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

RIO DE JANEIRO (AP) — Brazilian President Luiz Inácio Lula da Silva ’s government on Friday announced new fuel tax cuts and extended existing subsidies aimed at lowering fuel prices, just over two weeks before a closely contested presidential runoff.

Fuel prices are a particularly sensitive issue for voters, who will decide on Oct. 25 whether to elect Sen. Flávio Bolsonaro, a son of former President Jair Bolsonaro, or grant Lula a fourth, nonconsecutive term. Bolsonaro received about 2 million more votes than Lula in Sunday's first round .

A new decree eliminates federal taxes on the import and sale of gasoline for 30 days, with the possibility of an extension. The measure is effective from Friday, the same day previous measures that lowered taxes expired. It extends a tax exemption and increases a subsidy for ethanol.

The government also said it would provide an additional subsidy to importers of diesel, who will receive 1.40 reais ($0.28) per liter for a period of 30 days. This amount is in addition to the 2.12 reais ($0.42) per liter subsidy already in effect.

“The aim is to ensure that imports remain economically viable at a critical time for fuel supply,” the government’s secretariat for social communication said, adding that the measures were in line with the strategy adopted by the government since the start of the Iran war.

The fiscal impact of the measures will be offset by the revenues from the federal government’s oil assets, it added.

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.

“The international situation has deteriorated since the measures announced in September,” the government said, adding that international diesel and gasoline refining margins had risen to more than double their pre-war levels.

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.

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