Brazil has become the latest target of U.S. President Donald Trump's ire after the Republican frontrunner threatened 50% tariffs on the South American giant for allegedly persecuting right-wing ex-president Jair Bolsonaro. In a post on Truth Social, Trump called on Brazilian President Luiz Inacio Lula da Silva to halt what he described as a "Witch Hunt that should end IMMEDIATELY!" Bolsonaro is currently on trial for allegedly attempting to overturn the results of the 2022 election.

Tensions have escalated. Lula has promised retaliation if the U.S. moves forward with the punitive tariffs, telling local outlet Record, "If he charges us 50%, we'll charge him 50%." But with Brazil's oil exports to the U.S. on the line, Lula will likely be hoping for a less volatile resolution.

Crude oil is Brazil's top export to the United States, valued at $5.83 billion in 2024, according to official trade data. It has so far been exempt from the 10% baseline tariffs Trump proposed in April on most foreign imports. Last year, Brazil exported an average of 1.78 million barrels per day (bpd) of crude globally, with approximately 243,000 bpd shipped to the U.S., per ANP and EIA data.

But analysts believe any disruption would likely be short-lived. "These tariffs may generate short-term noise in trade flows and impact margins on spot contracts, but do not represent a structural risk," BTG Pactual analysts wrote in a recent client note.

According to BTG analysts Gustavo Carvalho and Luiz Cunha, the tariffs would have limited impact on Brazil's state-controlled oil company Petrobras (NYSE: PBR). "Despite the U.S. having a significant share of derivatives exported, in absolute terms we believe this is a very small volume, and that Petrobras could easily redirect this export to another country." In Q1 2025, just 4% of Petrobras' total exports went to the U.S.

Still, not everyone is as sanguine. The Brazilian Petroleum Institute (IBP) says it views Trump's threats with "concern" and has urged the Lula administration to seek a diplomatic solution.

Petrobras is already facing headwinds from lower oil prices and ongoing cost pressure. In May, the company announced it would revise its five-year strategic plan to focus on cost reduction while preserving current-year investments. "When the price goes up, we feel more comfortable throwing ideas around. When the price goes down, it is time to tighten our belts," CEO Magda Chambriard said, adding the company would simplify projects and cut costs amid ~$65 Brent prices.

That marks a shift from Petrobras' earlier tone. Since Lula took office in 2023, the government had pushed the company to ramp up domestic spending to create jobs and stimulate growth. Petrobras originally unveiled a $102 billion capex plan for 2024-2028, which it later increased to $111 billion for 2025-2029.

More recently, Petrobras said it is evaluating the sale of its onshore fields in Bahia state--known as the Polo Bahia Terra cluster--due to high production costs and underwhelming yields. The asset, long considered underperforming, has become increasingly uncompetitive compared to Petrobras' lucrative pre-salt offshore reserves, which now account for more than 70% of Brazil's oil output.

Five years ago, Petrobras began the process of offloading Bahia Terra but paused following Lula's election. "When oil is at $100 a barrel, it makes more sense than at $65 a barrel," Chambriard said, adding: "We haven't yet decided what to do--whether to keep it, outsource the operation, or simply pass on the asset."

Steep tariffs on oil could further skew the trade balance between the two countries. In 2024, Brazil ran a $6.8 billion trade deficit with the U.S.--one of the few nations that buys more from the U.S. than it sells to it. Top U.S. exports to Brazil include fuels, aircraft, machinery, and electronics.

By Alex Kimani for Oilprice.com

COMTEX_467320098/2559/2025-07-14T07:28:06