Political Turmoil Rages in Brazil, Puts Oil Industry On Edge

During the worst economic recession in about a century.

By Nick Cunningham, Oilprice.com:

More than 3 million people protested in the streets of major cities across Brazil on March 13, numbers that may have exceeded even the massive rallies that took place at the end of the country’s military dictatorship in the mid-1980s. The population is fed up with corruption, fed up with the ruling party, and are seeking the ouster of President Dilma Rousseff.

The list of problems facing President Rousseff runs long. The scandal plaguing the state-owned oil company Petrobras continues to spread. Brazil is facing the worst economic recession in about a century, in large part due to the crash in prices for oil and other commodities. GDP shrank by 3.8% in 2015 and could contract by almost as much this year. And President Rousseff herself is facing impeachment proceedings for cooking the budgetary books.

She isn’t the only one to blame. The Petrobras scandal and the ongoing investigation, known as Lava Jato, have implicated politicians from several political parties, not just her own. Also, the impeachment proceedings are being led by an opponent of President, Eduardo Cunha, who himself is under investigation for corruption as part of the Petrobras scandal. Still, the pressure on Rousseff is growing by the day. One of her major coalition partners, the PMDB party, could abandon her in the coming weeks.

In a bizarre turn of events, former President Luiz Inacio Lula da Silva was charged with money laundering last week, but as of March 16, agreed to become President Rousseff’s Chief of Staff. At the time of this writing, it appears that a Brazilian court suspended the appointment, so his admittance into the cabinet is unclear.

The move offers him some legal protections against the corruption investigation – ministers of government can only be tried by the Supreme Court, so investigators will now have a tougher time going after him. Lula has been ensnared in the Petrobras kickback scandal, a scheme in which Petrobras was overcharged by contractors whom then turned around and kicked back billions in payments to high level figures in both the oil company and the ruling party. Much of the graft apparently took place during Lula’s presidency.

The fact that Rousseff would turn to Lula – a once popular figure who is now much diminished – illustrates the extent of her predicament.

In fact, analysts are now debating when she might be forced from office, not if. The Eurasia Group, a political risk outfit, put odds on Rousseff not finishing her term at 65 percent. “The climate in Congress has changed,” said Ricardo Caldas, a Brasilia-based political scientist, according to The Wall Street Journal. “If they don’t vote for impeachment, it will be hard to explain to voters.”

This is a complicated political backdrop that the oil industry must navigate. One of the major international oil companies operating in Brazil is Royal Dutch Shell, who announced on March 14 that it had started oil production at the third and final phase of its Parque das Conchas project, an offshore field in Brazil’s Campos Basin. The latest development will add 20,000 barrels of oil equivalent per day at peak production. The project includes a subsea production system and ties back to a floating production, storage and offloading (FPSO) vessel.

Shell also recently completed the takeover of BG Group, which granted the oil major significant offshore positions in Brazil.

Meanwhile, the Brazilian Congress is weighing legislation that could liberalize the country’s offshore “pre-salt” deposits, vast oil fields located in deep water underneath a thick layer of salt. Petrobras is legally required to operate Brazil’s pre-salt fields, and take a substantial stake in any project. Shell’s CEO has advocated for a removal of such requirements, arguing that oil companies such as his could move forward with development much faster.

Speaking on the possibility that the Brazilian Congress might ease Petrobras’ control, Shell’s CEO Ben van Beurden said the move was only logical. “It’s up to congress to decide. But I think it makes sense to call on other companies who have the technology, who have the money,” van Beurden said. “I don’t see how this is not beneficial for Brazil,” he added.

There are a lot of moving pieces. Former President Lula is reportedly going to be tasked with getting the economy back on track. The Brazilian stock market and the country’s currency have reacted negatively, expecting growth policies that could worsen the fiscal outlook.

