Private consumption drives Brazil’s post-pandemic growth, IMF says

The Fund points to a strong labor market, income gains and credit as key factors behind household spending exceeding forecasts

 

 

 

 

The recovery in private consumption has been the main force sustaining Brazil’s economic expansion since the pandemic, the International Monetary Fund said in a report on the country released Thursday (23).

With the labor market remaining strong, incomes rising sharply and credit expanding at a robust pace, private consumption has repeatedly exceeded projections made by the Fund staff at the start of each year since 2021.

Private consumption accounts for roughly 60% of Brazil’s GDP on the demand side. In the first quarter of this year, household spending rose 1% from the previous quarter, again supported by a tight labor market, credit growth and income-transfer programs, all factors highlighted by the IMF.

Consumption strength

The report said private consumption has played a larger role in the recovery than other components of demand, including investment. Although investment has also expanded, it remains below its pre-pandemic trajectory.

Net exports, meanwhile, have contributed more to real GDP than before the pandemic, supported by strong exports, particularly hydrocarbons. Imports, however, remain below their pre-pandemic path, which the IMF said partly reflects the incomplete recovery in investment.

The Fund also pointed to continued fiscal support as another factor behind Brazil’s rebound from the pandemic, noting that government consumption has repeatedly exceeded expectations.

In addition, “total primary public spending, including transfers, exceeded forecasts, reflecting higher spending by states and municipalities, partly financed by transfers from the federal government,” the IMF said.

Fiscal support

The Fund said higher government spending was partly offset by stronger public revenue, driven by both economic growth and tax-policy measures.

“Overall, staff assess that fiscal support since the pandemic, through its immediate and lagged effects, added around 2% to the level of real GDP by 2025. This support contributed to output exceeding potential, implying a procyclical impulse,” the report said.

The IMF also said the growing number of exceptions to Brazil’s fiscal rules has weakened the path for the primary balance that would otherwise be consistent with meeting the targets.

Explaining the fiscal framework that replaced the spending cap in 2023, the Fund noted that Congress approved increases in government spending in 2025 that can be excluded when assessing compliance with primary-balance targets. The permitted deductions could reach as much as 0.7% of GDP by 2027.

“Some of the permitted deductions are not related to unexpected events,” the report said.

The IMF said the increase in deductions has pushed the trajectory of primary balances further away from the targets established under the fiscal framework and raised the projected path of long-term public debt.By

*Por Rafael Vazquez – São Paulo
Source: Valor International
https://valorinternational.globo.com/
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Brazil extends gasoline subsidy as oil prices climb

Government will keep a R$0.44-per-liter gasoline subsidy in place for another 30 days following renewed tensions in the Middle East

 

 

 

 

Finance Minister Dario Durigan confirmed that Brazil’s government has decided to extend the R$0.44-per-liter gasoline subsidy. The measure was introduced on May 25 but was originally scheduled to remain in effect for only two months, meaning it would expire on Saturday (25).

“We will not let the Brazilian people pay more for fuel. We will continue providing this support,” Durigan said when asked about the measure during an interview with BandNews on Thursday (23) evening.

In a statement, the Finance Ministry said the ordinance extending the gasoline subsidy was signed by the minister on Thursday and will be published in Friday’s (24) edition of Brazil’s Official Federal Gazette. The subsidy will remain at R$0.44 per liter for another 30 days, effective from July 26.

The extension was prompted by the recent surge in Brent crude prices on international markets. The economic team had initially planned to phase out the gasoline subsidy in July after the United States and Iran reached an agreement aimed at ending the conflict in the Middle East. The announcement had driven Brent prices down to around $70 per barrel, close to pre-war levels.

The agreement, however, was not implemented, and tensions in the Middle East escalated again. At Thursday’s close, Brent crude rose 7.04% to $100.69 per barrel. As a result, the government decided to maintain the gasoline subsidy for another 30 days.

A separate subsidy of R$1.12 per liter for diesel also remains in effect. The Finance Ministry said that measure was extended for an additional 60 days on July 16.

