Lula’s government in Brazil lowers fuel prices ahead of runoff vote against Flávio Bolsonaro

Brazil's President Luiz Inácio Lula da Silva's administration announced fuel tax cuts and extended subsidies on Friday, ahead of a crucial presidential runoff election in two weeks. The new measures aim to lower fuel prices and stabilize the market before the Oct. 25 vote.

The government eliminated federal taxes on gasoline imports and sales for 30 days, with the possibility of an extension. This move is effective immediately, following the expiration of earlier tax reductions. The government also extended an ethanol subsidy and increased a diesel subsidy, providing an additional 1.40 reais ($0.28) per liter to importers for 30 days.

This additional subsidy is on top of the existing 2.12 reais ($0.42) per liter. The government's secretariat for social communication stated that these measures are designed to ensure fuel imports remain economically viable during a critical supply period. They emphasized that the actions align with their strategy since the start of the Iran war.

The fiscal impact of the measures will be covered by revenues from the government's oil assets, according to the press release. International crude oil prices surged after the start of Israel and the U.S.'s war with Iran in late February, primarily due to halted shipping through the Strait of Hormuz, where about a fifth of the world's oil passes.

The government acknowledged that international diesel and gasoline refining margins have risen more than double their pre-war levels. Brazil is a significant oil producer and exporter, and its revenues from the sector have increased this year due to the rise in international prices. However, the country still imports refined fuels to meet domestic demand.

Stabilizing diesel prices is crucial to prevent trucker strikes and control food inflation, as seen in 2018 when a truckers' strike caused food prices to spike, depleted grocery shelves and gas stations, and resulted in billions in losses.