Bottom Line: Tensions are boiling between Brazil and the US over the revelation of NSA spying on Petrobras, in what is a continuation of the case of former NSA contractor Edward J. Snowden.
Analysis: Snowden passed the NSA documents to an American journalist working in Latin America, leading to the revelation that the NSA had been spying on Petrobras, as well as on the presidents of Brazil and Mexico. The US defense of this revelation was that the NSA’s activities are intended to gain insight into foreign economies, not to steal trade secrets from foreign companies on behalf of US companies to enhance their competitiveness. There are no details on what the NSA was hoping to extract from spying on Petrobras, but the immediate assumption is data on offshore oilfields, specifically (though not confirmed) oil bid data.
Recommendation: This revelation could have implications for Brazilian President Dilma Rousseff’s planned visit to Washington in October, as well as for the October auction of Petrobras offshore assets. However, Brazil’s reaction so far has been muted, and our assessment is that Petrobras needs this auction to go well and the NSA leak won’t rock the boat significantly.