*By Jéssica Sant’Ana — Brasília

Source: Valoar International

https://valorinternational.globo.com/

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Carrefour returns to growth in Brazil, improves profitability in Q2

CEO Alexandre Bompard says commercial strategies and cost-cutting initiatives drove sales growth

 

 

Carrefour delivered resilient results in Brazil during the second quarter, marked by a return to sales growth and continued improvement in profitability. The retailer’s performance in the Brazilian market came despite a still-challenging macroeconomic environment, where high interest rates continue to weigh on consumers’ purchasing power and keep retail sector sales volumes in negative territory.

“Our commercial strategies and cost-cutting initiatives enabled us to grow sales and improve margins during the second quarter,” Carrefour CEO Alexandre Bompard said in a statement.

The French retailer generated €5.46 billion in sales in Brazil during the quarter, up 9% from a year earlier. On a comparable basis, excluding currency effects, revenue increased 0.4%, reversing the 0.8% decline recorded in the first quarter.

Atacadão, Carrefour’s cash-and-carry chain in Brazil, returned to growth, posting a 0.5% increase in comparable sales and outperforming the country’s cash-and-carry market as a whole. The company said sales volumes have stabilized since the beginning of the quarter.

In its conventional retail segment, comparable sales declined 0.6%, mainly reflecting the company’s deliberate slowdown in e-commerce sales of non-food products.

To strengthen commercial momentum in Brazil, Carrefour invested in targeted marketing campaigns and expanded its product portfolio, with particular emphasis on its Bulnez private-label brand, which now includes 200 products.

The company’s financial services division also delivered strong results in the second quarter, with its loan portfolio expanding 13% while revenue rose 8%.

Carrefour’s recurring operating income in Brazil reached €359 million in the first half of the year, up 5.8% from the same period in 2025. The recurring operating margin improved by 9 basis points to 4%, supported by cost optimization measures and operational efficiency initiatives.

On a consolidated basis, Carrefour reported a net profit of €54 million for the first six months of the year, reversing a €361 million loss recorded a year earlier. Sales totaled €39.4 billion, an increase of 1.7% year over year.

The company reaffirmed its full-year guidance, including expectations for higher operating margins, increased free cash flow generation and growth in earnings per share, supported by anticipated improvements in operating performance during the second half of the year.

*By Felipe Laurence, Valor — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Fiscal watchdog flags risk from state-owned companies’ financial situation

Possible issues include Treasury contributions, debt payments, increased subsidies to dependent companies, and reduced dividends, IFI says

 

 

 

The deteriorating financial condition of some federally owned state-owned companies is heightening fiscal risks for the federal government, according to the Independent Fiscal Institution (IFI), the public finances watchdog linked to the Senate. Those risks include possible capital injections from the National Treasury, higher subsidies for Treasury-dependent state-owned companies, and payments on loans the companies took out under federal guarantees but failed to honor. There is also a risk of lower dividends being paid out to the federal government.

The warning appears in the July Fiscal Monitoring Report (RAF), released Thursday (23). The chapter on state-owned companies was written by director Alexandre Andrade and staff member Gustavo Queiroz. Among the companies showing financial deterioration are Correios, Emgepron, and Infraero.

Correios, for instance, posted negative operating cash flow of R$692 million in 2025, following a R$2.4 billion deficit the year before. Infraero recorded negative operating cash flow of R$375.4 million, a R$207.9 million deterioration from 2024. The indicator matters because it measures a company’s ability to generate resources through its core business.

Operating margin shows further signs of weakness. Correios closed 2025 with a negative operating margin of 42.9%, its worst level since the indicator began deteriorating in 2022. Emgepron also stayed in negative territory, at negative 24.8%, followed by Infraero at negative 10.5%.

Operating margin reflects a company’s ability to service its financial debt and invest in its own growth. A negative margin leaves a state-owned company with limited capacity to fund its investment plans or even sustain operations, raising the likelihood of eroding shareholders’ equity or needing capital injections from the National Treasury.

The report also flags companies that lean more heavily on financial income than on operating revenue, like Emgepron, ABGF, Infraero, Codern, and Emgea, all show a high ratio of financial income to net revenue, a warning sign for the federal government.

According to the IFI, this pattern can point to a shortage of investment projects, low operating efficiency, or reliance on funds from earlier federal capital injections.

