Brazil fuel tax cuts are taking effect after President Luiz Inácio Lula da Silva on Wednesday signed a decree and a provisional measure to ease pump prices just weeks before voters head to the polls, as the U.S.-Iran war pushes global oil higher.
The cost of filling up has become a key issue heading into October, when Brazilians will decide whether to grant Lula a fourth nonconsecutive term or elect Sen. Flávio Bolsonaro, son of former President Jair Bolsonaro.
International benchmark Brent crude climbed back above 100 dollars a barrel on Wednesday after attacks on oil facilities and ships in the Middle East threatened already strained supply chains.
“We’re not going to allow this irresponsible war to hit your pocket,” Lula said as he enacted the measures, which extend policies introduced at the start of the U.S.-Iran conflict to curb fuel costs.
Brazil fuel tax cuts and diesel subsidy details
The government said tax cuts on the import and sale of ethanol, gasoline and gasoline blends, excluding aviation gasoline, will apply for 30 days from Sept. 10 to Oct. 9. A separate provisional measure authorizes a subsidy of 1 Brazilian real, about 19 cents, per liter for producers and importers of road diesel.
Oil prices spiked after Israel and the United States began their war with Iran in late February, largely because fighting curtailed most shipping through the Strait of Hormuz, a chokepoint that previously carried roughly one fifth of global oil supply.
Brazil is a major crude producer and exporter, and revenue from the sector has risen this year on higher international prices. The country still depends on imports to meet domestic demand for refined fuels, however, leaving consumers exposed to global shocks.
Keeping diesel stable is crucial to avoid truck driver strikes and restrain food inflation. A nationwide truckers’ stoppage in 2018 sent food prices soaring, emptied supermarket shelves and gas stations, and caused billions in losses, highlighting the sector’s leverage.
Former President Jair Bolsonaro, then a lawmaker months from winning the presidency, openly backed the truckers during that strike, and they later became a key base for him.
Wednesday’s actions have a “significant electoral component,” said Armando Castelar Pinheiro, an economics professor at the Federal University of Rio de Janeiro. Without the political calendar, there would likely still be a subsidy, “but it would likely be lower,” he said.
Even with the new steps, diesel in Brazil is 28 percent below international prices and gasoline is 21 percent cheaper, according to an Itaú BBA market analysis cited by local media on Wednesday.
