The Ministry of Planning authorized R$6.6 billion in extraordinary credits via Provisional Measure 1.389 to finance the expanded program, with R$5.607 billion allocated to diesel subsidies for domestic production and imports, and R$998 million supporting other petroleum derivatives. These extraordinary credits fall outside fiscal framework spending limits and primary result calculations, shielding them from budgetary constraints.
Brent crude returned to the $100 per barrel range for the first time since late July, driven by escalating Middle East conflicts affecting the Strait of Hormuz, through which approximately 20 percent of global oil transited before recent hostilities. The government cited persistent volatility and supply restrictions from geopolitical conflicts as justification for maintaining price smoothing policies. Brazilian diesel consumption depends on imports for more than 25 percent of supply, amplifying exposure to international price swings. Ukrainian attacks on Russian refineries have further tightened global diesel markets by disrupting refining operations and depleting inventories.
Planning Minister Bruno Moretti confirmed that monthly costs for fuel relief measures reach approximately R$2 billion for gasoline and ethanol tax cuts, with diesel subsidies adding R$5 billion monthly. The administration maintains that extraordinary revenues from oil exports, including a 12 percent export tax on crude and gas, offset intervention costs. As a net petroleum exporter, Brazil collects increased royalties and special participation fees when international prices rise, generating an estimated R$10 billion in additional monthly revenue under current conditions.
The subsidy expansion contradicts earlier Finance Ministry signals about gradual program phase-outs, indicating political priorities less than one month before elections. Market analysts note the measures carry inflationary dampening effects of approximately 0.15 percentage point on the IPCA consumer price index for September, split between 0.11 percentage point from gasoline and 0.04 percentage point from ethanol. However, the fiscal burden and potential dependency on sustained high oil prices for revenue compensation raise concerns about long-term budget stability if crude prices retreat while subsidy expectations remain entrenched.
This article was curated and published as part of our South American energy market coverage.