The report also shows the primary balance of federal state-owned companies steadily deteriorating. After posting a surplus equal to 0.06% of gross domestic product (GDP) in 2022, the group ran deficits of 0.02% of GDP in 2023, 0.07% in 2024, and 0.04% in 2025. On a rolling 12-month basis through May of this year, the deficit reached 0.07% of GDP.

Treasury dependence

 

In the institution’s assessment, the worsening fiscal and financial conditions at some companies raise the risk that Treasury-dependent state-owned companies will need supplementary budget allocations or capital injections, adding pressure to the federal government’s primary spending.

For companies that are not Treasury-dependent, the main risk lies in weaker cash generation and lower dividend payments to the federal government, along with the possible need for future recapitalizations.

Another risk identified is that state-owned companies may fail to repay loans backed by federal guarantees. In such cases, the National Treasury has to cover the debt, adding further pressure on public finances.

The IFI notes that the deterioration among state-owned companies is neither uniform nor driven by a single cause but says the data reveal patterns that warrant government attention.

Among Treasury-dependent state-owned companies, an analysis of shareholders’ equity, operating cash flow, and the cash adequacy indicator identifies another group with concerning financial conditions: Codevasf, CBTU, Embrapa, HCPA, and EBSERH.

“For these companies, it’s important to stress that the issue isn’t solvency in the traditional sense, since their existence depends on Treasury subsidies rather than their own cash generation. The real risk lies in the persistent mismatch between spending and transfers, which tends to translate into pressure for supplementary budget allocations or extraordinary capital injections, competing for fiscal space with other public policies,” the IFI explained.

 

Among state-owned companies that are not Treasury-dependent, operating margin, exposure to financial income, and earnings-quality indicators point to where the biggest problems lie. Correios, Emgepron, and Infraero show that, even without directly burdening the federal budget, these companies may see their ability to pay dividends impaired or need capital injections—such as the one the federal government plans to provide Correios in 2027.

*By Jéssica Sant’Ana — Brasília

Source: Valor International

https://valorinternational.globo.com/

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U.S. adds 12.5% tariff on Brazilian goods over labor practices

New levy may push tariffs on many exports to 37.5%, while about 2,000 products remain exempt

 

 

In another protectionist move, the United States announced Thursday (23) an additional 12.5% tariff on Brazilian goods, arguing that the country has failed to address forced-labor practices in its supply chains. The measure applies to a total of 60 countries and takes effect this Friday.

For Brazilian products already subject to the 25% tariff imposed under the Section 301 investigation, the new 12.5% levy will come on top of the existing duty. The 25% tariff was announced by the Office of the U.S. Trade Representative (USTR) on July 15 and took effect on July 22.

The Brazilian government expects the two rates to be cumulative, bringing the total tariff to 37.5%. Amcham Brasil, the American Chamber of Commerce in Brazil, estimates that a large share of Brazilian products will be subject to the combined rate.

Sector impact

Development, Industry, Trade and Services Minister Márcio Elias Rosa said at a press conference after the announcement that several Brazilian industries would face the combined tariffs. They include footwear, machinery and equipment, parts and components, apparel and non-pharmaceutical chemicals.

About 2,000 products exported to the U.S., including beef, coffee, orange juice and fruit, remain exempt from both tariffs. A complete list of goods subject to the two levies, however, has yet to be released.

Washington based its decision on the claim that Brazil purchases goods from countries that fail to uphold adequate labor standards. Those products can therefore enter Brazil at lower prices, creating what the U.S. government considers unfair competition with American producers.

Five products were cited in Brazil’s case: aluminum, cotton, electronics, lithium batteries and tobacco.

Brazil and 53 other countries will face the 12.5% rate. Canada, Ecuador, the European Union, Indonesia, Mexico and Pakistan were assigned a lower 10% tariff. The U.S. government said the lower rate applies to countries that have taken steps to combat forced labor.

The USTR said a broad range of products would be exempt globally, including oil and gas, fertilizers, some food products and goods already covered by Section 232 national-security tariffs, such as automobiles, steel, aluminum and copper.

Products that comply with the United States-Mexico-Canada Agreement will also be exempt because of the highly integrated North American supply chain and the significant level of U.S. content in those goods.

