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Big Oil Petitions Brazilian Court To Suspend New Oil Tax

Five international oil companies active in Brazil have petitioned a federal court to suspend the 9.2% tax on crude oil exports that new president Ignacio Lula da Silva introduced soon after he came into office, angering the industry.

According to the government, the new tax will serve to attract more investments in the country with a focus on local refining.

According to Shell, however, the tax was announced without “significant dialogue” and it created "uncertainty about new decisions regarding investments,” the supermajor told AFP.

When the new oil export tax was announced at the end of last month, Shell, along with the Brazilian subsidiaries of TotalEnergies, Portugal’s Galp, Repsol, and Equinor, filed an injunction against it.

“This measure, which was announced with no significant consultation with the industry, brings uncertainty to new investment decisions, negatively impacting the country’s competitiveness in the upstream sector – one where Brazil carries significant geological potential,” Shell told Bloomberg earlier this month.

According to one Brazilian professor of economics who spoke to AFP, the decision is more political than economical and aims to avoid having to raise fuel prices too much, which would create discontent.

According to the government, the new tax, which will be in place between March and July, will provide Brazil with a better fiscal balance and will help offset losses incurred from not hiking fuel prices in accordance with market prices.

"During the next oil auction, it is possible that the bidders will take into account the risk that the rules will change," a researcher from education think tank the Getulio Vargas Foundation told AFP.

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The tax sets a precedent that will lead to legal uncertainty for investors and have a spillover effect on other industries besides oil and gas, discouraging foreign investors from putting their money in Brazil, Livio Ribeiro explained.

By Charles Kennedy for Oilprice.com

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