The discovery of oil in a narrow strip of the barren section of the Chaco Boreal, at the foot of the Bolivian Andes, precipitated the Chaco War, 1932-35, between Bolivia and Paraguay. This territory of the Gran Chaco had been disputed since 1810. Technically the Gran Chaco was intended to be part of Bolivia since it had been part of the audiencia of Charcas, but Bolivia paid little attention to this wasteland and Paraguayan settlers opened up the region while Paraguayan soldiers pushed back the natives. Thousands of Paraguayan colonists brought wealth to Paraguay by gathering quebracho and raising cattle. An armed conflict between Paraguay and Bolivia resulted as Bolivia sought access to the Paraguay River to ship oil to the sea and Paraguay refused to give up the lands. More than 100,000 lives were lost, and the war was concluded in 1935 only when both sides were exhausted. After three years of mediated negotiation following the end of hostilities, Paraguay and Bolivia signed (1938) a treaty. Three quarters of the disputed Chaco Boreal went to Paraguay; at the same time Bolivia was granted a corridor to the Paraguay River, the privilege of using Puerto Casado, and the right to construct a Bolivian port. A treaty finally demarcating the border between Bolivia and Paraguay was not signed until 2009.
The area is hospitable to development only along the Paraguay, Bermejo and Pilcomayo Rivers. It is a great source of timber and tannin, which is derived from the native quebracho tree. Special tannin factories have been constructed there. The wood of the palo santo from the Central Chaco, is the source of oil of guaiac (a fragrance for soap). Paraguay also cultivated mate in the lower part of Chaco.
Gran Chaco was a disputed territory since 1810. Officially, it was supposed to be part of Argentina, Bolivia and Paraguay, although a bigger land portion west of the Paraguay River had corresponded to Paraguay since its independence. Argentina claimed territories south of the Bermejo River until Paraguay's defeat in the War of the Triple Alliance in 1871 established its current border with Argentina. Over the next few decades, Bolivia began to push the natives out and settle in the Gran Chaco while Paraguay ignored it. It was the scene of The Gran Chaco War (1932-1935) (though violence started as early as December 5, 1928) between Paraguay and Bolivia over supposed oil in Chaco Boreal (a region north of the Pilcomayo River and to the west of the Paraguay River). Bolivia sought the Paraguay River for shipping oil out into the sea (it had become a land-locked country after the loss of its Pacific coast in the War of the Pacific) and Paraguay claimed ownership of the land. Eventually, Argentine Foreign Minister Carlos Saavedra Lamas mediated a treaty signed in 1938, which gave Paraguay three quarters of Chaco Boreal and gave Bolivia a corridor to the Paraguay River with the ability to use the Puerte Cosado and the right to construct their own port. In the end, oil was not found there.
Mennonites came into the Paraguayan part of the region from Canada in the 1920s; more came from the USSR in the 1930s and immediately following World War II. These immigrants created some of the largest and most prosperous municipalities in the deep Gran Chaco.
The region is home to around ten million people, divided about evenly between Argentina, Bolivia, Brazil and Paraguay. The area remains relatively underdeveloped, however; to help address this, in the 1960s the Paraguayan authorities had the Trans-Chaco Highway built and the Argentine National Highway Directorate, Route 16 and Route 81. All three highways extend about 700 km (450 mi) from east to west and are now completely paved, as are a network of nine Brazilian highways in Mato Grosso do Sul State.
The ecosystems of the Gran Chaco are unique, and were little understood by scientists until recent years. These ecosystems are slowly being destroyed by civilization with the introduction of cattle, burning of vegetation and irresponsible agricultural decisions. Many groups are trying to protect this unique set of ecosystems.
The Chacoan Peccary (Catagonus wagneri), which was discovered in the 1970’s, is a large mammal endemic to Chaco. Chaco is a center of Armadillo diversity, with at least eight species in the Argentine Chaco and ten species in the Paraguayan Chaco.
In September 1995, the Kaa Iya del Gran Chaco National Park was established in an area of Chaco in Bolivia. It is administered and was established solely by the indigenous peoples which include the Izoceño Guaraní, the Ayoreode, and the Chiquitano.
Chaco is one of South America’s last agricultural frontiers. Very sparsely populated and lacking sufficient all weather roads and basic infrastructure (the Argentinian part is more developed then the Paraguayan or Bolivian part), it has long been too remote for crop planting. The central Chaco’s Mennonite Colonies are a notable exception.
Two aspects may substantially change Chaco in the near future. Low land valuations and the the region's suitability to grow fuel crops. Suitability for the cultivation of Jatropha has been proven, Sweet sorghum as ethanol plant may prove viable, too, since sorghum for domestic and feedstock use is a traditional local crop. Switchgrass / Pasto Varilla’s feasability is currently studied by Argentina’s INTA , so is the Karanda’y palmtree in the Paraguay Chaco.
While the advance of agriculture will bring some improvements on infrastructure and employment for this traditionally rather neglected and impoverished region, loss of habitat / virgin forest could be substantial.