Lula's Decision to Lower Fuel Prices Extends Beyond Gasoline and Diesel

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Written by Amir Richani for IIR News Intelligence (Sugar Land, Texas)

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Summary

Lula's government expanded fuel subsidies and eliminated the federal tax to reduce costs for Brazilians two weeks before the October 25 presidential run-off election.

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Fuel Tax Cuts

Brazilian President Luiz Inacio Lula da Silva's government announced fuel tax cuts and expanded current subsidies on October 9 to lower prices two weeks before the October 25 run-off election.

Lula's government implemented fuel subsidies earlier this year to keep prices in check amid price volatility driven by shipping disruptions in the Strait of Hormuz and operational setbacks tied to the current conflict between Iran and the United States. The October 9 measures extended tax relief and expanded subsidies, aiming to reduce pressure on consumers.

At the same time, the newly signed decree removed federal taxes on the import and sale of gasoline for 30 days, with the possibility of further extensions. The decree also extends tax relief for hydrated ethanol.

Additionally, the government announced additional subsidies of 1.40 reais (US$0.28) per liter for imported diesel, on top of the existing 2.12 reais (US$0.42) per liter.

"The additional subsidy aims to offset part of the gap between import costs and domestic market prices, thereby preserving the economic viability of operations and helping to curb further upward pressure on consumer prices," said the Finance Ministry in a statement.

The government estimated the fiscal impact of the gasoline and ethanol measures at 3.6 billion reais (US$717 million) in 2026, while the diesel import subsidy for 30 days could cost another 1.6 billion reais (US$319 million).

"The measure aims to ensure the continuity of imports and the supply of diesel throughout the country, given escalating geopolitical tensions and constraints on the international fuel supply. Currently, 33% of the diesel consumed in Brazil is imported, making the domestic market particularly sensitive to fluctuations in international prices," added the government.

However, this announcement came just two weeks before Lula and opposition candidate Flavio Bolsonaro head to a runoff election scheduled for October 25.

Flavio, son of former President Jair Bolsonaro, emerged as the winner in the first round of the October 4 elections with 47.03% of the votes compared with Lula's 45.16%. This gives Flavio a lead of roughly 2 million or 2% of the total votes. Since the results were announced, Augusto Cury, who finished third in the elections with 2.89% or 3.4 million votes, endorsed Flavio's candidacy for the runoff.

Lula's decision to lower fuel prices could be seen as a political measure to reduce the cost of living for Brazilians just two weeks before the presidential run-off, in an effort to garner support amid disadvantageous odds.

Brazil is a crude oil and fuel producer thanks to its vast resources and infrastructure dominated by Petrobras assets. However, in a country as large as Brazil, increased fuel prices translate into higher production and transport costs across the economy, including the food sector.

Industrial Info Resources data show 16 petroleum refining facilities in Brazil, with the majority of them owned by state energy company Petrobras. Together, these facilities have the capacity to process about 2.25 million barrels of oil per day (bpd).

According to the National Agency of Petroleum, Natural Gas, and Biofuels (ANP) data, Brazil produced 541,000 bpd of gasoline A and 816,000 bpd of diesel in 2025.

Key Takeaways

• Lula's government extended a fuel subsidy and eliminated fuel federal tax ahead of the October 25 presidential elections run-off.
• The government estimates the measures' combined fiscal cost at just over US$1 billion.
• Brazil has 16 active petroleum refineries with a capacity to process about 2.25 million bpd, according to Industrial Info Resources data.

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