How Brazil plans to avoid an oil crisis

Good morning! We’re covering the government’s efforts to avoid a crisis motivated by increasing oil prices. How Jair Bolsonaro will change the Brazilian Justice system. And new deforestation data—and an exclusive weather analysis of Brazil’s big cities. (This newsletter is for premium subscribers only. Become one now!)

on Monday that the government is working on solutions to avoid a massive hike in fuel prices in the country. Since the beginning of the year, Brent crude prices—the international benchmark for the commodity—are up nearly 4 percent, following a <a href="https://brazilian.report/newsletters/brazil-weekly/2020/01/06/brazil-act-u-s-iran-conflict-breaks-out/">U.S. airstrike that killed Iran’s top military official</a>.</p> <div class="flourish-embed" data-src="visualisation/1196541"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Why it matters.</strong> <a href="https://brazilian.report/business/2018/05/25/truckers-protests-brazil-fuels/">Over 60 percent of all cargo in Brazil</a> is transported by trucks. Meaning that fuel prices can raise costs for entire production chains, pushing inflation up as a result and threatening Brazil’s still-ailing economy. Not to mention that higher diesel prices could trigger another truckers’ strike, in the molds of the one that <a href="https://brazilian.report/society/2018/05/30/truckers-driving-brazil-chaos/">halted Brazil for 11 days in 2018</a>.</p> <p><strong>Pressure.</strong> Truck drivers’ trade unions are aware of their leverage and have mobilized against hikes in diesel prices. They have been disgruntled with the half-hearted implementation of minimum reference prices for cargo deliveries for some time and <a href="https://brazilian.report/newsletters/brazil-weekly/2019/12/16/us-china-trade-agreement-good-bad-brazil/">threatened</a> to strike in mid-December. To make matters worse, the government has no clear policy to deal with them. Last year, President Bolsonaro called off a bump in diesel prices to avoid the risk of industrial action, but no clear strategy was established.</p> <p><strong>What’s on the table?</strong> Mr. Albuquerque avoided getting into details but he assured that Petrobras’ pricing policy—which pegs Brazilian fuel to international rates—will not be tampered with. It appears the government is seeking some sort of subsidy to compensate drivers. President Jair Bolsonaro also talked about the possibility of the federal administration convincing governors to lower state taxes, which, according to him, “account for one-third of final prices.”</p> <p><strong>No easy solution.</strong> Palliative remedies to complicated problems usually end badly. Holding diesel prices could force the government to increase the cost of gasoline, which would spare truckers but anger millions of drivers. In the past, the Dilma Rousseff administration chose to freeze prices—a move that was highly detrimental to Petrobras and increased the public debt.</p> <p><strong>Petrobras.</strong> According to <strong>The Brazilian Report</strong>‘s Natália Scalzaretto, the giant Brazilian oil producer—which has reserves outside of conflict areas—is in a privileged position to profit from tensions in the Middle East. On Monday, the firm’s preference shares (<a href="https://www.investing.com/equities/petrobras-pn-historical-data">PETR4</a>) rose 1.18 percent.</p> <hr class="wp-block-separator"/> <h2>Bolsonaro to leave his mark on Brazil’s Justice system this year</h2> <p>In 2020, President Jair Bolsonaro will be able to fill up four vacancies in Brazil’s superior courts, including a seat on the Supreme Court. On November 1, Justice Celso de Mello—the longest-serving member of the court—will celebrate his 75th birthday and thus reach the age of mandatory retirement for judges in Brazil. For the same reason, another vacancy will open up in Brazil’s Superior Court of Justice, and two more in the Superior Military Court.</p> <p><strong>Why it matters.</strong> By the end of his term, on December 31, 2022, Mr. Bolsonaro will be able to name at least 14 judges to superior courts, taking into account only those who will forcibly retire due to age. This will help him in his goal to launch an ultra-conservative, religious shift in Brazil’s political establishment. For the next Supreme Court seat, Mr. Bolsonaro has said he wants to appoint someone who is “extremely Evangelical.”</p> <p><strong>Next on the bench.</strong> For Justice Mello’s seat, two names appear to be leading the race. The first is Solicitor General André Mendonça, who is also an Evangelical preacher. Another option would be Justice Minister Sergio Moro, but this option is far less certain. </p> <p>Placing Mr. Moro in the Supreme Court would allow Mr. Bolsonaro to get rid of a potential rival in the 2022 election, as recent opinion polls show the justice minister is the most-trusted political figure in Brazil. However, having Mr. Moro in the Supreme Court would not necessarily give him an unconditional ally in the country’s top tribunal, as the pair have not seen eye to eye on numerous issues.