Brazil's oil and gas industry grows despite political turmoil newly darkened by assassination. The country's total oil supply, now about 2.7 million b/d, should exceed 3 million b/d by yearend as production projects come online, mainly in the presalt play of the offshore Santos basin. State-owned Petrobras plans to start 19 production units during 2018-22, 8 of them this year. And it's spreading the risk by forming strategic alliances with international operators.
For a company at the center of corruption scandal that has rattled two former country presidents and threatens a third, this performance reflects more than impressive recovery.
Operation Car Wash
It was a 2014 investigation into money-laundering at a Petrobras service station that spiraled into what became known as Operation Car Wash, which uncovered metastatic bribery and kickbacks at the highest levels of Brazilian business and government. In 2016, political backlash ended the presidency of Dilma Rousseff, who served on the Petrobras board when the corruption occurred but denies involvement. Last year, investigators convicted former President Luis Inacio Lula da Silva of accepting a bribe and sentenced him to 9½ years in prison. He, too, maintains his innocence and is appealing. Now current President Michel Temer, who replaced Rousseff, is under investigation for obstructing the corruption probe.
Although very unpopular, Temer is thought to be maneuvering for a run at election next October to the position he inherited. A likely opponent, if he avoids imprisonment, is Lula da Silva, whose popularity is high. Facing political challenge, the possible truncation of his presidency by the corruption probe, and the need to govern through an unruly coalition, Temer has resorted to authoritarianism reminiscent of Brazil's military dictatorship of 1964-85.
Calling the move a response to rampant crime, Temer on Feb. 16 imposed "federal intervention" in the state of Rio de Janeiro. The intervention gives the federal military control of local police and allows federal agencies to usurp the state government when necessary to advance goals of the intervention. Within a week of Temer's decree, military officials made mass arrests in poor sections of the city of Rio de Janeiro.
Without question, violent crime has made large parts of Rio dangerous and subject to gang control beyond the reach of law enforcement. It's a priority concern of many Brazilians. While a law-and-order campaign might be politically crafty in the current environment, though, Temer's crackdown seems especially heavy-handed.
Security concerns took an ominous turn on Mar. 14, when Marielle Franco, a Rio city councilwoman, advocate of rights for black people, and opponent of the Rio intervention and police brutality, died mysteriously of gunshot wounds. Four days earlier, she had disclosed the killings by military police of two boys in a poor community and subsequent threats of violence against anyone reporting the deaths. The same police unit had killed three young men and two teenagers in 2016. Because the victims were black, the killings have evoked charges of official racism. Temer cited Franco's death as justification for the military deployment into poor, largely black communities.
These developments raise social pressure in a country already restive after the Operation Car Wash revelations and still early in its recovery from economic recession aggravated by the 2014-16 slump in the price of crude oil. How that pressure will affect elections later this year is anyone's guess.
Can independence last?
For Petrobras and Brazil's oil expansion, the uncertainty makes 2018 fateful. Petrobras has achieved its recovery under the leadership of Chief Executive Officer Pedro Parente, who has trimmed the company's debt and divested assets while overseeing growth of deepwater infrastructure and oil output. In office since June 2016, Parente insists on freedom from political interference. He also has indicated in press interviews his willingness to remain Petrobras president after his term expires in March 2019 if he retains that independence.
Whether his condition will be met depends greatly on results of Brazil's unpredictable election. Brazil's oil future therefore depends greatly on the election, too.
