shipping on the waterway. Costa Rica did not oppose the plans, on the condition that the work did not harm the river or the bank on the Costa Rican side of the river.

The apparent engineering project was surprisingly placed under the supervision of Eden Pastora, better known as "Commandante Cero", a hero of the former Sandinista underground. This was a hint that the work had more than a simple engineering purpose.

Two weeks ago, Pastora went to a farm of a Costa Rican citizen in the Calero Island area and told the farm owner that the area belonged to Nicaragua. The farm owner objected and subsequently farm workers were allegedly beaten and farm animals were allegedly killed. The farm owner called Costa Rican police who arrived and reported to their commanders that Nicaraguan troops had entered Costa Rican territory and raised a Nicaraguan flag.

Costa Rican President Laura Chinchilla last week called for a special session of the Organization of American States, located in Washington, but, after a day of talks, no resolution was reached. During the talks, Venezuela supported Nicaragua's position while Panama strongly opposed it.

Chincilla announced on Wednesday that she plans to raise the issue before the United Nations Security Council and again demanded that Nicaraguan soldiers withdraw from Costa Rican territory.

Sources in Latin America consider these events, and the power demonstrated by Nicaragua, as a trial balloon by the creators of the "New Canal Plan" – Venezuela, Iran and Nicaragua. Western intelligence agencies are closely following the path of heavy machinery equipment to Nicaragua as well as the activities of Iranians in the Nicaraguan capital Managua.

A U.S. State Department official told Haaretz's Washington correspondent Natasha Mozgovaya on Wednesday that the U.S. is not aware of any plans to build a new canal in Latin America.

In 2007, Chavez announced a plan to build a $350 million road connecting the two oceans and the Iranians have expressed an interest in constructing a port on the Atlantic Ocean. The U.S. did not express concern about either of those initiatives.