On Strike!: Brazil’s Truckers and Oilworkers Strike, With Broader Implications

Here in Brazil, the entire country has been impacted by strikes organized by the country’s trucking and oil workers unions that have paralyzed Brazil’s economy and commerce over the past two weeks. Scenes of blockaded highways, long queues at gas stations, and empty grocery stores have dominated the television news, while social media is abuzz with misinformation about the strikes and cellphone videos of squabbles between truck drivers on different sides of the conflict.

Reuters and the Associated Press have provided helpful daily summaries of the ongoing action, including President Michel Temer’s ongoing attempts to quell the strikes and negotiate with the unions, as well as the strikes’ detrimental impact of the strikes on the Brazilian economy.

Associated Press:

• Brazil Says Deal Reached to Suspend Damaging Trucker Strike – May 24
• Brazil President Says Striking Truckers Could Be Removed – May 25
• Empty Stores, Shuttered Gas Posts in Brazil Truckers’ Strike – May 26
• Brazil President Hopes Measures Will End Crippling Strike – May 27
• Free Market vs Subsidies at Heart of Brazil Truckers’ Strike – May 28
• Brazil Union to Truckers: End Strike or Risk Losing Gains – May 29
• Oil Workers Go on Strike in Brazil – May 30

Reuters:

• Brazil Truckers Suspend Strike, Govt to Subsidize Diesel Prices – May 24
• Brazil Truckers Maintain Blockades, Near Standoff With Military – May 25
• Brazil Lost 120,000 Tonnes in Meat Exports in Truck Strike-ABPA – May 28
• Brazil Truckers Slow to End Strike, Despite Concessions – May 28
• Brazil Deal to End Truckers’ Strike Rattles Petrobras Investors – May 28
• Brazil Labour Court Declares Petrobras Workers Strike Illegal – May 29
• Brazil’s Temer Downplays Threat of Coup Amid Truckers’ Protest – May 29
• Brazil Oil Worker Strike Gains Steam in Another Blow to Govt – May 30
• Brazil Commodities Exports Still Lag as Truckers Protest Unwinds – May 30
• Brazil’s Poultry Industry Could Take Years to Recover From Strike – May 30

Over the course of the two-week strike, Temer has repeatedly caved to the demands of the protesting truckers, who  in addition to not working, set up roadblocks blocking the entry and exit of non-union trucks across the country. First, for the Brazilian State to subsidize the price of diesel fuel, which has been steadily climbing over the past few months, and alleviate the truckers from daily oil price fluctuations by a monthly adjustment. However, the truckers, who are mostly independent contractors, have been slow to return to work and accept the concessions made by the Temer government, believing that prices would return to their current heights at the end of the subsidization period. In response, Temer has further kowtowed to further the trucker’s demands by alleviating the financial pressure felt by the truckers and make their trade more predictable and profitable, agreeing to lower highway tolls and establishing minimum freight rates. In each of these instances the government will foot the bill (in the case of the fuel subsidization, paying oil supplier Petrobras directly), at an additional cost of R$9.5 billion reais ($2.54 billion USD).

The strike has underlined Brazil’s reliance on its truckers and highways to feed / supply the country and as an engine of commerce, due the country’s lack of rail or canal infrastructure. Truckers make up the shortfall in much-needed infrastructure and logistics-related investment across the massive land-mass that is Brazil, estimated to be the source of as much as 60% of all goods transported within the country. Across the country, state(s) of emergency were declared by local governors, bus and metro routes were cut or cancelled altogether, food supplies in grocery stores, gasoline at gas stations, and medical supplies in hospitals have all dwindled, especially in the non-coastal interior of the country. In addition, Brazilian industry has ground to a halt: its principal export-oriented industries (automotive manufacturing, agribusiness, and meat processing) have lost billions as they have paused production due to a lack of fuel and other necessary inputs, and will likely take weeks to normalize. In a particularly extreme case, the Brazilian poultry sector is warning that a industry-wide “collapse” may be imminent if the situation is not resolved, as over 70 million chickens and crucial breeding animals have died due to lack of feed, posing a further risk to the environment and public health.

Long lines outside of a Shell gas station, as Brazilians have rationed their fuel consumption

Further underlining the severity and widespread impact of the strike, Brazilian economists are now estimating a reduction in 2018 GDP. And on a global stage, financial markets have responded to the Brazilian strikes, resulting in a loss of nearly 30% by Brazilian oil company Petrobras, and a downturn in the Brazilian stock exchange Bovespa and Brazilian Real.

