Oil and politics are intertwined matters since the hydrocarbon industry was in its infancy. But Russia’s attack on Ukraine has enhanced that relationship. The energy issue today occupies the center of public life in all societies on the planet for one basic reason: the Russians are the world’s second largest producers of oil and gas, after the United States. The restrictions on its exports have triggered fuel prices and, with them, those of everything else. In a global economy already overheated by the great fiscal and monetary expansion associated with the pandemic, the problem of inflation reappeared. Power struggles today are organized around this devilish agenda. In the Anglo-Saxon world, these issues, which have the potential to infuriate the public, are given the metaphorical name of “third rail”. It is the high-voltage rail that runs alongside the tracks on many railway systems. Whoever touches it is guaranteed to be charred. Energy prices are the third rail.
Latin America is a notorious example of this determination of oil over politics. The problem of the cost of hydrocarbons produces tensions in the governments and agitates the electoral campaigns. Brazil is the noisiest battlefield. There, the dispute between President Jair Bolsonaro and former President Lula da Silva becomes more polarized as the days go by. That binary alignment echoes abroad. The last one who felt compelled to choose between the two was Mario Vargas Llosa, who from Montevideo said he preferred Bolsonaro, “despite his antics.”
When, according to a study by the consulting firm Ipespe, Brazilians are asked who they will vote for on October 2, the spontaneous answer of 39% is Lula and 29%, Bolsonaro. 3% answers Ciro Gomes. Bolsonaro has been registering a slow improvement. Although he faces a difficult barrier to cross: he has a rejection of 60% of those consulted.
Beyond the fact that the president’s ideas and style offend the sensibilities of many citizens, at the heart of this repudiation is the inflationary problem. In the same survey, 77% considered that prices had risen a lot and 21% said that they had risen. The expectations are bleak: for 41% they are going to go up a lot, for 22% they are going to go up and for another 22% they are going to stay the same.
Bolsonaro reacted to these difficulties by bringing Petrobras to center stage. At the end of March he had already replaced the president of the company, which is 50.26% controlled by the state. General Joaquim Silva e Luna left his chair to the economist Jose Mauro Ferreira Coelho. The reason? The resistance of Silva and Luna to contain the price of gasoline, which in March had reached an increase of 11.3% year-on-year.
It was not enough to remove a general. Bolsonaro also deposed an admiral. This time, Minister of Mines and Energy. Indeed, on Wednesday of last week, Bento Albuquerque left that portfolio in the hands of the economist Adolfo Sachsida, who until then had collaborated with the Minister of Finance, Paulo Guedes.
Sachsida took Guedes’s liberal seal to the energy ministry. As soon as he sat in his office, he announced that he would seek to privatize Petrobras. He clarified that the initiative has, of course, the support of Bolsonaro. It sounds convincing, because every time prices skyrocketed, Bolsonaro talked about divesting himself of the company’s shares.
The proposal of the Brazilian Government is contradictory. By sponsoring the definitive transfer to private hands, Bolsonaro seems to be going in the opposite direction of his manifest objective, that is, to moderate fuel costs. Who will want to invest in a market threatened by more regulations? However, the move may have another purpose: to accentuate the personal dispute with Lula.
The privatization of the oil company is an occurrence that puts the presidential campaign in black and white. Lula reacted immediately: “Whoever messes with Petrobras to buy it should talk to us.” For the conception of the economy of the Workers’ Party, as for that of the entire Latin American left, state intervention in the hydrocarbon business is an unappealable dogma.
However, there is another dimension to Bolsonaro’s move. The president of Brazil, who lacks refinement but has plenty of cunning, knows that by introducing Petrobras in the decisive stretch of the campaign he is connecting the fight for the vote with the irritating memory of corruption. The mismanagement of that company during the Lula government gave rise to the scandalous car wash, a judicial tornado that put countless political leaders and businessmen behind bars. Vargas Llosa already touched that chord in his statements. He argued in favor of his preference for Bolsonaro that Lula had been imprisoned by the Justice, which considered him “a thief.” The competition for the title of Brazil ensures great emotions from now on.
In Colombia, where the other great electoral tournament in the region is offered, the campaign also smells of oil. Gustavo Petro, the left-wing candidate who challenges official Uribeism, touched a high-voltage cable. He affirmed, with a tone of denunciation, that not only drug traffickers and guerrillas are violent. The exploitation of hydrocarbons belongs to the same category.
The Government of Iván Duque and the establishment Colombian picked up the gauntlet. Felipe Bayón, the president of the state-owned Ecopetrol, explained that if oil and gas exploitation is reduced, these products will have to be imported. Therefore, a gallon of gasoline, which today costs about a dollar and a half, would cost 5: “This is what can happen if a president opposed to the activity arrives at the House of Nariño,” warned Bayón. The petroleum engineers went further: they sued Petro for defaming their profession.
The National Association of Financial Institutions put its finger on another sore spot. If the price of gasoline continues to be subsidized, the fiscal accounts will enter into a very serious imbalance. The Colombian alarm is repeated in Chile, where President Gabriel Boric has just announced that the State will bear part of the cost of hydrocarbons. Chile imports 90% of the oil and gas it consumes. It is understood that the price spike is a nightmare.
That debate is altering Argentina, where the electoral campaign has not yet been unleashed. There the discussion divides the ruling party itself. President Alberto Fernández signed an agreement with the International Monetary Fund, whose central axis is a restructuring of public accounts based on a reduction in the subsidy for the sale of gas and electricity. The decision did not raise against him the opposition but Cristina Kirchner, who is the electoral leader of the government party, responsible for Fernández being in the presidency. The fracture is so deep that officials aligned with Mrs. Kirchner refuse to sign the new price charts ordered by the head of state and his economy minister, Martin Guzmán.
It doesn’t matter if they are from the right or from the left. The rulers do not want energy rates to increase. Much less now, that inflation has risen. Recent history is littered with cases of administrations cornered by outraged consumer protests. That is why, even if the markets get angry and the guardians of public accounts predict fiscal catastrophes, nobody wants to touch the third rail.
Subscribe here to newsletter of EL PAÍS America and receive all the informative keys of the current affairs of the region
Exclusive content for subscribers
read without limits
#rail