Oil shock forces Lula into R$ 7 billion monthly fuel subsidy gamble before elections.

Oil above $100 a barrel is forcing the Lula government into an impossible fiscal equation less than a month before the elections — and today, the cost of that equation acquired precise contours: R$7 billion per month.

With Brent breaching the psychological three-digit threshold for the first time since July, driven by the resumption of conflicts in the Middle East — including the partial closure of the Strait of Hormuz, which reduced Persian Gulf flows from 20 million to roughly 2 million barrels per day — the fuel price gap in Brazil has reached levels comparable to the worst moments of the early days of the Iran war. Petrobras, whose common and preferred shares trade on B3 and whose ADRs trade on the NYSE, announced a R$0.19 per liter adjustment to gasoline sold to distributors. But rather than passing the increase through to the pump, the federal government responded with a subsidy package that, according to Planning Minister Bruno Moretti, will cost the Treasury R$7 billion per month — R$5 billion in new subvention of R$1 per liter of diesel, plus R$2 billion in tax relief for gasoline and ethanol. The new diesel subvention is layered on top of the R$1.12 per liter already in force, which was already consuming R$5.5 billion monthly. The total diesel subsidy bill, therefore, will now run at more than R$10 billion per month.

Finance Executive Secretary Rogério Ceron argues that the tax relief will be funded by extraordinary revenues estimated at R$10 billion generated by the oil shock itself — a piece of fiscal engineering that simultaneously loosens the Fiscal Responsibility Law via a supplementary bill passed by Congress. The mechanism is legally creative but politically transparent: less than four weeks from the first round, the Lula administration is willing to mobilize available fiscal space to prevent the pump price from becoming the most visible electoral thermometer for the middle class. Specialists interviewed by Folha de S.Paulo point out that inflation in items typical of middle-income consumption — fuels, health insurance, food away from home — carries disproportionate weight in voter perception, even though IPCA remains within the 4.5% annual target ceiling.

The political cost of the maneuver is amplified by two mutually reinforcing criticisms. On one side, the Barla Institute argues that the 12% levy on crude oil exports — extended by the government as a revenue tool — hits the wrong link in the chain, since the diesel spike stems from refining costs abroad, not from the barrel price. On the other, PPSA, the state-owned company responsible for managing the Union's pre-salt oil, is out of funds following a TCU ruling on its remuneration structure — a concrete risk of paralysis in strategic contracts that the Ministry of Mines and Energy itself formally acknowledged to the court. The confluence of rising subsidies, legal challenges to export taxation, and PPSA's operational crisis sketches a picture in which Brazilian energy policy is being managed at the limit of its contradictions.

On the banking and financial front, the day was marked by a governance crisis of unusual reach. The Federal Police summoned central bank president Gabriel Galípolo, his predecessor Roberto Campos Neto, and BTG Pactual banker André Esteves to testify as witnesses in the inquiry investigating the actions of BC staff on behalf of the interests of Daniel Vorcaro, former owner of Banco Master — liquidated in November 2025. The day before, CVM had ordered Vorcaro to pay R$20 million for fraud in the management of the Brazil Realty real estate fund, his first formal conviction by the regulator. And the Master holding company in the Cayman Islands, Titan Capital, held its first meeting with international creditors whose claims total on the order of $1 billion, with a report from liquidator Grant Thornton that, according to sources, offered no encouraging prospects for asset recovery. The scandal is already serious enough to have prompted ICC Brasil — the entity that groups Amazon, Banco do Brasil, and major law firms — to publish an open letter demanding ethical scrutiny and institutional transparency.

Parallel to this, Caixa Econômica Federal bank employees launched an indefinite national strike starting Thursday, with partial adherence at Banco do Brasil. The stoppage comes at a moment when the central bank is preparing to tighten capital rules for financial institutions to curb rising household indebtedness — non-earmarked household credit delinquency at the highest level in the series — alongside new rules to curb abuses in digital credit offerings. The combination of strikes at public banks, imminent regulatory tightening, and credit deterioration creates a delicate operating environment for the sector.

Countering the signs of domestic tension, two medium-term narratives asserted themselves forcefully. Mercado Libre — whose shares trade on Nasdaq under the ticker MELI — raised $1 billion in a 10-year bond at a spread of 130 basis points over the equivalent Treasury, with demand of $2.1 billion at peak book, placing the company at a credit tier comparable to Suzano and JBS in international markets. And B3 announced that BDRs of Brazilian companies listed abroad — including Nubank, XP, Stone, PagBank, and JBS — will be eligible for the Ibovespa starting in the first half of 2027, with a 10% weighting cap to preserve compliance with pension fund rules. The change is structural: Brazil's benchmark index will begin to reflect companies whose financial centers of gravity lie partially outside the country.

On next week's agenda, markets will be watching the ECB's rate decision, the release of July's Monthly Services Survey in Brazil, and the impact of the first meaningful electoral result — with BTG/Nexus showing a technical tie between Flávio Bolsonaro and Lula in the runoff. The trajectory of oil will remain the most disruptive variable: every dollar above $100 deepens the fuel price gap, pressures the federal cash position, and complicates the government's political calculus in an election that will be decided on everyday price perceptions.