As the world reels from the surging cost of oil and its derivatives as a result of the Middle East conflict, higher diesel prices risk a serious political headache for Brazil’s government ahead of elections this year.
While the administration of President Luiz Inácio Lula da Silva has joined a number of other countries in rolling out measures to cushion the blow, the issue has revived the spectre of truck driver strikes and fuel shortages in Latin America’s largest economy.
Brasília has over the past couple of weeks unveiled temporary tax breaks and subsidies for diesel, an oil export levy, enhanced monitoring of price-gouging and enforcement of minimum truck freight rates.
With Lula preparing to stand for re-election in October, the leftwinger’s ministers are desperate to appease truckers who have threatened disruptive stoppages.
Despite US President Donald Trump suggesting an end to the war on Iran was close on Monday, Tehran continues to effectively restrict most shipping through the Strait of Hormuz — a key waterway for hydrocarbon transport — and energy infrastructure in the region has been damaged.
Far removed from the Gulf hostilities and a top-10 global oil producer, Brazil is in theory a beneficiary of higher crude prices via windfall export revenues. But the reality is more complex, for its economy and politics are particularly exposed to volatility in diesel, which is up about 20 per cent locally since the start of the month.
The country lacks adequate refining capacity, so it relies on imports for about one-quarter of domestic consumption, from the likes of Russia, the US and Gulf states. With some 60 per cent of goods in the continental territory moved by road and Brazil’s important agriculture sector reliant on the fuel, higher costs quickly pass through to inflation.
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