Brazilian response

President Luiz Inácio Lula da Silva’s government criticized the new 12.5% tariff, accusing the U.S. of manipulating the issue without a legal basis “to sustain its protectionist trade policy.”

“The Brazilian government rejects the U.S. government’s decision to impose 12.5% tariffs on Brazilian products as a result of the Section 301 investigation concerning import prohibitions related to forced labor,” the presidential communications office, Secom, said in a statement released Thursday night.

“In the absence of a domestic legal basis to support its protectionist trade policy, the USTR chose to manipulate an issue that is fundamental to human rights and to the struggle of workers around the world in order to accuse 59 countries and the European Union of unfair practices,” the statement added.

Lula’s government also renewed its criticism of the tariffs as “completely arbitrary and unjustified.” It said it would immediately begin the procedures needed to activate mechanisms under Brazil’s Reciprocity Law, approved by Congress, and would bring the dispute before the World Trade Organization’s international dispute-settlement mechanism.

Negotiation strategy

Despite the government’s public stance, officials view the prospect of invoking the Reciprocity Law as remote. The Lula administration is still assessing the potential consequences of using the legislation. For now, Lula has instructed the government to remain at the negotiating table with the U.S.

Finance Minister Dario Durigan also rejected the additional tariff on Brazil. He said that despite the U.S. measures and the conflict in the Middle East, Brazil’s economic situation remains under control.

With an eye on this year’s elections, General Secretariat Minister Guilherme Boulos adopted a sharper political tone. He said the election would pit Lula against Bolsonaro’s political movement and Trump’s “colonialist ambitions.”

Boulos said the U.S. president was seeking Brazil’s surrender through the tariffs. “The Brazilian people’s response to those who want to subjugate us and to their ever-ready traitors will come at the ballot box,” he wrote on social media.

*By Sofia Aguiar, Jéssica Sant’Ana and Mariana Andrade — Brasília

Source: Valor International

https://valorinternational.globo.com/

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Chinese quota could slash Brazilian beef exports by R$4.5bn

Trade group Abiec projects 900,000 tonnes this year, 748,000 tonnes below 2025’s quota-free total

 

 

 

Brazil’s meatpacking industry expects to export roughly 900,000 tonnes of beef to China in 2026, down 748,000 tonnes from last year’s record, according to Roberto Perosa, president of the Brazilian Association of Meat Exporting Industries (Abiec).

That volume represents barely half of the 1.68 million tonnes of fresh beef China purchased in 2025, and the shortfall could cost Brazilian meatpackers as much as $4.5 billion in revenue. Companies have already moved to cut costs and scale back production.

The decline stems from China’s new safeguard measure, which caps Brazilian beef imports at 1.1 million tonnes for 2026. Because Beijing counts cargoes shipped in 2025 but cleared through customs this year, Brazil’s actual 2026 exports will fall short of the authorized ceiling. Through June, 794,600 tonnes had already reached Chinese ports.

Abiec now puts the revenue hit at $4.5 billion, based on the 748,000 tonnes of lost volume valued at the average price of shipments to China between January and June—$6,100 per tonne. At the start of the year, the industry had projected a smaller decline of 600,000 tonnes and $3 billion in lost revenue, using 2025’s average price of $5,000 per tonne—an estimate that did not yet account for the carryover of 2025 cargoes toward this year’s quota.

Brazilian processors have already halted production of certain cuts and suspended shipments to China starting in July, on the assumption that the quota has been exhausted. Chinese authorities have not yet confirmed the official figures.

Industry expectations are that slaughter lines dedicated to the Chinese market will resume in the fourth quarter, allowing exports to restart in mid-November. Given the roughly 40-day sea voyage, those cargoes would arrive in China in 2027, counting toward next year’s quota and avoiding the additional tariff.

“Everyone knows how exposed we are to the Chinese market. We’re learning to live with this new reality,” Perosa said at a press conference Thursday (16). “It’s a significant drop [to 900,000 tonnes]. It will show up in our numbers, weigh on the trade balance and reduce Brazil’s overall export volumes. We expect sales to other markets to pick up, but not enough to offset what we’re losing in China.”

 

Sales to China surged in the first half of the year as exporters rushed to ship under the 12% tariff before the quota closed, seeking to avoid a steeper 55% surcharge. The resulting competition for supply pushed prices higher, though it remains unclear whether that pace and those price levels could have held through the second half of the year.

