Brazil's gasoline subsidy faces four critical flaws, experts warn

Brazil's government has approved a gasoline subsidy of up to 89 cents per liter, a move announced just months before presidential elections and projected to cost the public treasury as much as 2.4 billion reais each month. Officials from the Planning and Energy ministries have argued the measure will be fiscally neutral—that rising oil prices will generate enough revenue through Petrobras dividends and royalties to offset the cost. But experts who have spent careers managing Brazil's fuel markets say the logic doesn't hold, and the policy reveals deeper problems with how the government is approaching energy prices.

Décio Oddone, who led the National Petroleum Agency for years, questions whether subsidizing gasoline represents the best use of public money in a country with so many unmet needs. The annual cost of the gasoline subsidy alone—roughly 20 percent of the entire Bolsa Família budget, which stands at 158 billion reais in 2026—could be redirected toward social programs that serve broader populations. David Zylbersztajn, the agency's first director-general, has long opposed artificially cheap fuel. He argues that when prices reflect market conditions, consumers of gasoline bear the cost directly, rather than spreading it across all Brazilians through general tax revenue. "It's more just, because part of society doesn't use gasoline," he said. "But of course, it's a political decision."

The subsidy faces a more fundamental problem: it likely won't reduce prices at the pump. Petrobras has already signaled it will raise refinery prices shortly after the government announces its relief measures. Currently, the state oil company sells gasoline at 44 percent below international parity pricing, according to calculations by the Brazilian Infrastructure Center. Adriano Pires, who founded that research organization, identifies four structural flaws in the policy. First, subsidizing gasoline is economically wasteful. Second, pump prices won't actually fall. Third, public money is being used to cushion losses for Petrobras shareholders. Fourth—and perhaps most absurd—Brazil, the world's leading ethanol producer, is now subsidizing gasoline instead of its own renewable fuel alternative, which the government has pledged to blend more heavily into the fuel supply.

The contradiction runs deeper than it appears. Brazil has been expanding ethanol production using both sugarcane and corn as feedstock, and the government has announced plans to increase the ethanol blend in gasoline from 30 percent to 32 percent. Yet the subsidy flows in the opposite direction. During a recent earnings call, Petrobras CEO Magda Chambriard was asked repeatedly about the gap between domestic and international fuel prices. She responded that a price increase would come "soon," right after Brasília announced its measures—a signal that the subsidy would be immediately offset by refinery price hikes.

Since the Michel Temer administration, Petrobras has operated under bylaws that explicitly prohibit the company from directly subsidizing fuel. The law was written after the company nearly collapsed during the Dilma Rousseff years, when prices were essentially frozen. The bylaws require Petrobras to seek compensation from the federal government if it's ordered to pursue policies that differ from those of any other private company in the same market. Even with these protections in place, the government has escalated pressure on fuel distributors and retailers, accusing them of charging abusive prices and threatening fines and imprisonment. State ministers, the Petrobras CEO, and government advertising campaigns have all targeted the distribution sector.

The government has also issued a provisional measure requiring distributors to disclose their wholesale margins to retailers on a weekly basis. For Zylbersztajn, this coercive approach is the most troubling aspect of the government's fuel strategy. Threatening the market with criminal penalties, demanding margin transparency, and making vague accusations of price gouging create serious risks. He calls the margin disclosure requirement "nonsense" and notes that proving abusive pricing is inherently subjective, especially when companies take real financial risk by importing fuel to meet demand. "Some who feel threatened will simply stop quoting any price, because they won't take the risk," he said. "What actually guarantees adequate prices is the market. The most expensive product is the one that doesn't exist." As the government tightens its grip on fuel distribution, the risk grows that suppliers will withdraw from the market entirely, potentially worsening the very shortages the subsidy was meant to prevent.