Place tomatoes, onion, jalapeno and water into the bowl of a blender; blend until smooth. Heat the oil in a saucepan over medium heat. Carefully stir in tomato puree and cook for 15 minutes until thickened.
While the sauce is cooking, season the grated potato to taste with salt, pepper and Tabasco. Mix in onion, eggs and jalapeno then sprinkle with flour and mix until thoroughly combined. Heat the oil in a large frypan over medium-high heat.
Drop the potato mixture into hot oil by the heaping tablespoon. Flatten slightly, and cook until golden brown on both sides, about 2 minutes per side. Drain on paper towels, and continue with remaining potato mixture. Serve the potato pancakes with the sauce spooned over the top.