Perosa said the industry will need to work to keep the drop in export volumes from deepening further. Overall, Abiec expects exports to end 2026 down 10% from 2025, when Brazil shipped 3.5 million tonnes. “We’re working to hold that line, but the challenges are real,” he said.

The fallout is already visible across the sector. Perosa said all Abiec member companies—which account for 98% of Brazil’s beef exports—have taken steps to adapt to the halt in sales to their top customer, including collective furloughs, layoffs, shortened shifts, reduced slaughter volumes and other measures. Many are currently operating at a loss.

“We’re having to make more adjustments on the production side than on distribution, but it varies by company. All of them are struggling, from the largest down to the medium-sized and small players,” he said. Perosa added that the squeeze could accelerate industry consolidation, with larger players moving to acquire smaller ones.

Beyond the exhausted China quota, Perosa said there is a “strong possibility” that exports to the European Union will be suspended starting in September, as Brazil has yet to provide sufficient technical evidence that cattle destined for the EU market are raised without antimicrobials—a setback that would further dent exporters’ revenue.

“It’s a high-value market that takes cuts with no outlet in Asia, and it’s an important part of our product mix. Exports there help ease pressure on domestic price formation,” Perosa said, adding that access to the European market also bolsters the “reputation” of Brazilian beef. “When the EU takes a position, it affects every other market,” he noted.

With both China and the EU curtailing demand, global appetite for Brazilian beef is set to shrink. Reduced competition for the product is expected to weigh on export prices, though Abiec has yet to finalize a forecast. Between January and June, Brazil exported 1.7 million tonnes of beef—up 15.5%—generating $9.8 billion in revenue, a 36.2% increase over the first half of 2025. Average prices climbed nearly 18%, to $5,700 per tonne.

Perosa said the drag on export revenue will eventually filter through to the domestic market, potentially pushing up beef prices for Brazilian consumers over the medium term.

“Prices in the domestic market may ease at first, but costs haven’t come down. Production is likely to fall, and as supply tightens, prices will rise again—that’s the rebound effect we’re seeing,” he said.

“If we kept producing the same volume as last year under current market conditions, prices would collapse. But with nowhere for that production to go, there’s no reason for the industry to keep producing at that level for export.”

*By Rafael Walendorff, Globo Rural — Brasília

Source: Valoar International

https://valorinternational.globo.com/

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U.S. tariffs hit $11bn in exports, deepen Brazil trade slump

About 3,000 products face additional levies of up to 37.5% as bilateral flows have already fallen 13% this year

 

 

New U.S. tariffs will leave Brazil facing some of the toughest restrictions on access to the American market, affecting about 3,000 products and more than $11 billion in industrial and agricultural exports, said the American Chamber of Commerce in Brazil, known as Amcham Brasil.

The U.S. surcharge on Brazilian exports could now reach 37.5%, the chamber estimates.

Amcham also warned that the tariff increase could deepen the contraction in bilateral trade, which has already fallen 13% this year, while weighing on investment flows between the two countries.

The new 25% tariff takes effect next Wednesday (22), and stems from an investigation conducted under Section 301 of the U.S. Trade Act. The provision allows Washington to impose sanctions on countries it considers to be acting against U.S. interests.

In Brazil’s case, the U.S. government claims that Pix, the country’s instant-payment system, harms American payment companies and that Brazilian authorities tolerate corruption. Washington has also criticized Supreme Court rulings involving U.S. technology companies.

Sector impact

Economists and foreign-trade specialists do not expect the latest tariffs to have a significant impact on Brazil’s economy as a whole. The consequences for individual industries, however, could be substantial, forcing companies to adapt and diversify their markets.

Experts have also urged the Brazilian government to respond cautiously because of the dispute’s political dimensions.

Manufacturers, whose exports to the U.S. were already declining sharply, are bracing for an even more difficult environment. Concern is particularly acute among industries whose products had previously been exempt but will now face tariffs, including dissolving pulp.

Paper, wood panels, medium-density fiberboard, particleboard and laminate flooring will also be affected.