From the oil industry’s perspective, opening up the offshore sector to private companies, some assert, would help attract much needed foreign investment. As a result, privatizing pre-salt assets could be pushed forward in part because of the political turmoil, and it is a testament to Brazil’s current problems that such a massive piece of legislation would probably be a mere sideshow to the political upheaval taking place in the country right now. By Nick Cunningham, Oilprice.com

Petrobras is not alone. Pemex, Mexico’s state-owned oil company and once the government’s proud sugar daddy, has turned into a giant financial sinkhole. Read…  Big-Oil Bailout Begins as Pemex’s Debt Spirals Down

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  8 comments for “Political Turmoil Rages in Brazil, Puts Oil Industry On Edge

  1. Chip Javert says:

    Yawn. Gosh, more socialist corruption. I’m shocked. Pass the popcorn.

    What is it that causes citizens (USA included) to place so little value in clean & effective government?

    • Romulus says:

      Brazil is a joke. A banana republic. Leaders are socialists morons. They simply broke the country.

  2. David D says:

    Hey no big deal in the U.S. The evil empire keeps fueling the stock market to new highs. So all of this global “bad” news is just irrelevant noise. Gotta love that a guy who should be behind bars for criminal conspiracy was picked to be in the new Presidents cabinet. Laughable! Kind of like Robert Rubin picked by Obama to be part of his financial advisory group after he 1st took office. The obsurdity and insanity of it all is beyond belief. These guys should all be serving time in a federal pententiary – Rubin, Geitner, Paulson, Greenspan, Bernanke etc… But, it continues again and again all over the world in even more grandiose and diabolic schemes.

    • Dan Romig says:

      Couldn’t agree more David.

      It starts at the top, and now, that top is President Obama. Our new US Attorney General who leads the Department of Justice is Loretta Lynch. Lynch sat on the Federal Reserve Bank of New York’s Board of Directors from 2003 to 2005 under the aforementioned Geithner. At the time Geithner was President of the Board.

      President Obama nominated Ms. Hester Peirce to fill the Republican seat as a Commissioner of the SEC on 20 October 2105. Ms. Peirce testified before the US Senate Banking Committee this Tuesday, 15 March.

      It will be no different to transition from Obama to HRC if that’s where we go this November.

      http://www.wallstreetonparade.com has a report on this published yesterday that is definitely worth a read for insight into Obama’s choice.

      Seven and a half years has not brought any change for the ‘Hope and Change’ Democrat elected in 2008. Turn the clock back to May 1999 when Clinton vetoed the GLB-Act, you know the repeal of Glass-Steagal. Billy had the legislation rewritten to include some more little goodies that the other aforementioned individuals sought to be added. A man named Neal Wolin did the job, and the Congress, in a bipartisan manner sailed it through to law in November of 2009.

      After Obama was inaugurated in January 2009 he waited two whole months before nominating Wolin to be Deputy Secretary of the Treasury Department. That’s right, the man who wrote the legalese to create the conditions for the economic meltdown of 2008, was appointed by our Commander in Chief to be Timmy boy’s right hand man!

      All I can conclude with is a quote from Mr. Spock, “Live long and prosper.”

  3. B.S. says:

    I do not understand the section where Cunningham says:

    “There are a lot of moving pieces. Former President Lula is reportedly going to be tasked with getting the economy back on track. The Brazilian stock market and the country’s currency have reacted negatively, expecting growth policies that could worsen the fiscal outlook.”

    In fact, since late January, the Brazilian stock market has been zooming up like a rocket, propelled by the 3 Billion $ provided by the Fed to emerging markets:


    Stock markets around the world are completely divorced from normal economic factors and are completely tied to central banks policies. This includes the Brazilian stock market.

  4. Paulo says:

    One good thing, it might stick a fork in the Olympics.

    There sure appears to be a great many things/issues coming to a head these days. Everywhere. “Fire in the hole”!!

  5. Last Call says:

    To think Dilma will not be tagged in Car Wash while she Honorary Chair of Petrobas from2003 to 2010 or 11 is to say you won’t get wet under a waterfall.

    If Lula was confident enough to get in on the graft than it strains the imagination that his mini me Dilma didn’t.

  6. Brian Richards says:

    If only the US public had half the balls that the Brazilian public has, there might really be some positive change. A few million protesters clogging up major cities, including our own major cesspool of corruption, Washington D.C., might get the politicians thinking. Ultimately, I think there is going to be only one solution, and it has a lot of tradition behind it. That may be why a number of the elites have off shore hiding places.

Comments are closed.