Brazil investors eye the worst-case scenario

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Felix Salmon
·2 min read
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Data: EIA; Chart: Axios Visuals

Brazil's markets tumbled on Monday, with state oil company Petrobras losing 19% of its value, after president Jair Bolsonaro announced he was firing the company's Chicago-educated CEO and replacing him with a former general.

Why it matters: Bolsonaro pledged to "put a finger on electricity" — to keep prices at artificially low levels, worrying investors who had previously been counting on him to have more of a laissez-faire approach to industry.

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Flashback: The headlines coming out of Brazil are reminiscent of the way in which Venezuelan president Hugo Chavez dismantled his country's oil-production infrastructure after he came to power in 1999, starting with the forced resignation of Luis Giusti, the head of the state-owned oil company.

By the numbers: Venezuelan oil production has reached formerly unthinkable lows, given that the country sits on the largest oil reserves in the world.

  • Venezuela's 300 billion barrels of reserves now produce less than half a million barrels a day of oil.

  • Brazil's reserves are tiny in comparison — less than 13 billion barrels — but the company is producing far more oil, about 3 million barrels per day.

Between the lines: Technocrats tend not to fare well under populist presidents, be they of the right-wing or left-wing variety. Venezuela's PDVSA was an extremely well-run company before 1999, and Petrobras has been reasonably well-run until now.

  • But when an ex-military president takes over and puts generals in charge, loyalty to the regime tends to be rewarded more than professional competence.

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