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Brazil's Oil Industry Shakeup Could Be Devastating For Its Economy

Increase font size  Decrease font size Date:2021-03-04   Views:8

  Following the leaving of the CEO of Brazil’s state-controlled oil group Petrobras earlier this week, experts fear what greater intervention might do to the country’s oil industry.

  President Bolsonaro quickly replaced Castello Blanco with former Defence Minister Joaquim Silva e Luna, who has no previous experience in the industry. However, the outspoken ex-CEO is hitting back, warning that a policy of state intervention could put artificial limits on the price of fuel. Castello Blanco explained,“If you want to have a market economy, you have to have a market price. Prices below have many consequences, some predictable and others unpredictable, but all negative,”.

  Petrobras stocks plummeted, losing 20 percent of their value on Monday, around $13 billion. This also had a negative effect on Brazil’s currency, which decreased in value by 2 percent.

  At present, Brazil pegs its oil to international rates, however as the state has a 36.8 percent stake in Petrobras, and 50.5 of the voting rights.

  Greater intervention in the energy sector could discourage foreign investment in the country. Having been hit hard by the Covid-19 pandemic, this is a worrying prospect for Brazil’s economy.

  Castello Blanco had won national and international favour for Petrobras, reducing the company’s debt, pushing for greater independence, and making the company attractive to growing oil markets such as India. We are yet to see if Silva e Luna will garner the same respect.

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