Rio de Janeiro (AFP) – Brazil’s state-owned oil company Petrobras on Thursday announced steep fuel price increases amid the Ukraine crisis, sparking potential clashes with powerful trucking groups and President Jair Bolsonaro, whose popularity has been hit by the surge in the ‘inflation.
Petrobras said it would raise the price of gasoline from its refineries by 18.8% and diesel by 24.9% from Friday, citing “the global spike in oil and oil-derivative prices at the following the war between Russia and Ukraine”.
The company said the increase was in line with other fuel suppliers and stressed that it had not raised prices for nearly two months.
But the move will likely irritate Bolsonaro, who regularly criticizes Petrobras for its high prices. Soaring inflation in Brazil, driven in part by energy costs, is a particularly weak point for the president as he prepares to seek re-election in October.
Its popularity plummeted as inflation soared to an annual rate of 10.38%.
Bolsonaro’s fuel problems could now worsen.
A key leader of Brazil’s powerful trucking associations, Wanderlei “Dedeco” Alves, has threatened to repeat strikes that devastated the country in 2018, causing widespread shortages.
“Independent truckers and transport companies must unite and paralyze the country,” he told Brazilian media.
“No one will be able to survive this.”
Truckers have been a stronghold of support for Bolsonaro, and he is keen to keep them by his side in a tough re-election battle, likely against leftist former president Luiz Inacio Lula da Silva.
“Significant tax cost”
Fuel price hikes are also expected to hit households hard. Petrobras announced that the price of cooking gas would increase by 16.1%.
Bolsonaro is pushing for Congress to pass legislation aimed at lowering fuel prices, although experts say the short-term impact would be minimal.
He would also consider decreeing emergency subsidies to lower prices.
Both measures are unpopular with fiscal conservatives.
A first bill to create a fuel price stabilization fund was passed in the Senate on Thursday by 61 votes to 8, and will now go to the lower house.
The bill would use Petrobras dividends paid to the government and several other funding sources to periodically subsidize the prices of gasoline, diesel and cooking gas, thereby mitigating market volatility.
It would also double the number of low-income families eligible for cooking gas subsidies to 11 million and pay fuel subsidies of 300 reais ($60) per month to taxi and ride-sharing drivers.
But subsidizing fuel would have a “significant fiscal cost”, said consultancy Eurasia Group.
“In 2018, it cost 9.5 billion reais to reduce diesel prices – excluding gasoline – by just 0.30 reais. A similar proposal in the context of soaring international prices due to the war in Ukraine could cost much more expensive, widening Brazil’s budget deficit,” it said.
Roller coaster stock
Bolsonaro has a habit of attacking Petrobras prices, which have been floating in line with the international market since a policy overhaul in 2016.
He said on Monday that the company’s parity policy with international prices “cannot continue.”
Petrobras shares plunged more than seven percent on the comment.
It echoed a stock plunge of more than 20% just over a year ago, when Bolsonaro changed the chief executive of Petrobras after saying the company shouldn’t constantly ‘surprise people’ with price increases.
Shares of Petrobras reacted positively to the new price rise, gaining 3.9% in afternoon trading on the Sao Paulo stock exchange.
But investors fear political pressure on fuel prices will soon hurt the company, and Latin America’s largest economy more broadly.
The international oil market has been rocked by volatility since Russia invaded Ukraine two weeks ago.
The price of Brent crude hit a high of $139 a barrel on Monday, a 14-year high, before recovering to around $116 on Thursday.
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