Lula signed tax cuts and a diesel subsidy to reduce fuel prices before Brazil’s October election. The move aims to soften the impact of war-driven oil prices, though economists see a strong electoral motive.
Brazilian President Luiz Inacio Lula da Silva on Wednesday signed a decree and a provisional measure to bring down fuel prices, weeks before the presidential election in October and as the US-Iran war pushes up the cost of fuel worldwide.
Fuel prices are a sensitive issue for voters, who will decide whether to give Lula a fourth, nonconsecutive term or elect Senator Flavio Bolsonaro, son of former president Jair Bolsonaro. Brent crude, the international benchmark, rose above USD 100 a barrel on Wednesday for the first time since July after attacks on oil facilities and ships in the Middle East added to pressure on an already weakened supply chain.
“We’re not going to allow this irresponsible war to hit your pocket,” Lula said while signing the measures. The steps extend policies brought in at the start of the US-Iran war to control fuel prices.
The measures announced on Wednesday include tax cuts on the import and sale of ethanol, gasoline and gasoline blends, excluding aviation gasoline. They will remain in force for 30 days, from September 10 to October 9. A provisional measure also authorises a subsidy of one Brazilian real, or USD 0.19, per litre for producers and importers of road diesel.
Oil prices jumped soon after Israel and the US began their war with Iran in late February, mainly because the conflict stopped most shipping through the Strait of Hormuz, a narrow waterway through which about a fifth of the world’s oil supply had passed before the fighting.
Brazil is a major producer and exporter of crude oil, and its revenue from the sector has risen this year because of higher international prices. However, the country still depends on imports to meet domestic demand for refined fuels.
Keeping diesel prices stable is also important to avoid truck drivers’ strikes and to keep food inflation under control. In 2018, a truckers’ strike led to a sharp rise in food prices, emptied shelves in grocery stores and fuel stations, and caused losses worth billions, showing the influence of organised truckers. Jair Bolsonaro, then a lawmaker and months away from winning the presidential election, had openly backed the truckers, who later became an important support base for him.
Armando Castelar Pinheiro, an economics professor at the Federal University of Rio de Janeiro, said Wednesday’s measures “have a significant electoral component”. He said that if it were not for the political calendar, “there would be some subsidy, but it would likely be lower”.
According to an Itau BBA market analysis cited by local media on Wednesday, diesel in Brazil is 28 per cent cheaper than international prices, while gasoline is 21 per cent cheaper. The new measures, announced ahead of the October vote, are aimed at limiting the impact of the war-driven rise in global oil prices on Brazilian consumers.
With PTI Inputs
