The Brazilian government announced expanded fuel subsidies and tax cuts on Friday, a move aimed at reducing fuel prices ahead of the country’s presidential runoff on October 25. The measures come just over two weeks before voters decide whether to reelect President Luiz Inácio Lula da Silva for a fourth, nonconsecutive term or to elect Senator Flávio Bolsonaro, son of former President Jair Bolsonaro, who led the first round of voting by approximately two million votes.
The new decree eliminates federal taxes on the import and sale of gasoline for 30 days, effective immediately, with a possibility of extension. This follows the expiration of previous tax relief measures on the same day. In addition, the government extended the tax exemption on ethanol and increased subsidies for its production. Diesel importers will also receive an additional subsidy of 1.40 reais (about $0.28) per liter for the next 30 days, supplementing an existing subsidy of 2.12 reais (about $0.42) per liter already in effect.
Officials from the government’s secretariat for social communication explained that these measures are intended to keep fuel imports economically viable during a critical period for Brazil's fuel supply. They also noted that the measures align with the government’s strategy since the onset of the conflict between Israel, the United States, and Iran earlier this year. The fiscal impact of the subsidies is to be offset by revenues generated from Brazil’s federal oil assets.
The conflict in the Middle East, which began in late February, has significantly affected global crude oil markets, particularly by disrupting shipping through the Strait of Hormuz—a key transit point for about one-fifth of the world’s oil supply. Since that time, Brazil’s government stated that international refining margins for diesel and gasoline have more than doubled compared to pre-war levels.
Brazil is a major crude oil producer and exporter, and its earnings from the oil sector have risen sharply due to elevated international prices. However, the country remains dependent on imported refined fuels to meet domestic consumption. Maintaining stable diesel prices is seen as crucial to preventing truck driver strikes and managing food inflation, given the critical role diesel plays in transportation.
The government’s concerns about potential disruptions are informed by the 2018 truckers’ strike, which severely impacted food prices, emptied grocery shelves and gas stations, and inflicted significant economic losses. The strike underscored the influence of organized truck drivers in Brazil’s economy and heightened sensitivity around fuel costs ahead of the upcoming election.