Several major industries escaped the new levies, largely after their U.S. customers persuaded the administration that tariffs would be damaging. Exemptions were granted for pig iron and agricultural products including coffee, orange juice, beef, honey and seafood.

The U.S. government’s decision reflects the importance of those Brazilian goods to domestic supplies. Tariffs could have increased costs and added to inflationary pressure for American consumers.

Government response

Vice President Geraldo Alckmin said Brazil would invoke its Reciprocity Law “at the appropriate time” and provide support to the affected industries.

During the Section 301 investigation, the U.S. government sought the complete opening of Brazil’s chemicals market, Industry, Trade and Services Minister Márcio Elias Rosa said. Washington also requested the elimination of tariffs on industrial goods and access to Brazil’s automotive market.

The U.S. additionally sought an agreement restricting investments in critical minerals and rare earths by “non-market-oriented actors” and “foreign entities.”

“We obviously and clearly rejected any demand that could put at risk or violate the national interest, as is the case with Pix, or that could cause serious damage or losses to Brazilian industry,” Elias Rosa said.

The Brazilian government presented its “negotiable and non-negotiable” positions at every meeting with U.S. officials, the minister added.

Alckmin and Elias Rosa spoke at a press conference also attended by Foreign Minister Mauro Vieira, Finance Minister Dario Durigan, Environment Minister João Paulo Capobianco, Central Bank Chair Gabriel Galipolo and National Justice Secretary Maria Rosa Loula.

Diplomatic clash

Vieira pushed back against remarks by U.S. Secretary of State Marco Rubio targeting President Luiz Inácio Lula da Silva.

Rubio blamed the tariffs on the Brazilian government’s conduct toward the United States. In a post on X, he said Lula had “put his own ego ahead of making a deal for the welfare of the Brazilian people, and these tariffs are the price for that.”

Vieira said Rubio had attacked “the head of state of a friendly country in a crude and arrogant manner.”

He argued that what troubled the U.S. government was Brazil’s refusal “to bow” to “excessive ambitions and unreasonable demands” during the Section 301 investigation.

By publicly endorsing President Donald Trump’s decision, Rubio signaled that the White House intends to pursue a maximum-pressure strategy. The aim is to force the Brazilian government to make concessions on fiscal, environmental, digital and intellectual-property issues before the U.S. market is reopened more broadly to Brazilian exports.

Election politics

The U.S. decision has also become ammunition for Brazil’s leading presidential hopefuls.

President Lula’s Workers’ Party stepped up its attacks on Senator Flávio Bolsonaro of Rio de Janeiro, the Liberal Party’s likely presidential candidate. Party members used the term “TariFlávio” on social media in an effort to associate the new tariffs with the Bolsonaro family.

Flávio Bolsonaro, meanwhile, sought to portray the announcement as the result of inaction by the Brazilian government. He called Lula the “Brazilian Biden,” referring to former U.S. President Joe Biden.

Other prospective candidates, including Romeu Zema of the New Party, Ronaldo Caiado of the Social Democratic Party and Renan Santos of the Mission Party, sought to blame both Lula and Flávio Bolsonaro for the dispute.

*By Valor — Brasília, São Paulo, Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/

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Brazil manufacturers’ confidence falls to lowest since pandemic

Industrial sentiment deteriorates further as concerns over global tensions and potential U.S. tariffs weigh on expectations

 

 

 

Brazilian manufacturers grew even more pessimistic this month as current business conditions and expectations for the next six months continued to deteriorate. According to the National Confederation of Industry (CNI), its Industrial Entrepreneur Confidence Index fell from 46.7 points in June to 44.4 in July, the lowest reading since June 2020, during the Covid-19 pandemic.

The index has remained below the 50-point threshold—which separates optimism from pessimism—for 19 consecutive months. According to the CNI, that is the second-longest stretch of pessimism on record, surpassed only by the 2015–16 recession.

“When pessimism persists for such a long period, it tends to translate into fewer jobs, lower production and even the cancellation of productive investment,” Marcelo Azevedo, the CNI’s economic analysis manager, said.

The Current Conditions Index fell 0.7 point to 41.6 in July, moving even further below the neutral 50-point mark. Manufacturers said both business conditions and the broader economy are worse than they were six months ago.

