Brazilian President Luiz Inácio Lula da Silva has signed decrees aimed at reducing fuel prices for consumers, a move that comes just weeks before the upcoming presidential election. The measures include tax cuts on imported and sold ethanol, gasoline, and gasoline blends, effective from September 10 to October 9. Additionally, a provisional measure establishes a subsidy of one Brazilian real per liter for producers and importers of road diesel.
The administration stated the actions are intended to shield consumers from rising fuel costs, which have been exacerbated by international conflicts. "We’re not going to allow this irresponsible war to hit your pocket," Lula said during the signing event, referencing the ongoing conflict between the U.S. and Iran. This conflict has driven Brent crude prices above $100 per barrel, the highest point since July.
The cost of fuel is a significant concern for Brazilian voters, who will cast ballots in October to decide whether Lula will serve a fourth term. His main challenger is Sen. Flávio Bolsonaro, a son of former President Jair Bolsonaro.
Brazil is a major crude oil producer and exporter, experiencing increased revenues due to global price hikes. However, the country still depends on imports for refined fuels to meet domestic demand. Stabilizing diesel prices is also crucial for preventing potential strikes by truck drivers, which have historically led to significant economic disruption and food inflation, as seen in a 2018 strike that caused widespread shortages and billions in losses.
According to Armando Castelar Pinheiro, an economics professor at the Federal University of Rio de Janeiro, the timing of these measures suggests a strong electoral consideration. He noted that while some form of subsidy might have been implemented regardless, its scale is likely influenced by the political calendar.
Current market analysis indicates that diesel in Brazil is priced 28% below international levels, while gasoline is 21% cheaper, according to an Itaú BBA market analysis.