Brazil to scrap fuel subsidies if oil stabilizes near $80, official says

• Brent crude fell 5.1% to $78.96 per barrel on Tuesday as details emerged of a provisional deal to reopen the Strait of Hormuz
• Brazil introduced emergency fuel subsidies in late February when the Iran conflict began, with most measures designed to last about two months with extension options
• The Brazilian real has strengthened from about 5.20 to 5.00 per dollar, partially offsetting inflationary pressure from higher oil prices despite $80 being above the roughly $70 level seen earlier this year

Summary

Key Development: Brazil plans to eliminate diesel and gasoline subsidies if crude oil prices stabilize around $80 per barrel, following progress toward a U.S.-Iran deal to end their conflict. Finance Ministry Executive Secretary Rogerio Ceron stated the next 30 days will be critical for assessment.

Market Context: Brent crude fell 5.1% on Tuesday to $78.96 per barrel as details emerged of a provisional deal to reopen the Strait of Hormuz. Brazil's real has strengthened from 5.20 to approximately 5.00 per dollar, helping offset inflationary pressures.

Policy Measures: Since the conflict began in late February, President Lula introduced emergency fuel subsidies and tax cuts on diesel, gasoline, jet fuel, and cooking gas. Most measures were designed for two months with extension options, and many expire in July.

Economic Implications: Ceron anticipates that oil price stabilization will improve inflation expectations and ease pressure on long-term interest rates, providing Brazil's central bank more flexibility to continue rate cuts. The Finance Ministry forecasts 2.3% GDP growth for the year, while market consensus stands at 1.96%.

Fiscal Debate: Ceron disputed private-sector estimates suggesting Brazil implemented 200 billion reais ($39 billion, or 2% of GDP) in fiscal stimulus ahead of October elections. He argued the actual stimulus is smaller and pointed to retail sales deceleration as evidence.

Additional Notes: Ceron attributed recent rises in Brazilian debt yields primarily to strong U.S. economic data and global repricing rather than domestic fiscal conditions. Brazil plans to issue sustainable bonds in the second half and is preparing its first sovereign yuan (Panda) bond issuance during the Finance Minister's upcoming China visit.