Brazil's Lula signs measures to cut fuel taxes and subsidize diesel ahead of election

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RIO DE JANEIRO (AP) — Brazilian President Luiz Inácio Lula da Silva signed a decree and a provisional measure Wednesday aimed at lowering fuel prices, weeks ahead of the presidential election and as the U.S.-Iran war drives up the cost of filling the tank.

The cost of fuel is a particularly sensitive issue for voters, who will decide in October whether to grant Lula a fourth, nonconsecutive term, or elect Sen. Flávio Bolsonaro, a son of former President Jair Bolsonaro.

Brent crude, the international standard, surged above the $100 threshold on Wednesday for the first time since July, after attacks on oil facilities and ships in the Middle East threatened to further strain an already weakened supply chain.

“We’re not going to allow this irresponsible war to hit your pocket,” said Lula as he signed the measures, which extend policies to control fuel prices introduced at the beginning of the U.S.-Iran war.

The measures announced Wednesday include tax cuts on the import and sale of ethanol, gasoline and gasoline blends (excluding aviation gasoline), effective for 30 days from Sept. 10 to Oct. 9. A provisional measure authorizes a subsidy of one Brazilian real ($0.19) per liter for producers and importers of road diesel.

Crude oil prices shot up shortly after Israel and the U.S. began their war with Iran in late February, largely because the fighting halted most shipping through the Strait of Hormuz, a narrow waterway where roughly a fifth of the world’s oil supply passed before the conflict.

Brazil is a major producer and exporter of crude oil, and its revenues from the sector have surged this year due to the hike in international prices. But the country still relies on imports to meet domestic demand for refined fuels.

Stabilizing diesel prices is also critical to prevent truck driver strikes and keep food inflation in check. In 2018, a truckers’ strike caused food prices to spike, left grocery market shelves and gas stations depleted, and caused billions in losses, underscoring the power of organized truckers.

Former President Jair Bolsonaro, then a lawmaker and months away from winning the presidential election, was an outspoken supporter of the truckers, who later became an important constituency for him.

Wednesday’s measures “have a significant electoral component,” according to Armando Castelar Pinheiro, an economics professor at the Federal University of Rio de Janeiro. If it weren’t for the political calendar, “there would be some subsidy, but it would likely be lower,” he said.

Diesel in Brazil is 28% cheaper than international prices and gasoline is 21% cheaper, according to an Itaú BBA market analysis cited by local media Wednesday.

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