Brazil Won't Restore R$0.35 Diesel Subsidy

Why won't Brazil restore the R$0.35 diesel subsidy?

Planning Minister Bruno Moretti announced on Friday that, despite rising global oil prices, the government does not believe the impact on domestic pump prices is yet strong enough to justify bringing back the additional R$0.35-per-litre diesel subsidy that was suspended on 1 July.

Which fuel subsidies are still active?

Brazil is keeping two existing subsidies in place for now:

• Diesel: R$1.12 per litre — costing the federal government roughly R$5.5 billion per month.
• Petrol: R$0.44 per litre — extended for an additional 30 days at an estimated cost of R$1.3 billion per month.

How much has the government already spent?

Through June, the government disbursed R$14.55 billion to shield consumers from international fuel-price spikes. Of that total, R$7 billion was spent in June alone. A further R$7 billion is earmarked for July, including R$3.3 billion authorised via a provisional measure signed this Friday, plus R$550 million linked to a deal for states to zero out ICMS tax on imported diesel.

What triggered the policy shift?

The government had begun winding down subsidies after a US-Iran ceasefire agreement pushed crude prices lower. The R$0.35 diesel add-on was cut on 1 July as a result. However, renewed tensions in the Middle East have sent oil back toward US$100 per barrel, prompting the government to pause further subsidy removals while stopping short of reinstating the cancelled benefit.

What does this mean for prices at the pump?

For now, drivers should not expect significant relief at the petrol station, but neither should they see an immediate spike. The government's stated goal is price smoothing — absorbing global volatility before it reaches consumers. The remaining subsidies represent a heavy fiscal burden that falls outside the spending cap but counts toward the fiscal target.