Oil volatility threatens Brazil’s subsidy phaseout
Oil exploration station in Iran
Ali Mohammadi/Bloomberg
A possible resumption of the conflict between the United States and Iran and renewed volatility in oil prices could delay the gradual reduction of fuel subsidies announced last week, federal government officials told Valor.
They said the government needs to assess the situation calmly and determine whether oil prices will show a clearer trend before deciding the next steps on the review of the diesel subsidy, currently R$1.12 per liter, and the gasoline subsidy, at R$0.44 per liter.
On another front, the government may need to maintain some level of Export Tax on crude oil, currently set at 12%, given the international backdrop. Because it is a regulatory tax, the rate can be set quickly by the Foreign Trade Chamber (Camex).
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The provisional measure that created the 12% rate on crude oil is valid until this Thursday (9). If it expires without a decision by the committee, the tax will return to zero. Camex is expected to deliberate on the matter on today.
Subsidy rollback
Last week, the government announced the removal of the R$0.35-per-liter diesel subsidy. At the time, Finance Minister Dario Durigan said the remaining subsidies still in force, including the other diesel subsidy and the gasoline subsidy, would be phased out over the following days. Tax relief for biodiesel and jet fuel, as well as the subsidy for the Gás do Povo (Gas for All) program, also remain in place for now.
The economic team’s announcement, however, was made in a different context, after the U.S and Iran reached an agreement to halt attacks in the Middle East and resume talks on the Strait of Hormuz. The agreement drove international oil prices down to around $70 a barrel, after they had climbed above $100 at the height of the conflict.
Still, on Wednesday, U.S. President Donald Trump said the provisional agreement to end the war with Iran, which included a 60-day ceasefire between the parties, “is over,” after Tehran and Washington exchanged fresh attacks late Tuesday.
Crude prices rise again
Against that backdrop, oil prices rose again Wednesday morning, with Brent trading near $80 a barrel. Signs of distortions in global oil prices have reemerged following U.S. attacks on Iran and Washington’s revocation of authorization for the sale of Iranian oil.
Government officials believe Trump’s statement, like many others, may have only a temporary effect, and that Brent could return to a downward path as soon as next week. Even so, the assessment is that the government needs to better understand whether the episode will change the outlook and put oil back on a consistent upward trajectory.
Discussions over the effects of the conflict are taking place daily. Still, officials believe it is not possible to define changes to current rules without first understanding how the scenario will settle and whether Brent crude prices will rise in a sustained way. The consensus is that any decision will be made within the government’s fiscal capacity.
Fiscal cost
The government estimates that R$3 billion of the subsidy cost corresponds to spending on diesel and gasoline subsidies in June, when the measures were in effect for the entire month. In July, the expense is expected to be lower because of the removal of the R$0.35-per-liter diesel subsidy.
The maximum monthly cost of the R$1.12-per-liter diesel subsidy paid to producers and importers is estimated at R$5.5 billion.
On Wednesday, Brazil’s Lower House approved a provisional presidential decree opening an extraordinary credit of R$10 billion in the 2026 Budget precisely to subsidize part of the diesel price. The measure, which still needs to be voted on by the Senate, uses the 2025 financial surplus to pay the subsidy through December 31, 2026.
(Beatriz Roscoe contributed reporting.)
