The obstacles Brazil must overcome to import diesel from Russia

Brazil’s decision to start importing diesel from Russia due to the risk of internal shortage was received with skepticism by the sector’s agents amid the economic sanctions that the Eastern European country has been suffering from the West since the beginning of the war in Ukraine.

Although there is no impediment to operations in political and economic terms, some operational obstacles must be circumvented.

Brazil currently imports about 25% of its diesel oil consumption, mainly from the United States, from refineries in the Gulf of Mexico region.

On Tuesday, July 12, the Minister of Mines and Energy, Adolfo Sachsida, stated that Brazil has enough stock to supply domestic demand for 50 days without requiring imports. Until the beginning of the week, the country added 1.6 million cubic meters of diesel A S-10 (with no biodiesel added).

The National Petroleum, Natural Gas, and Biofuel Agency (ANP) monitors the situation, which sees risks due to the increase in demand for the derivative in the second semester and the uncertainties generated by the global geopolitical situation.

In recent weeks, the Brazilian government has promoted two meetings between at least three Russian fuel exporters and Brazilian distributors, according to the Reuters news agency. The meetings were attended by the Russian ambassador, Alexey Kazimirovitch Labetskiy.

At least one company, the Santa Catarina-based Uptime Trading and Distribution, announced it had already obtained authorization from the ANP to import fuel from Russia.

A contract to buy 25,000 tons per month over one year has been signed with a refinery in that country, and all that is missing is the presentation of guarantees to finalize the deal, which should happen in up to 20 days, according to CNN Brasil.

The Brazilian Association of Fuel Importers (Abicom) views business with Russia skeptically. “There are many operational obstacles due to the sanction established,” the entity’s president, Sergio Araujo, told Valor Econômico newspaper.

According to him, Brazil was already not importing diesel from Russia even before the boycott, for issues such as the supply of diesel from the Gulf of Mexico, freight costs, and travel time.

After President Jair Bolsonaro (Liberal Party – PL) announced the start of negotiations to import Russian diesel, Brazilian Chancellor Carlos França was even questioned by journalists about the statement at a United Nations Security Council meeting in New York.

After a reporter asked if he was not concerned that the purchase might finance a war, França asked that the same question be put to the German premier, Olaf Scholz. “Maybe you should ask Mr. Scholz about that, and then I’ll answer,” he said, referring to the fact that Germany is a major consumer of Russian gas.

MAJOR DIFFICULTIES ARE RELATED TO EXCHANGE, COSTS, AND DEADLINES

For economist Rodrigo Leão, Ph.D. in international political economy and technical coordinator of the Institute for Strategic Studies of Petroleum, Natural Gas, and Biofuels (Ineep), however, there should be no political or diplomatic consequences, such as retaliation from other countries, which prevent imports.

“The boycott of Russia comes from Europe, the United States, Australia, and Japan, plus some economies in Africa and Latin America. It’s not the majority of countries, and we have observed that other nations, due to the discounts Russia has been giving in terms of prices, have significantly increased the purchase of Russian diesel,” he says.

That is the case in China and India, for example. “Brazil already imports some products from Russia, especially fertilizers, in a considerable quantity,” he reminds us.

It is the same thesis defended by the Brazilian Foreign Relations Minister. “Russia is a strategic partner of Brazil. We are BRICS partners. We are also very dependent on fertilizer exports from Russia and Belarus. And, of course, Russia is a big supplier of oil and gas,” França said Tuesday.

Although it is opposed to the war, Brazil has adopted a relatively neutral position regarding the conflict, without taking a position for one side or the other.

Still, the Ineep economist sees some complicators that must be circumvented. “The main issue is that Russia has been doing its business in local currency, the ruble, which creates additional costs,” he explains.

“Besides this, the time for diesel to get here is longer; the logistical cost is higher and, depending on the region, there are difficulties due to the harsh winter,” he says.

Among the advantages, on the other hand, is the price of the Russian product when compared to the North American derivative. As Europe is boycotting Russian oil, there was considerable growth in the volume imported from the United States, which generates pressure on the prices of the product from that country.

“If you take U.S. exports from March to May, there was growth, each month, at rates of more than 10%. So, you have a group of countries demanding from the United States, which has generated a drop in stock of North American derivatives,” explains Leão.

“This is starting to impact prices, in addition to generating difficulties in meeting the demand they are receiving. On the other hand, there is a tendency to increase the supply of Russian oil. So it is natural that there is a reorganization of the commercial flow.”

To have an idea, in the last three months, the liter of Russian diesel had a floor of US$0.95, while that of the North American product was US$1.33, according to Ineep’s studies.

The possibility of diesel shortage in Brazil was raised by Petrobras in May due to planned maintenance stoppages at its refineries in the second half of the year and the shortage of the product on the international market because of the war in Ukraine.

On Tuesday, July 12, the ANP held a public hearing on two proposed resolutions to force companies in the sector to increase product stocks in the second half of the year. In a statement released the next day, the agency said that “at the moment, the supply of diesel A S-10 occurs regularly in the country” and that its goal “is to act preventively.”

With information from Gazeta do Povo