By Jeff Stein, CQ National Security Editor

When Daniel Ortega unexpectedly led his left-wing party back into power in Nicaragua in early 2007, he faced a dark future — literally.

The lights were going out all over the country. Its ancient power systems leaked so much electricity that even its one creaky oil refinery, privatized by his pro-American predecessors, couldn’t make up for shortages.

Blackouts were shutting off power for as much as 12 hours a days in many towns and cities. Food spoiled. Ice melted. Children read by candlelight.

The dire situation had helped bring down Ortega’s rivals, and now it could quickly undo him and his Sandinista party.

But Ortega had an ace: Venezuela’s garrulous anti-American leader, Hugo Chavez.

They struck a deal — and what a deal it was.

Chavez would supply cheap oil on easier terms than a subprime mortgage.

Not only that, the deal was made between Chavez’s state oil company and shadowy entity set up by Sandinista party officials — not, in other words, the Nicaraguan government, according to knowledgeable sources.

Ever since, the commercial entity, known by its Spanish acronym, ALBANISA, has in turn been selling cheap oil to party officials who hold the mayorships in scores of Nicaraguan towns and villages.

Not only that, a chunk of the proceeds are then recycled back to party officials for local economic and social projects.

Ortega and the Sandinistas have benefitted, big time — and so have Nicaraguans.

The blackouts have ended. Fertilizer, also produced by the Venezuelan oil, is plentiful.

Yes, the cost of energy to Nicaraguan consumers has risen 18 percent, according to independent figures and Latin American news media, but that’s only half the rate of the rest of the region.

So Nicaraguans have done well by Ortega and Chavez, the Mussolini-like orator whose grandiose vision of leading a regional economic and political alliance against the United States gained a significant new piece.

Not so ordinary Venezuelans, as they grapple with their own energy shortages. ALBANISA, meanwhile, remains a cypher. Even critics of Ortega go tight-lipped when the subject comes up, refusing even to name its officials.

No one knows how much party officials are pocketing (if anything, it must be said) in the deal.

“Everything is a gigantic fudge ball of data when you try to get anything straight from the Nicaraguan government,” says Managua-based reporter Melissa Sanchez. “It’s like Daniel Ortega is pulling numbers straight out of the sky.”

The party has been fracturing on Ortega’s policies, she and other local observers say.

When the erstwhile commandante and his buddies moved the presidential office from the Casa Blanca, Nicaragua’s White House, into party headquarters, they became known as “los Danielistas.”

Enter the Iranians

But there’s no free lunch, even in socialist Nicaragua.

And so Chavez presented the bill: Be nice to the Iranians, Ortega was told.

That was hardly a stretch, of course, for Ortega, the one-time Marxist firebrand whose pro-Soviet, pro-Cuba stance in the 1980s ignited a U.S.-backed civil war. Eventually, the Sandinistas were ousted in the country’s first real democratic elections.

So it came as no surprise that Ortega relished returning to the international stage.

Not long after his inauguration in January 2007, Ortega, Chavez and their messianic counterpart in Iran, Mahmoud Ahmadinejad, were singing “Kumbaya” together in Tehran, Caracas and Managua.

Their concerted denunciations of American imperialism, coming amid difficulties in Iraq and Afghanistan, not to mention a loss of economic clout vis-a-vis Europe, sounded positively quaint to some ears.

But when they moved swiftly to tie a bow on their new partnership, alarms were sounded in some military and conservative circles in Washington. Fears hardened that Iran was building a second front in the Western hemisphere, bases from which to attack America or U.S. interests if Washington launched air strikes on its nuclear facilities.

When Ahmadinejad pledged to finance a new, $350 million deepwater port on Nicaragua’s still-wild Caribbean coast, the outcry went up another decibel.

Some right-wing commentators cast it as just the “first step” in an Iranian plan to build a “dry canal” of pipelines, rails and highways from the Caribbean to the Pacific.

The conservative Nicaraguan newspaper Hoy claimed that “advance parties of the Iranian Revolutionary Guard” had come into the country.

When Iran dispatched an ambassador and announced it would underwrite a Nicaraguan film industry and even donate cartoons to Managua TV, the commentary became apoplectic.

The House adopted by voice vote a Democratic-sponsored resolution (H Res 435) last November expressing “concern” about Iranian activities in the region and urging President Bush to create more mechanisms for joint counterterrorism operations in the Western Hemisphere.

