Oil Carnival

• Alexis Bienvenu
  Fund Manager
  La Financière de l’Échiquier (LFDE)

For with the explosion in oil prices caused by the blockade of the Strait of Hormuz, Brazil is raking in an unexpected windfall. At $100 a barrel for Brent crude, compared with around $65 before the Strait crisis, the oil company Petrobras has become a cash cow for the state, which holds a majority stake. By 16 April 2026, the oil giant’s share price had soared by 80%. A godsend for President Lula, who is staking his re-election next October at the age of 80. An opportunity to shore up his electoral base with subsidies.

Alas, just like the carnival, the ‘black gold’ bonanza has a downside: the price at the pump. For whilst Brazil has risen to become the world’s ninth-largest exporter, it remains a major importer of petroleum products. With refining capacity ill-suited to its production levels, it relies on foreign supplies, particularly for diesel. The result: lorry drivers, who are essential in this vast country, threatened in March to bring the country to a standstill, much like the blockade in 2018 that crippled the economy. Although the threat has passed, the pressure remains. With the presidential election just a few months away, a social crisis would certainly spell defeat for the president, the champion of the ‘Workers’ Party’.

In response, Lula the progressive, host of COP30 in 2025 in the Amazon, is heavily subsidising oil consumption by cutting taxes and ardently defending the exploitation of promising new oil fields off the mouth of the Amazon, in the ‘equatorial margin’, against the wishes of environmentalists.

But generosity towards the energy sector may not be enough: Lula’s designated political opponent, Flavio Bolsonaro – son of the former president sentenced to 27 years in prison – wants to go further: privatise Petrobras, abolish all federal taxes on hydrocarbon consumption and feed a “reserve fund” with royalties levied on oil, based on a model inspired by Norway. This would allow prices at the pump to be smoothed out through subsidies whilst benefiting from high global prices. Having one’s cake and eating it too.

The situation in the Strait of Hormuz will therefore partly determine the outcome of the upcoming election. An election centred on oil, with global repercussions given Brazil’s role in the global oil supply. But the strait does not only affect black gold. It also shapes another vital pillar of the Brazilian economy: agriculture, through fertilisers. Brazil, the world’s leading soya producer and China’s main supplier in this sector, is in fact 85% dependent on imports of foreign fertilisers to ensure the prosperity of the agricultural sector of its economy. Yet a large proportion of these fertilisers pass through the Strait. If it does not reopen soon, the 2026/2027 soya harvest, to be planted next autumn , will be jeopardised. The result would be agricultural, social and commercial tensions – and even diplomatic ones, as the repercussions would be felt as far afield as China and Europe. Faced with the prospect of widespread price rises, the Brazilian population is under severe strain. All the more so as, in a scenario of higher-than-expected inflation, interest rates could rise again, just as they had begun to fall.

Brazil’s hangover, following the oil-fuelled carnival, could therefore prove to be as long as the Amazon River.

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