</p> <p><strong>Ulterior motives? </strong>Besides the Evangelical aspect, it is expected that Mr. Bolsonaro will pick judges inclined to cater to his interests. Recently, he said he would have shelved investigations against his son if he had power to do so. That jurisdiction lies with Supreme Court justices.</p> <hr class="wp-block-separator"/> <h2>How deforestation hit Brazil’s biggest biomes in 2019</h2> <p>The Amazon rainforest and the tropical savannah of the Cerrado lost a combined area of 16,100 square kilometers between August 2018 and July 2019.</p> <ul><li>In the Amazon, 9,700 sq km of forest were scrapped—a 29.5-percent hike from the previous 12 months;</li><li>Cerrado data, on the other hand, shows a 2.26-percent drop in deforested areas, with a loss of 6,400 sq km of native vegetation.</li></ul> <p><strong>Why it matters.</strong> Under Jair Bolsonaro, the federal government has further loosened Brazil’s already lax environmental controls, catering to the interests of agricultural producers. In the Cerrado, between 80 and 85 percent of land is on private properties, according to NGO The Nature Conservancy. But in the mid- to long-term, deforestation will contribute to making <a href="https://brazilian.report/business/2018/11/22/climate-change-brazil-warmer-drier/">several Brazilian regions drier and warmer</a>—which will have negative impacts on crops.</p> <p><strong>Rising temperatures.</strong> Data editor Marcelo Soares mapped the average temperature highs in Brazilian state capitals during the month of December—the hottest of the year—between 1961 and 2019. Using official data, he shows that major urban centers are getting much warmer. The average high of all 27 state capitals went from 29.5 to 31.3 degrees Celsius.</p> <div class="flourish-embed" data-src="visualisation/1196990"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <p><strong>Iran.</strong> After the Brazilian government published a <a href="https://www.poder360.com.br/governo/somos-favoraveis-a-qualquer-medida-que-combata-o-terrorismo-diz-bolsonaro/">statement</a> supporting the U.S. operation that killed Qassim Suleimani—calling it a move “against terrorism”—the Iranian government requested a meeting with Brazil’s chargé d’affaires in Tehran, with the ambassador currently on vacation. Brazil’s Foreign Affairs Ministry says the meeting took place on Sunday and was “cordial.” Brazil was not the only country to meet with the diplomatic authorities of the Islamic republic.</p> <p><strong>Fires.</strong> Australia is fighting an <a href="https://www.bbc.com/news/world-australia-51015536">unprecedented bushfire season</a>, which has produced smoke clouds that traveled 12,000 kilometers to reach South America. The Santiago Meteorological Department spotted smoke clouds in Chile and Argentina, but say they are not hazardous to human health, as they are at an altitude of 6,000 kilometers. The smoke cloud is expected to reach Brazil’s southernmost state, Rio Grande do Sul, later today.</p> <p><strong>Old politics?</strong> Despite its anti-establishment rhetoric, the Bolsonaro administration seems to have adhered to the old ways of Brazilian politics. Last year, it cleared a record amount of BRL 5.7 billion in legislative budgetary grants, which is a provision to avoid the Executive holding a monopoly over the federal budget. The president retains some control on when to release these funds, making these grants a bargaining chip for the government when trying to pass legislation.</p> <p><strong>Oil stains.</strong> The Northeastern coast of Brazil has once again been hit by oil stains, a little over 100 days after the first ones appeared. Environmental authorities report that at least 998 locations have been affected by the substance, which is a mix of crude oil. The Brazilian government remains unaware of the origin of the oil, having vented the possibility of it coming from Venezuela or being leaked by a <a href="https://brazilian.report/society/2019/11/02/greek-ship-bouboulina-caused-brazil-oil-spill/">Greek oil tanker</a>.</p> <p><strong>Press.</strong> Once again, President Jair Bolsonaro has traded barbs with the press. On Monday, he said journalists are an “endangered species,” and accused newspapers of “misinforming” the public. The Brazilian Press Association called the statement “outrageous,” and said journalism “will certainly outlive politicians who are enemies of democracy.”

Read the full story

Start your 7-day free trial

Brazil studying ways to prevent a hike in fuel prices