Meanwhile, the Expectations Index dropped 3.1 points to 45.8, its steepest decline since November 2022, when it fell 10.8 points. The latest reading indicates weakening confidence in companies’ own prospects and growing pessimism about the economy.

“The deterioration in expectations is likely linked to growing uncertainty over the external environment, including the escalation of the conflict in the Middle East earlier this month and the possible return of U.S. tariffs on Brazilian products,” Azevedo said.

*By Valor — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Brazil’s oil industry weighs fresh legal challenge to export tax

Producers argue government’s decision to extend levy reinforces concerns that it is aimed at raising revenue rather than addressing fuel market disruptions

 

 

 

Brazil’s oil industry is considering a fresh legal challenge after the government renewed its controversial export tax on crude, according to people familiar with the matter. Producers argue the extension undercuts Brasília’s claim that the levy was introduced to cushion the domestic impact of the Middle East conflict, instead reinforcing the view that it is primarily a revenue-raising measure.

According to the sources, extending the tax through an administrative act gave it a regulatory character and weakened the government’s argument that it needed additional revenue to offset fuel subsidies. Data from the Ministry of Finance show the tax generated R$1.05 billion in revenue between March and May. June figures have not yet been released.

Last week, the government issued a decree under which the Foreign Trade Chamber (Camex), part of the Ministry of Development, Industry, and Trade (MDIC), extended the tax for another two months, just before the provisional presidential decree (MP) 1,340/2026 was due to expire. The measure had imposed a 12% levy on gross revenue from crude oil exports. Because Congress failed to convert the provisional decree into law, it lapsed. Without a new decision, the tax would have ceased to apply as of Friday (10).

When the government first issued the decree in March, several companies filed lawsuits challenging the tax and expected it to expire without congressional approval. Those cases remain pending. With the extension now in place, additional lawsuits are expected.

According to the sources, about a week before MP 1,340 was set to expire, there were indications the government intended to keep the export tax through a legal instrument viewed as weaker than a provisional presidential decree. “If this were the appropriate legal instrument [to maintain the tax], why didn’t they use it from the outset instead of issuing a provisional decree, which requires subsequent approval by Congress?” one source questioned.

Industry representatives also point to another factor supporting the view that the government’s main objective is to increase tax revenue from exports. Brazil’s refining capacity is operating close to its limit, while domestic fuel demand still requires imports. Because crude oil production far exceeds refining capacity, exporting the surplus is unavoidable, the sources said. In their view, this undermines the government’s claim that the measure is necessary to prevent domestic fuel shortages.

The legal fragility of the extension has also heightened concerns over regulatory instability. “The decision deepens concerns over the use of the Export Tax and raises important questions about legal certainty, regulatory predictability, and respect for due legislative process,” the Brazilian Association of Independent Oil and Gas Producers (Abpip) said in a statement.

Francisco “Chicão” Bulhões, founder and president of the Brazilian Institute for the Regulatory Environment and Freedom (Barla) and former Rio de Janeiro secretary for economic development, said taxing crude exports through administrative acts not only increases legal uncertainty but also makes corporate planning more difficult and the investment environment less predictable.

In his view, the tax will not reduce fuel prices at the pump and may have consequences beyond the government’s fiscal position. “When tax measures become instruments for raising short-term revenue, it hurts the competitiveness of the Brazilian economy,” Bulhões said.

Alexandre Chequer, global head of energy, oil and gas at Tauil & Chequer Advogados in association with Mayer Brown, said companies with projects already underway—or those evaluating assets to enter Brazil—have postponed investment plans because of the tax. He noted that the measure was adopted only months before a presidential election and argued that even if companies ultimately succeed in overturning the extension in court, the damage has already been done.

“These are highly capital-intensive investments. Companies invest billions to develop an oil field, and suddenly a 12% export cost is imposed. The damage this causes to the country in the short, medium, and long term is enormous,” Chequer said.

*By Fábio Couto — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/

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Brazil becomes Shell’s largest oil-producing country

After 28 years with Shell, CEO Cristiano Pinto da Costa will leave to lead expansion of Abu Dhabi-based XRG

 

 

Four years after taking over as CEO of Shell Brasil, Cristiano Pinto da Costa is leaving the company, having doubled its oil asset portfolio since he assumed the role in 2022. At the time, Shell held interests in about 30 oil blocks in Brazil; today, it operates in nearly 70. Those assets produce around 500,000 barrels of oil per day, making Shell the country’s second-largest oil producer, behind only Petrobras. In 2025, the company invested R$12.5 billion in Brazil.

