Luis Inácio Lula da Silva, the 77-year-old leftist icon and former president of Brazil from 2003 to 2010, secured a return to the country’s top job on Sunday, narrowly defeating incumbent Jair Bolsonaro in a bitterly contested presidential runoff election.
The victory by da Silva, known to supporters and detractors alike simply as Lula, marks an ongoing leftward shift in Latin America, following recent victories by Gabriel Boric in Chile and Gustavo Petro in Colombia. Da Silva was released from prison in 2019, following a 2018 conviction and 12-year sentence on corruption and money laundering charges. Brazil’s supreme court subsequently voided the conviction.
Da Silva, a former labor leader and co-founder of Brazil’s Workers Party, campaigned on pledges to protect the Amazon Rainforest and heal the country’s deep partisan divisions.
On the energy front, da Silva can be expected to consolidate the power of state oil company Petróleos Brasileiro, aka Petrobras, according to experts.
Da Silva’s victory “is expected to have significant implications” for the oil and gas sector, “and in particular the functioning of national oil company Petrobras,” said Fitch Solutions’ Dominika Rzechorzek, oil and gas analyst, in a webinar ahead of the election. “As a key implication, we expect Lula to strengthen government control over Petrobras. During his campaign, Lula has been vocal about the benefit of state ownership of strategic energy assets.
“Hence, in our view, his government would likely attempt to slow, suspend or fully reverse the sale of strategic downstream and natural gas assets pursued by Petrobras in the framework of the divestment program.”
Da Silva, during his first presidency, oversaw early development of Brazil’s offshore pre-salt layer, a juggernaut that supplied 3 million boe/d or about 74% of national oil and gas production as of September, according to the government.
Petrobras, for its part, has sought to offload much of its downstream and natural gas portfolio in order to focus investments on pre-salt exploration and production (E&P).
These efforts align with a natural gas reform passed in 2021 designed to vertically de-integrate Petrobras and promote competition in the local natural gas market.
Executives from firms such as Equinor ASA and Engie SA have cited the gas market liberalization as crucial to fully developing Brazil’s immense pre-salt gas reserves.
The development of these reserves likely will dictate the extent to which Brazil’s LNG imports grow over the coming years. Domestic production accounted for 61% of Brazil’s gas supply as of the second quarter, according to Petrobras. Pipeline imports from Bolivia and liquefied natural gas imports accounted for 27% and 12%, respectively.
While the future of Brazil’s gas market remains to be seen, da Silva lacks the congressional majorities and political conditions necessary to undertake any major reforms for now, according to experts.
Da Silva “is unlikely to veer from a pattern seen across Latin America of president-elects who have very short honeymoon periods,” said Eurasia Group analysts led by Christopher Garman, managing director for the Americas, in a note following the election. “He will [inherit] a divided country, an electorate that deeply distrusts the establishment, and growing domestic and global economic headwinds.”
Fitch Solutions offered a similar assessment. “Once in office, we think Lula, a leftist, will face considerable governance challenges,” analysts said. “Centrist and right-wing parties are set to have majorities in congress, which will force Lula to negotiate with them in order to pass legislation, while grappling with a highly polarized electorate, at least some portion of which may view Lula as illegitimate if Bolsonaro challenges the result of the runoff.”
As of Monday afternoon, Bolsonaro had yet to admit defeat, with some analysts speculating that he would contest the result.
