OPINION: It is deja vu in Brazil as rising fuel prices and a potential truck drivers strike in Latin America’s largest nation threaten to upset the applecart for the country's president and unsettle the chief executive of state oil giant Petrobras.
It was not long ago that Brazil was facing a similar predicament.
In May 2018, a nationwide truck drivers strike disrupted basic services in the country, forcing the federal government and Petrobras to bow to pressure and lower diesel prices.
The crisis, which rocked the administration of former president Michel Temer, came as state-controlled Petrobras was trying to implement a new strategy of allowing fuel prices to move freely with international crude rates, ending government-imposed controls.
The initiative was aimed at shifting the company’s move towards a more business-oriented model, putting shareholder value at the core.
The tactic pleased investors but came unstuck when the strike caused severe shortages in Brazil and led to the resignation of then Petrobras boss Pedro Parente.
President Jair Bolsonaro has trod carefully with this issue since coming to power in January 2019.
With so much of Brazil's freight transport reliant on road haulage, Bolsonaro has shown himself wary of provoking a new confrontation with truckers, forcing his own finance minister as well as Petrobras boss Roberto Castello Branco to moderate their rhetoric about the virtues of the free market.
Petrobras has reduced the frequency of fuel-price adjustments at its refineries, but the depreciation of the Brazilian real and an uptick in inflation have again brought things to a head.
Diesel prices represent about half the costs associated with the transportation of goods and truck drivers are threatening a new strike on 1 February.
Brazil's truck drivers' association has pleaded for diesel prices to be revised just twice a year, but such a move would mean Petrobras once again decoupling from global oil prices.
This alarms Petrobras investors, who remember that a similar strategy previously led to big losses at its downstream division.
A second nationwide strike could cripple Brazil’s fragile economic recovery.
With tensions rising and the strike date fast approaching, both sides would be best served by reaching an accord.
(This is an Upstream opinion article.)