By Lomi Kriel and David Adams
PANAMA CITY/MIAMI (Reuters) - When a North Korean ship carrying Cuban arms was seized last week in Panama on suspicion of smuggling drugs, Cuba first said it was loaded with sugar for the people of North Korea, according to a Panamanian official familiar with the matter.
Cuban officials were quick to request the ship be released, pledging there were no drugs on board, and made no mention of the weapons which two days later were found hidden in the hold under 220,000 sacks of brown sugar, the official told Reuters.
"They said it was all a big misunderstanding," the official said, speaking on condition of anonymity.
Cuba declined to comment on the official's account.
Questions still surround the cargo of sugar and what Cuba called "obsolete" Soviet-era weapons which it said it was sending halfway around the world to be repaired in North Korea.
The discovery has put the already isolated Asian nation under increased diplomatic pressure because the cargo is suspected of being in breach of a U.N. arms embargo against Pyongyang over its nuclear and ballistic missile program.
For Cuba, the benefits of smuggling out-of-date weapons to North Korea did not seem to make up for the potential pitfalls, experts said.
"It's baffling. It's hard to believe Cuba would risk so much for so little," said Frank Mora, the Pentagon's senior official for Latin America during president Obama's first term.
Panamanian officials say the shipment was probably part of an arms-for-sugar exchange aimed at refurbishing Cuba's aging air defenses.
"We understand it was a barter deal, arms for sugar, that's what our intelligence sources are telling us," said the Panamanian official familiar with the investigation.
A U.S. official confirmed that one of the theories being studied is that it may have been a barter deal.
A senior Panamanian official said on Friday that investigators unloading the cargo may have discovered explosive material on board the ship, and would check it this weekend.
While Cuba needs to upgrade its arsenal, Mora and others say, the botched smuggling operation was so clumsy and ill-conceived that it appeared out of character for the usually circumspect and highly disciplined Cuban military.
Nevertheless, it may not have been the first such attempt.
Security experts say five North Korean-flagged vessels have transited through the Panama Canal in the last three years. One ship, the O Un Chong Nyon Ho, passed through the canal and docked in Havana in May 2012.
"It's interesting that this kind of relationship exists between Cuba and North Korea," said Bruce Bagley, a Latin America expert at the University of Miami and former consultant to Panama's intelligence service.
"It shows that both Cuba and North Korea are quite isolated and are seeking some solace in each other's commercial and diplomatic embraces. They have few alternatives and they don't have any hard cash," he said.
A United Nations team is due to arrive in Panama on August 5 to inspect the ship's hold after the sugar has been unloaded.
Pyongyang has asked for the ship and crew to be returned but Panama dismissed the request after the U.S. government strongly backed its decision to seize the vessel.
A Panamanian frigate on routine patrol stopped the 155-meter (510-foot) Chong Chon Gang off the country's Atlantic coast last week after it had left Cuba and was nearing the northern entrance to the Panama Canal, bound for North Korea.
Officers on the frigate noticed the ship was not issuing a transponder signal as required by maritime law, and suspected it was smuggling drugs, according to Panama's Security Ministry.
The ship was boarded after the captain refused to stop. The crew sabotaged the ship's electrical system and the bilge pumps, officials say, in a possible effort to scuttle the ship.
Afterward, the ship's 35 crew members were arrested and charged with attempting to smuggle undeclared arms through the canal. Panama says they have not been cooperating with authorities, choosing to remain silent instead.
Following the vessel's seizure, Cuban officials contacted Panama and made a request on Saturday that it be released and allowed to continue its journey.
"At that time we had no idea what was on board," said the Panamanian official familiar with the matter. "They said it was a donation of sugar to the people of North Korea."
Panamanian security officials discovered the weaponry hidden under sugar sacks on Monday. It was not until the next evening that Cuba said it was loaded with 240 tons of Soviet-era missile equipment, MiG fighter jets and other arms.
Cuba has not said a word since. The Foreign Ministry did not respond to requests for comment on Friday.
"That's unusual. They never stay silent when they feel under attack. It looks like someone screwed up," said Mora, who is now the head of the Latin American and Caribbean Center at Florida International University.
(Editing by Dave Graham and Mohammad Zargham)