Rio de Janeiro: Brazil President Luiz Inácio Lula da Silva on Wednesday signed a decree and a provisional measure aimed at lowering fuel prices, weeks ahead of the presidential election and as the US-Iran war drives up the cost of filling the tank.
The cost of fuel is a particularly sensitive issue for voters, who will decide in October whether to grant Lula a fourth, nonconsecutive term or elect Sen Flavio Bolsonaro, son of former president Jair Bolsonaro.
Brent crude, the international standard, surged above the $100 threshold on Wednesday for the first time since July, after attacks on oil facilities and ships in West Asia threatened to further strain an already weakened supply chain.
“We're not going to allow this irresponsible war to hit your pocket,” said Lula as he signed the measures, which extend policies to control fuel prices introduced at the beginning of the US-Iran war.
The measures announced on Wednesday include tax cuts on the import and sale of ethanol, gasoline and gasoline blends (excluding aviation gasoline), effective for 30 days from September 10 to October 9. A provisional measure authorises a subsidy of one Brazilian real USD 0.19) per litre for producers and importers of road diesel.
Crude oil prices shot up shortly after Israel and the US began their war with Iran in late February, largely because the fighting halted most shipping through the Strait of Hormuz, a narrow waterway where roughly a fifth of the world's oil supply passed before the conflict.
Brazil is a major producer and exporter of crude oil, and its revenues from the sector have surged this year due to the hike in international prices. But the country still relies on imports to meet domestic demand for refined fuels.
Stabilising diesel prices is also critical to prevent truck driver strikes and keep food inflation in check. In 2018, a truckers' strike caused food prices to spike, left grocery market shelves and gas stations depleted, and caused billions in losses, underscoring the power of organised truckers.
Former president Jair Bolsonaro, then a lawmaker and months away from winning the presidential election, was an outspoken supporter of the truckers, who later became an important constituency for him.
Wednesday's measures “have a significant electoral component”, according to Armando Castelar Pinheiro, an economics professor at the Federal University of Rio de Janeiro.
If it weren't for the political calendar, “there would be some subsidy, but it would likely be lower”, he said.
Diesel in Brazil is 28 per cent cheaper than international prices, and gasoline is 21 per cent cheaper, according to an Itaú BBA market analysis cited by local media on Wednesday.