Eritrea, an impoverished, mostly friendless country located at the wrong end of the Red Sea, has become synonymous with trouble-making in the Horn of Africa region since it wrested independence from Ethiopia in 1991 after a bitter 30-year war.

The national capital, Asmara, is an ill-kept, run-down former Italian colonial outpost where night-time electricity cuts contribute to a sinister, cowed atmosphere. The repressive policies and appalling human rights abuses of the authoritarian, one-party government of President Isaias Afwerki – Eritrea has never held a national election – mostly keep the population in check.

In a secret diplomatic cable written last year, the then US ambassador to Eritrea, Ronald McMullen, appears determined to impress upon his private Washington readership just how awful the situation really is. Weird, dysfunctional Asmara, reminiscent of an Evelyn Waugh novel, is notorious among western diplomats as a hardship posting. McMullen seems to be feeling the strain.

"Young Eritreans are fleeing their country in droves, the economy appears to be in a death spiral, Eritrea's prisons are overflowing, and the country's unhinged dictator remains cruel and defiant," McMullen writes. "Is the country on the brink of disaster?" he asks. The ambassador answers his own question with a head-shaking "no".

Gold-mining, Isaias's latest wheeze for rescuing the economy, will not do the trick, McMullen says, any more than will a rumoured cabinet reshuffle. Yet although the regime is "one bullet away from implosion", Eritreans' strong sense of nationalism and their capacity to withstand great suffering and deprivation allows Isaias to cling to power. "Any sudden change in government is likely to be initiated from within the military," McMullen concludes.

"The Isaias regime is very good at controlling nearly all aspects of Eritrean society," McMullen writes, offering comparisons to Robert Mugabe's Zimbabwe. "Eritrean farmers [roughly 80% of the 5.5 million population] have long lived a knife-edged existence due to marginal rainfall, decades of war and brigandage, and the use of Dark Age technology. Even before last year's dreadful harvest, Unicef reckoned that 40% of Eritrean children were malnourished. Despite this, Eritreans remain fiercely patriotic."

A more recent McMullen cable, sent last December, detects no improvements. It begins: "Things are getting worse and worse in Eritrea. The regime is facing mounting international pressure for years of malign behaviour in the neighbourhood ... The economy continues to sink; exports for 2008 totalled only $14m ... 'He is sick,' said one leading Eritrean businessman, referring to President Isaias's mental health. 'The worse things get, the more he tries to take direct control – it doesn't work.'"

Washington's list of grievances is a long one. The Eritrean government is accused of secretly arming al-Shabaab Islamist terrorists in Somalia, offering training and support to militant opposition forces in Ethiopia and Sudan, provoking incidents along its disputed frontier with Ethiopia, and launching an unprovoked 2008 invasion of Djibouti.

"This man is a lunatic," the Djiboutian foreign minister, Mahmoud Ali Youssouf, tells the Americans, referring to Isaias. Another foreign official tells the regime: "All of Africa is fed up with you." All this eventually leads, during the course of 2009, to the imposition of punitive regional and UN sanctions.

The US view of Isaias as part menace, part weirdo is reinforced by Getachew Assefa, the powerful head of the Ethiopian national intelligence and security service and a leading member of the Ethiopian ruling party, sworn enemies of Eritrea. Speaking to the US ambassador in Addis Ababa in June last year, Getachew accuses the Eritrean leader of harbouring a "grand design" to divide Ethiopia and weaken it through terrorism. But then he puts Isaias in an entirely different light.

"Getachew remarked that one of Isaias's bodyguards... defected to Ethiopia," the Addis Ababa cable recounts. "The bodyguard remarked that Isaias was a recluse who spent his days painting and tinkering with gadgets and carpentry work. Isaias appeared to make decisions in isolation with no discussion with his advisers. It was difficult to tell how Isaias would react each day and his moods changed constantly."

Despite its growing isolation and unswervingly awkward behaviour, Eritrea mounted an unexpected (though short-lived) charm offensive after Barack Obama took office, the cables reveal. In February 2009, McMullen writes that "senior Eritrean officials in recent weeks have signalled their interest in re-engaging with the United States". This has led to an easing of restrictions on the US embassy in Asmara, the ending of "daily anti-American diatribes in state-owned media", and congratulatory letters to Obama and Hillary Clinton.

But now a different kind of ordeal awaits McMullen and his unsuspecting spouse. "Members of Eritrea's 'American Mafia' [senior party members who have lived or studied in the US] have taken the lead in signalling interest in improved relations," the cable relates.

"On February 7, the ambassador and his wife were invited to spend the day on the family farm of Hagos Ghebrehewit, the ruling party's economic director ... Lunch was served in a rocky gulch beneath a thorny acacia tree. The ambassador and his wife were treated to grilled sheep innards served with honey and chilli sauce (but no silverware), washed down with a sour, semi-fermented traditional drink called, aptly, 'sewa'."

In another unforeseen encounter, Eritrea's defence minister, Sebhat Efrem, turns up at a US reception – the first time he has appeared for two years. McMullen smugly notes that the date is Isaias's birthday, "yet General Sebhat chose to spend the evening celebrating Groundhog Day".

McMullen makes plain to his interlocutors that the US is only interested in improved relations if Eritrea's behaviour changes, starting with an end to "Eritrean support for Somali extremists". Washington's requirements remain unchanged, and unsatisfied, to this day.

His cable continues: "One senior official acknowledged limited Eritrean contact with al-Shabaab but claimed the contact was 'infrequent and indirect'." McMullen replies that by keeping the company it does, Eritrea puts itself in "a very perilous situation" – and he finishes with a crude warning: "Based on recent history, how do you think we would react to a major al-Shabaab terrorist attack against the United States?"