Brazil's Energy Policy Could Turn as Lula Wins Presidential Election

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Written by Amir Richani for Industrial Info Resources (Sugar Land, Texas)--Former president and leftist leader Luiz Inacio Lula da Silva emerged as the winner of Sunday's presidential contest in Brazil, which signals a more nationalistic energy policy.

Lula gathered 50.9% of the votes in the close runoff race with incumbent Jair Bolsonaro, bringing Bolsonaro's mandate to an end by December this year.

Lula supporters took to the streets on Sunday night to celebrate the results of the elections. For his part, the president-elect, who was the Brazilian president between 2003 and 2010, said he would govern for those who voted for and against him in a conciliatory speech amid a polarized nation.

According to several news sources, Lula was quoted saying that Bolsonaro had not called to congratulate him on his victory, increasing tensions in the South American nation, given fears of a military coup. The incumbent and former military officer has previously criticized Brazil's electoral system, ushering doubts about a peaceful transition. However, many international leaders, such as European and American heads of state have congratulated Lula on his Sunday victory.

Lula's triumph represents the return of leftist policies to Brazil, strengthening the "Pink Tide's" control over South American governments. The Pink Tide is how the wave toward left-leaning governments is known in South America.

As a result of the election, Petrobras (NYSE:PBR) (Rio de Janeiro), the Brazilian energy company, saw its stocks drop on the New York Stock Exchange amid concerns that Brazil would return to nationalistic policies.

Lula has criticized Bolsonaro's divestments of downstream and midstream assets, signaling a potential return of a more nationalistic energy policy that would strengthen Petrobras. This approach could stop the privatization of national companies, such as Petrobras, in the near future, despite the launch of several divestment campaigns.

Brazil is the largest oil producer in South America, with an average oil production of 3.147 million barrels of oil per day (BBL/d) in September, the strongest pace in over a year.

Besides more nationalistic policies in the energy sector, Lula's return to government might also signal changes in the nation's mining industry. In September, Reuters reported that Lula could consider raising royalties on the mining industry if he emerges winner. The details of such policy remain to be seen, though this has raised alarms within the industry.

Uncertainty in Brazil is expected to remain latent until Lula chooses his cabinet and sets policy in the South American nation. Nevertheless, the election of centrist politician and former Sao Paulo Governor Geraldo Alckmin as Lula's vice president could help balance the president-elect's cabinet and policies.

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