The Brazilian government has implemented a provisional measure to address rising diesel prices, a situation exacerbated by high crude oil prices due to the Middle East conflict. This price spike threatens to increase costs for producers and inflation in an election year.

Tax Changes and Immediate Impact

The measure, effective immediately for up to 120 days, eliminates federal PIS and Cofins taxes on diesel for domestic consumption. Concurrently, it imposes a temporary 12% tax on crude oil exports and a 50% levy on diesel exports to boost government revenue.

Effect on Fuel Prices and Industry

The policy is designed to lower diesel prices at the pump by R$0.32 per litre. An additional equal subsidy for producers and importers aims to double the relief for consumers to R$0.64 per litre. State-controlled Petrobras has agreed to participate in this subsidy program, citing potential benefits. However, the Brazilian Petroleum Institute (IBP), representing major operators, was not consulted and is evaluating the measure's sectoral impact. Galp Energia estimates the new oil export tax could cost it up to €100 million.

Political Context

The government framed the action as necessary to shield the population from global economic instability caused by war. The measure takes effect without requiring congressional approval and coincides with a closely contested presidential election year.