“The bottom line is if there is a confrontation with Iran, and Iran gets bombed, I have absolutely no doubt that Iran is going to lash out globally,” John R. Schindler, “a veteran former counterintelligence officer and analyst for the National Security Agency,” was quoted as saying last December to the San Antonia Express-News, in a typical comment.

“The Iranians have that ability, particularly from South America. Hezbollah has fronts all over Latin America. That is not new. But it’s certainly something we’re starting to care about now.”

Other Voices, Other Rooms

Oddly enough, however, Bush administration officials, who can usually be counted on to sniff evil anywhere the Iranians are involved, generally yawned.

One reason may be that the Iranians have been slow to pony up when it comes to building the $350 million port, much less a “dry canal” across the country.

Likewise, there’s not a lot of faith that the Iranians will actually open their wallets for a $230 million hydroelectric dam in northern Nicaragua, announced March 13.

Nicaraguans roll their eyes when the subjects of Iranian influence comes up.

“I wish!” said one insider. “We need that port.” The Iranians haven’t even agreed on the shape of the deal.

“We’d be willing to put up with all this bullshit” about the Revolutionary Guard, he said, if the Iranians would actually start building it.

To be sure, Adm. James Stavridis, chief of the U.S. Southern Command, told the Senate Armed Services Committee that he was “concerned as I see Iran move into the region.” But other commentary has been far more constrained, if not enthusiastic, about developments in Nicaragua — even from administration officials.

John Danilovich, CEO of the Millennium Challenge Corporation, a U.S. government-sponsored entity aimed at alleviating third-world poverty, told Congress in February how he’d toured some of MCC’s projects in Nicaragua with Ortega himself. “We went up to the north . . . which is a poor part of the country,” but where MCC projects had flourished.

The peasants surged forward to tell Ortega how much the projects had helped them, saying “God bless the United States of America.”

“And I must say that, at the end of this,” Danilovich said, “President Ortega spoke before a crowd of 6,000 people. And at the end of the speech, as ironic and unlikely as it may seem, he said, ‘Viva los estados unidos.’”

Even Condoleeza Rice told Congress that the Bush administration had “excellent relations” with “Nicaragua, where we have a long history, so to speak, with that government.” The MCC programs, agreed the secretary of State, had been wildly popular there.

“Those Sandinista mayors have been really clear that they want those MCC programs to go forward,” she said.

Sandinista officials have also welcomed Drug Enforcement Administration agents to Nicaragua.

And even Southcom commander Stavridi conceded that the Defense Department continued to work well with its Managua counterparts.

“Even in countries where we have differences at the government-to-government level,” he told the Senate Armed Service Committee, “like Nicaragua or Bolivia, Ecuador at times, we continue to have strong military-to-military relations.”

So which is it — terrorist platform or budding ally?

Watchful waiting, on both sides, seems to be the consensus.

If the Iranians get serious in Nicaragua, there might be something to worry about, even its stoutest defenders say.

Until then, everybody just needs to relax.

BACKCHANNEL CHATTER

To the Shores of Tripoli: Evidently the liens slapped on U.S.-based companies doing business with Libya by a private attorney, reported exclusively here last week, have had their intended effect.

The State Department said March 28 that Assistant Secretary David Welch was working on a deal with Libya to compensate relatives of the American victims of two terrorist attacks carried out by agents of the regime, the 1986 bombing of a West German discotheque frequented by American GIs, and the 1989 sabotage of Pan Am flight 103.

The Bush administration had asked Congress to exempt Libya from such legal actions, in order to expedite American oil exploration and other business deals in Libya.

But attorney Thomas Fay, who represents victims of the La Belle discotheque bombing, says the State Department has no authority to make a deal with Libya on its own.

“We have not been contacted by David Welch,” he told me. “We have not given him any authority to speak for our clients.”

Fay said, “The settlement agreement for our clients has already been made. Our clients have fully performed their part. Libya has refused to pay the amount it agreed to.”

Fay added, “It is time for the State Department to acquire some backbone and stand up for the American citizens who pay their salaries. That is what the State Department could do to ‘help American victims receive fair compensation in the shortest time with greater certainty.’”

The State Department could not be reached for comment March 28.

Jeff Stein can be reached at jstein@cq.com.