Oil shock reshapes Brazil's fiscal credibility weeks before election.

Oil surged past $109 per barrel on Thursday after the Houthis seized control of the port of Mocha in Yemen — and this external shock reshaped, in a matter of hours, Brazil's entire economic agenda, from the exchange rate to fiscal policy, taking in Petrobras's credibility and the cost of living on the eve of a presidential election.

The Ibovespa closed up 1.42% at 188,268 points, buoyed by gains in energy companies, while the dollar ended at R$5.10 — a notable reversal from the previous session, when the U.S. currency had climbed to R$5.11 amid caution triggered by the very same oil rally. The divergence between domestic assets and international markets was stark: Asian stocks fell on Friday, tracking losses on Wall Street, where 30-year U.S. Treasury yields hit 5.35%, the highest level since 2007, pressured by the combination of surging oil and a U.S. fiscal deficit approaching 6% of GDP. For Brazil, the rise in long-dated Treasuries — which Valor Econômico describes as "bad news" for emerging markets — raises the cost of external capital at a moment when the country itself is struggling to demonstrate fiscal discipline.

It is against this backdrop that Fitch chose precisely this Thursday to issue a warning: Brazil's 2027 budget proposal reveals serious difficulties in fiscal consolidation, and the projected pace is insufficient to stabilize public debt. The agency was blunt in asserting that the country's fiscal credibility will be shaped by the outcome of the upcoming elections and by the willingness of Congress — a diagnosis that shifts the economic debate onto political terrain at a moment when Vice President Geraldo Alckmin was, on that very day, promising business leaders that a potential second Lula term would deliver a primary surplus. The pledge is ambitious given the landscape: Correios has formally requested a sovereign guarantee for a new R$7 billion loan from four international banks — Banco ABC, Citibank, Deutsche Bank, and J.P. Morgan — at 114.26% of CDI, a state-owned enterprise that has already piled up R$5.5 billion in losses in the first half and is coming off a R$12 billion loan contracted in December. Meanwhile, the FGTS Trustee Council approved the full withdrawal of the R$5.85 billion available in the FGTS Investment Fund — ten years without disbursements, and now the fund is drained all at once.

The oil shock has an immediately domestic and politically incendiary side: the lag in diesel prices has surged to levels equivalent to those seen at the start of the Iran war, and the Lula administration announced a new package of subsidies on the eve of the election. Petrobras, for its part, on Wednesday evening proposed a R$0.19 per liter increase in gasoline sold to distributors — and hours later reversed course, announcing that the price would in fact fall by R$0.19. BTG Pactual was scathing: "recent moves on fuel prices have caused noise and weakened the company's credibility with investors." The state-owned firm's back-and-forth, in a week when the barrel topped $109, exposes the structural tension between the political interests of the government shareholder and the commercial management of a company whose ADRs trade in New York. Beyond fuels, the government is proposing the first PPSA auction for October, opening to the market the pre-salt natural gas belonging to the federal government — and Petrobras has already signed an agreement with the state entity to commercialize that volume, signaling a new arrangement in the gas market that Scotiabank analysts consider secondary in light of the transformational potential of the Foz do Amazonas Basin, whose northwestern portion could produce up to 842,000 barrels per day of oil at peak in 2038.

The Banco Master scandal continued to deepen. The Federal Police revealed to the STF that Daniel Vorcaro, the former owner of the bank liquidated in November 2025, funded international trips and dinners for two Banco Central employees accused of acting to favor him. At the same time, the Federal Police summoned the current BC president, Gabriel Galípolo, former president Roberto Campos Neto, and banker André Esteves to testify as witnesses in the investigation. Master's Cayman Islands holding company held its first creditors' meeting — with claims of $1 billion — with no cash available to present, according to a report by liquidator Grant Thornton. STF Justice Luiz Fux gave the government, the BC, and the FGC 15 days to respond to the Federal District's request for the federal government to guarantee a loan to bail out BRB, a bank orbiting the periphery of this financial crisis. It is a storyline that combines poor regulatory supervision, moral hazard, and institutional instability — and one that Fitch, not by coincidence, implicitly cites in conditioning Brazil's fiscal credibility on the electoral outcome.

Economic activity, in turn, is sending signs of a slowdown that complicate the government's campaign narrative. The services sector was flat in July compared to June, disappointing expectations, while manufacturing industry revenue fell 2% over the same period according to the CNI, adding up to a 0.5% decline in the first seven months of the year. Savings accounts recorded net withdrawals of R$10.57 billion in August — a reflection of the search for higher-yielding alternatives in a high-Selic environment — and household delinquency rose again, reaching 82%, with lower-income families leading the deterioration, according to the CNC, which does not rule out further expansion in the coming months. The first preview of the IGP-M accelerated from 0.26% in August to 0.93% in September, pressured by more expensive agricultural and industrial commodities at the wholesale level — exactly as El Niño pushes sugar 12% higher in a single month, according to a FAO report. August's IPCA will be released on Friday, with Bradesco forecasting deflation of 0.26% thanks to the Itaipu bonus, which may temporarily soften inflation perception — but analysts warn that items typical of middle-class consumption remain pressured and could weigh on the vote.

In the banking sector, the nationwide strike at Caixa Econômica Federal shuttered branches in São Paulo and Paraná, with Banco do Brasil under partial stoppage. Caixa put forward a final offer and threatened to take the matter to court. The episode comes at a moment when the Brazilian financial system is undergoing structural transformations: the Banco Central's regulation of crypto assets is expected to shrink the sector to no more than ten licensed operators, triggering a wave of closures and mergers that already includes Bitnuvem, NovaDAX, and Coinext. Banco Daycoval is betting on artificial intelligence to scale up CLT payroll-deductible loans, while Itaú Unibanco reports 281% growth in Pix Automático volume in the first half — indications that financial digitalization is advancing regardless of regulatory and political turbulence.

On the infrastructure and concessions front, the halt in works to deepen the Santos port channel led six sector entities to formally warn the TCU about the impacts on export flows — a bitter irony in a year when Brazil is negotiating access to new markets, such as the 21 slaughterhouses recently authorized to export beef to Indonesia, while awaiting a European audit to unblock exports to the bloc. Brasília airport will be up for a new auction in December, bundled with ten terminals, and EDP has brought online its largest transmission project in Brazil, with 522 kilometers of lines in Piauí. Âmbar Energia, part of the J&F Group, has committed R$5.5 billion to power distribution in Amazonas, where 44% of the energy injected into the grid goes unbilled.

For the coming week, the focal points are multiple and interconnected: August's IPCA will either confirm or contradict the narrative of contained inflation; commodities markets — sugar, oil, beef — will continue to test Petrobras's pricing policy and the government's fiscal resistance; the Banco Master investigation will advance with testimonies from Galípolo and Campos Neto; and the Brasília airport auction in December begins to take sharper shape. The new Datafolha poll on Friday will be the first thermometer of how all of this — oil, diesel, selective inflation, and financial scandals — is being processed by Brazilian voters.

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