“Shell has never invested as much in Brazil as it did in 2025. The country has become the group’s largest oil-producing operation worldwide,” Costa said. Among the key investments made during his tenure was the development of the Orca project (formerly Gato do Mato) in the Santos Basin pre-salt region. Shell also acquired acreage in licensing rounds covering the southern portion of the Santos Basin and the Pelotas Basin, between the states of Rio Grande do Sul and Santa Catarina, in partnership with Petrobras.

After 28 years with Shell, Costa will leave the company on July 31 to lead the expansion of XRG, a company created in 2024 by Abu Dhabi’s state-owned oil company Adnoc. The focus, he said, will be on petrochemicals, low-carbon businesses, and natural gas, backed by investments of between $100 billion and $150 billion through 2030. XRG plans to diversify its investments beyond the Middle East.

Beginning August 1, Costa will be succeeded by Portuguese executive João Santos Rosa, who most recently led Shell’s operations in Italy. According to Costa, XRG’s offer came just as he was planning to return to an international role. The opportunity aligned with XRG’s growth strategy, which includes expanding across the Americas, from Canada to Argentina. “I spent nearly 20 years of my career outside Brazil, and although I was very happy to return, I felt it was time to go back to the international market and take on a global role.”

In his view, Brazil offers opportunities that could become part of XRG’s future projects. At a time when geopolitics has increasingly shaped global energy markets, Brazil has gained strategic importance alongside the U.S. and Canada. Since the outbreak of the war in Ukraine in 2022, the pace of the global energy transition has slowed as countries prioritized energy security.

Brazil has emerged as a key player both in oil and gas and in the energy transition, thanks to its vast oil reserves, “fantastic” hydropower resources, strong wind and solar generation potential, and abundant feedstock for biofuels, particularly ethanol produced from sugarcane and corn, Costa said.

He expects the growing adoption of electric vehicles in Brazil to allow ethanol currently used in passenger cars to be redirected over the coming decades toward transportation segments that are harder to decarbonize, such as heavy-duty vehicles, shipping, and aviation. Shell, he added, is already testing ethanol blends in offshore support vessels by mixing the biofuel with conventional marine fuel to reduce carbon emissions.

Beyond its strong biofuels potential, Brazil has also become a major global oil exporter, driven by the development of the pre-salt fields over the past 15 years. According to Costa, Brazilian crude does not need to pass through any “complicated” shipping routes to reach key markets such as China and Europe.

Another positive development, he said, was the resumption of annual oil licensing rounds starting in 2021. “Brazil can become a major destination in the new global reallocation of investment capital if we get competitiveness, environmental licensing, and regulatory, legal, and fiscal stability right,” he said.

On that front, Costa argued that the government’s recent decision to extend the oil export tax effectively reopens existing contracts and increases the tax burden on an industry that already allocates two out of every three barrels produced to taxes, special participation payments, and royalties. That, he said, could leave Brazil at a disadvantage relative to competing oil frontiers such as Guyana, Argentina, and Namibia. In other producing countries, he noted, the tax burden typically rises when oil prices increase and falls when prices decline.

“Exploration and production concession models vary around the world. One reason Brazil has been attractive compared with other jurisdictions is that its model is independent of oil prices. You decide to take the risk. If prices rise, you earn more; if they fall, you bear the losses yourself,” he explained.

Costa continued, “It turns out that countries are choosing one contractual model, but then are adjusting it throughout the life of the contract depending on short-term needs. That also creates legal uncertainty—it changes the terms of the contract.”

According to Costa, his successor will inherit an organization whose commitment to Brazil is recognized within the Shell Group as stronger than that of most other countries. He said João Santos Rosa’s move to Italy was planned with an eye toward his eventual succession in Brazil. Although Italy is a smaller operation, he said, the two countries share similarities that should ease the transition. “I hope he will be as happy leading Shell Brasil as I was.”

*By Fábio Couto and Kariny Leal — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/

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