1 of 4 At the White House, Lula Biden explains his peace plans — Photo: Alex Brandon/AP Photo At the White House, Lula Biden explains his peace plans — Photo: Alex Brandon/AP Photo
A year ago, Russia invaded Ukraine, starting a war whose geopolitical and economic repercussions are being felt not only in Europe but also in countries not directly involved in the conflict, such as Brazil.
The first effects that became apparent for Brazil shortly after the start of the war were of an economic nature. The war has pushed up fuel and energy prices after all, Russia is the world’s largest exporter of natural gas and the second largest exporter of oil.
A barrel of oil soon rose from $100 to a peak of $130, which translated into rising fuel prices, putting pressure on inflation around the world, including in Brazil.
On the other hand, the international surge in oil prices throughout 2022 has boosted oil company profits, including Petrobras, which, like other oil companies, has posted exorbitant profits: R$145 billion in the first three quarters of last year, almost double the same period in 2021 .
This extraordinary value made the pricing policy of the stateowned fuel company one of the topics of last year’s election campaign.
2 of 4 Shortly after the start of the conflict in Europe, fuel prices soared in Brazil — Photo: Ueslei Marcelino/Portal Shortly after the start of the conflict in Europe, fuel prices soared in Brazil — Photo: Ueslei Marcelino/Portal
In a scenario already characterized by low growth and high inflation, the rise in fuel prices contributed to an even larger rate hike by the central bank. The monetary authority, which had already been raising interest rates since March 2021, increased them to 13.75% per year by the end of 2022.
And that’s where it stands today, under criticism from President Luiz Inácio Lula da Silva, for whom high interest rates combined with a low inflation target are hampering economic growth.
However, many economists claim that central bank actions were instrumental in controlling inflation in Brazil, which ended 2022 well below rates in rich countries: 5.79%, which is still above the 3% target set by BC.
What helped contain Brazil’s inflation in 2022, along with the central bank’s rate hike, was the exemption from federal taxes on fuel and energy, initiated by the Jair Bolsonaro government and maintained by the Lula government.
With liberation, fuel prices in Brazil began to fall, partially dispelling fears early in the war. In December, gasoline and ethanol prices fell more than 25% and domestic electricity fell 19%.
However, with the tax exemption, the government is failing to collect taxes, widening the gap in public accounts that should reach R$230 billion in 2023.
green hydrogen
The curtailment of Russian energy due to the war in Ukraine has accelerated European countries’ search for clean alternatives, and one of them is green hydrogen, one of the substitutes for fossil fuels in generating clean energy. And Brazil in particular can become a major exporter of green hydrogen. The issue was raised by President Lula and German Chancellor Olaf Scholz during his recent visit to Brasília.
This is a nascent market but with great potential. A study by German consulting firm Roland Berger estimates that the global green hydrogen market should move more than $1 trillion in direct fuel sales or derivatives. According to the German consultancy, Brazil will lead this race and become a major global exporter. The big Brazilian advantage is the low production costs.
Advantages and disadvantages for the agricultural industry
Brazil’s agribusiness sector also felt the effects of the war in Ukraine, both beneficial and detrimental.
One of the main problems for producers, the cost of production, has exploded due to the rise in fertilizer prices. Brazilian producers have never spent as much on fertilizers as in 2022 to buy much less than in previous years.
In 2022, 38 million tons will cost almost $25 billion. A year earlier, 41 million tons had cost $15 billion. The National Confederation of Farmers has already stated that the 2022/23 harvest is the most expensive in history.
3 of 4 Bolsonaro traveled to Moscow to discuss fertilizers with Putin — Photo: Mikhail Klimentyev/Sputnik Kremlin/AP Bolsonaro traveled to Moscow to discuss fertilizers with Putin — Photo: Mikhail Klimentyev/Sputnik Kremlin/AP
Russia is one of the main suppliers of fertilizers on the world market, especially potash, which is extremely important for agriculture in Brazil. Brazil imports 98% of the potassium chloride it uses from countries like Russia, Belarus, Canada and China.
Despite this, Brazil’s agriculture made a positive contribution to the trade balance: the sector’s balance sheet increased from US$46.5 billion in 2021 to US$65.8 billion in 2022, and the Brazilian trade balance as a whole showed a surplus of 61, 9 billion US dollars, slightly above the 61.4 billion in 2021 with a decisive contribution from agriculture.
The explanation for this also lies in the war in Ukraine: The prices for agricultural commodities and oil also rose at the beginning of the conflict, which drove up the income of Brazilian producers.
For example wheat: both Russia and Ukraine are major producers and play a key role in the international market for this grain. From early to mid2022, wheat in Brazil was up 27%.
This had a positive impact on Brazilian production, with an increase in acreage, a bumper harvest and a sharp increase in exports. The current harvest reached almost 10 million tons, more than 27% more than last season.
In 2022, Brazil exported 3 million tons of wheat, triple compared to the previous year. And it imported 15% less: 5.7 million tons.
The Brazilian consumer felt the impact with the rise in wheat flour and French bread prices throughout 2022. But in early 2023, the rise in prices prompted a truce over the good harvest of the grain.
A similar effect was observed in corn production, of which Ukraine is one of the main world exporters. The current Brazilian crop should reach 125 million tons, more than 10% of world production, with exports of 50 million tons.
This means that Brazil should lead the world corn export ahead of the United States. This is not only due to the decline in exports from Ukraine, but above all to the drought in the USA and Argentina.
neutrality checked
But the war did not only affect Brazil economically. As a regional power, the country was also forced to adopt international political positions and this proved to be an exercise in diplomatic balance.
On the one hand, Brazil is a democracy, which ties it to the United States and the European Union, for example. On the other hand, it is also a rising power and as such belongs to the group of Brics states, alongside nations like Russia not exactly a democratic paradigm.
Not angering either side has been the main task of Brazilian diplomacy since the conflict began — if there’s one point on which Bolsonaro and Lula agree, it’s about Russia’s importance as a fertilizer exporter to Brazilian agribusiness.
This became clear once again during the visit of the German Federal Chancellor Olaf Scholz to Brasilia. There he heard from Lula a refusal to send ammunition to Ukraine and about the war the observation that two don’t fight if one doesn’t want to.
The relativization of Russia’s guilt in the conflict, which is common in the Brazilian left, is nonsense for every German politician from the democratic field.
4 of 4 In Brasília, Olaf Scholz received a refusal to send arms to Ukraine — Photo: Ueslei Marcelino/Portal In Brasília, Olaf Scholz received a refusal to send arms to Ukraine — Photo: Ueslei Marcelino/Portal
Weeks later, at Lula’s meeting with United States President Joe Biden, the topic of war in Ukraine was again hotbutton. The Brazilian press reported that Brazil had yielded to the United States and accepted harsher language towards Russia in the final communiqué.
Both Scholz and Biden explained to Lula his idea of a RussiaUkraine peace negotiation group made up of countries like Brazil, China and India. Lula sees Brazilian neutrality as an asset to these negotiations, but the proposal doesn’t seem to have been taken very seriously by the two Western leaders.
So far, like his predecessor Bolsonaro, Lula has ruled out any political or military support for the Ukrainians. At the same time, the Brazilian government avoids offending Americans and Europeans. Developments in the war will put this position of Brazilian neutrality to the test.
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