Heat the olive oil in a medium saucepan over medium heat.
Add chopped onion and minced garlic. Sauté for about 3-4 minutes until softened and fragrant.
Add chopped carrots and chili peppers. Stir well. Cook for another 5 minutes.
Add water, vinegar, and lime juice. Bring to a simmer. Cook for more 20-30 minutes until carrots are tender.
Blend the sauce until smooth using an immersion blender or a regular blender.
Taste and adjust seasonings with sugar, salt, or more vinegar if needed.
Cool, store in an airtight container, and refrigerate.
