The energy security system of Brazil faces a critical vulnerability which results from multiple policy transformations that have prevented the country from producing enough diesel, gasoline, LPG, and aviation fuel to satisfy its internal consumption needs. The current situation exists because both the global market trends and the systematic destruction of the country's refining capabilities together with its state regulatory systems which started after the 2015-2016 political changes, during Michel Temer's presidency, which was achieved after the impeachment of President Dilma Rousseff, in a political action coordinated by then-Speaker of the House Eduardo Cunha, who would eventually be arrested in October 2016 as part of Operation Lava Jato, accused of receiving bribes (approximately US$1.5 million) to facilitate the purchase of an oil field in Benin (Africa) by Petrobras.
Now, the core of the issue lies in the abandonment of a comprehensive strategy aimed at energy independence during the years of Michel Temer and Jair Bolsonaro's governments. Before that, Brazil had set an ambitious goal to achieve complete self-sufficiency for both oil production and refinery operations which would enable the country to become an exporter.
However, this vision was derailed. The Lava Jato (Car Wash) operation reached its peak when state-owned oil company Petrobras had to cut back its business activities. The company reduced its refinery operations in order to prepare for privatization while it sold BR Distribuidora to leave the retail sector and divested its stake in Liquigás — which, for many Brazilians politicians, such as Ciro Gomes, for example, was a "crime against the nation".
The strategic withdrawal from the market left Petrobras unable to handle domestic consumer needs. The country increased its dependence on private companies to bring in necessary fuel supplies. During the years of the Temer and Bolsonaro governments, Brazil adopted a policy of growing dependence on the international market, naively assuming that the world would remain at the low price levels seen from 2014 to 2020. Such decisions demonstrate today, at the very least the short-sightedness of the approach.
Michel Temer and Jair Bolsonaro brought major changes to Petrobras's business operations. The company operated as a crude oil producer for pre-salt reserves, which limited its business activities to the Southeast and South regions while it stopped serving customers across the entire country.
The present day displays clear effects which stem from this security weakness. Brazil relies on diesel imports for about 30% and gasoline along with LPG imports for 15% to 20% of its total needs. The domestic market experienced tremors when global energy prices increased because of geopolitical conflicts although actual price increases remained contained. The federal government implemented short-term solutions which included tax reductions for PIS and Cofins along with cost subsidies for importers and a 12% export duty on crude oil which would help reduce expenses for end users.
The absence of government control over the retail industry has permitted private distribution companies and gas stations to boost their profits while charging higher prices to consumers, even though fuel prices in Brazil did not suffer the same impact as in other regions due to the Iran-Iran War. Private distributors buy fuel at a discount from Petrobras and sell it at a higher price to ordinary consumers, even though the price of these fuels has not been affected by the increase caused by the war. For that reason, the government needs BR Distribuidora because it serves as the only way to establish effective pump price controls.
A recent Petrobras gas auction controversy demonstrates the existing fundamental problems. The auction resulted in exorbitant prices which caused the company to terminate gas director Cláudio Schlosser. The incident revealed the complete price increases throughout the supply chain: Petrobras sells cooking gas cylinders at the refinery for R$ 34 to R$ 35 yet consumers purchase them at R$ 110 to R$ 150. The auction conducted outside established supply agreements during a time of extreme industrial demand and market speculation permitted price gouging which enraged President Luiz Inácio Lula da Silva because he wanted to defend low-income households.
The government needs to explore comprehensive strategies which include consumption limits and severe penalties against all market speculation activities. Petrobras has ended its adherence to Import Parity Price (PPI) regulations which resulted in Bolsonaro administration fuel price changes that reached 100 times per year yet the company must continue to rely on international markets until it provides funding for domestic importers. The current strategy which uses "Brazilianization" for price control purposes seeks to minimize market fluctuations while protecting Brazilian markets from severe global market impacts.
The main question which needs to be answered now requires Brazil to find solutions for its energy security problems under conditions of growing global instability. The government needs to establish permanent solutions which will make it necessary to change its current methods of managing the country's natural resources, which should provide citizens with stable and affordable energy.
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