Give to Get: US Eyes Brazilian Oil

By Elizabeth Dolge 

No doubt Obama made many fans during his visit to Brazil last weekend, charming government officials and citizens alike.  But as the dust settles from his two day action-packed visit, US-Brazil relations remain at a most critical point.  Many have called Brazil the most important leg of Obama’s Latin-American trip – and with good reason.  Brazil is now the 7th largest world economy.  Amidst the crisis in the Middle East and record-breaking oil prices, many countries are seeking to increase relations with Brazil.  To appease critics, White House officials billed this trip as part of efforts to stimulate the economy, creating US jobs by linking with fast-growing markets like Brazil.

The political agenda included many items but probably the most important for the US relates to petroleum.  The US has Brazil in sight as a large potential source to fulfill its future petroleum needs.  Brazilian news sources are quick to point this out, summarizing Obama’s visit more plainly and simply than most US news reports.  Obama himself stated the overall goal is to reduce dependence on oil while “diversifying the portfolio” of producers.  Brazil currently produces about 2.1 million barrels of oil/day – enough to meet its current energy needs.  With the much-anticipated exploration of “pre-sal” reserves, production could increase to 2.5 million barrels/day.  At these levels, energy analysts predict Brazil could become one of the top 3 oil exporters in the world by 2030.

With vast oil reserves and a booming economy, Brazil is in a strong position to demand concessions for any favored status when it comes to their oil.  Tariffs remain a sore point.  A year ago I attended the Annual Sugar & Ethanol Conference in Sao Paulo.  While the US ethanol tariff received only a few mentions during the official program, it was a major topic among participants during program breaks.  Fast forward a year.  Sure enough the tariff issue made its way into the official dialogue between Presidents Obama and Rouseff.  During Brazilian news coverage of the event, President Rouseff made it clear that if the US wants to benefit from increased business with Brazil (including access to its oil reserves) it must prepare to re-visit its current restrictive tariff policy.  By no coincidence, ethanol was cited as the #1 example of such restrictions in her address.

In addition to petroleum, US interests include renewable energy – in particular, biofuels.  Brazil is a world leader in this space and the US hopes increased partnership in this area will lower dependence on foreign oil and serve to increase the diversification of its national energy sources.  A major impediment to this process has been the US-imposed barriers of Brazilian ethanol.  The current import tariff on Brazilian sugar ethanol, renewed in December 2010, remains 54cents/gallon.  Brazil has long called for elimination of this tariff and the overall practice of overtaxing Brazilian products.

Despite encouraging words to his Brazilian hosts, Obama alone doesn’t hold the power to make this change.  Congress must approve and this will continue to be a challenge with the Republican majority in the House of Representatives.  It does not bode well that the House rejected E15 legislation in February of this year, setting back efforts to implement a 15% ethanol mix in commercial fuel sold in the US.  Dilma made a request for Obama’s support to thwart renewal of the current tariffs blocking Brazilian commodities from the US market.  An official vote on these tariffs is expected near the end of this year.  As Brazilian news sources point out, any major policy change is doubtful given the strength of the US Agricultural lobby and the re-elections looming in 2012.  One thing for sure, in the quest to strengthen relations and benefit from Brazil’s many riches, the US should remember one must give in order to receive.

Elizabeth Dolge (Betsy) is a San Francisco Bay Area freelance writer/researcher with a passion for all things sustainable and all things Brazil.

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