The reaction of financial markets to the Brazilian strikes, with key dates annotated (by me)

While the supposed rationale and conditions for the strike are likely to be resolved fully in an attempt to restore investor and consumer confidence, there remains a broader question whether the strike will portend a larger, sustained undercurrent of protest. Throughout the negotiations, there remained a disconnect between the union leaders negotiating with the Temer administration and the truckers themselves, who have been slow to concede despite their demands being met (per Temer: “we gave them everything they asked for.”) More broadly, the general population has been broadly supportive of the strikes, citing palpable anger towards the Brazilian political class and the vast inefficiencies of the Brazilian state – the high taxes and cost of living relative to the level and quality of service provided by the State. Two weeks in, there has not been any popular backlash whatsoever against the truck drivers themselves, as the population has mostly reserved their criticism for President Temer, the most unpopular President in Brazilian history.

The strike reflects the attitudes of many Brazilians’ towards the role of the state – to step and in provide financial cushion to the Brazilian citizen against rising costs. In the mid-2000s, Brazil was buoyed by high oil prices, which resulted in an expansion of the state by President Lula da Silva and a rise in the economic prosperity of many Brazilians . However, once the price of oil fell, the Brazilian citizen was suddenly pitted with untenable costs. As a result, Lula’s hand-picked successor, Dilma Rousseff, implemented price controls that subsidized the cost of oil and insulated Brazilians from the world oil markets. While this was a politically popular gambit, it pulled the Brazilian economy further into recession, and resulted in an outflow of foreign capital. Ping-ponged in the middle of this saga is the Brazilian oil company Petrobras, which despite being publicly traded is highly politicized and controlled by the Brazilian statem, and was implicated in the Operation Car Wash political corruption scandal to funnel money to politicians via bribes and overcharging for services. Following Dilma’s impeachment and the payment of ~$3B USD to settle a shareholder lawsuit, President Temer and newly appointed CEO Pedro Parente sought to restore investor confidence in Petrobras and move it towards self-sufficiency, removing subsidies and ‘floating’ the oil price to reflect world market markets. As a result, Petrobras’ profits climbed, and its stock price improved dramatically. However, as the Brazilian real has devalued and global oil prices have continued to climb, the Brazilian government has chosen to intervene once again in Petrobras’ operations, lest they risk angering the truck drivers, or passing along the price increases to the Brazilian consumer.

World oil prices from 2009 – 2018 provide a useful backdrop to contextual recent Brazilian political actions

As the truckers strike has wound down, a second strike was begun by two major unions representing Brazilian oil workers with a similar rationale: the high cost of cooking oil. No doubt, this strike was spurred by the reaction of the Temer government to the truckers, and the desire to ensure that their respective needs are met as well.One of the principal demands of the oilworkers strike is the resignation of CEO Pedro Parente, and a reversal of many of the changes made by the Temer / Parente duo to re-open Petrobras to global markets and investors. While the oilworkers planned walkouts will impact operations at a majority of the country’s oil rigs and at refineries across six states, oil stockpiles and contingency planning will prevent the strike from reaching the impact of the trucker’s strike, but nonetheless, Brazilian industry is at a particularly fragile point, and further strikes or a broader protest may be likely.

One of the most concerning aspects of the strike has been President Temer’s threat of calling in the military at particularly tense moments to forcibly quell the protesters and end the strike. Thankfully, there were no significant standoffs between the military and the truckers, as the military mostly served to provide safe passage to medical and food supplies. However, Temer’s threats to “activate” the Brazilian military if necessary to disperse the protests reflect a dangerous strategy at a time when murmurs of the need for a military intervention have become increasingly louder and more pronounced. Temer remains embroiled in his own corruption and bribery scandals, with no immediate Vice President successor in the event of his indictment due to the peculiarity within the Brazilian constitution (as Temer was previous VP, and no replacement was voted in.) While Temer and his likely successors have all been downplaying any risk of a military intervention, Brazilian Military Commander Villas Bôas has become an increasingly vocal political voice following Lula’s arrest and the recent strikes, and “fake news” of a imminent intervention have taken over social media.

As previously mentioned, this only creates uncertainty leading into the elections in October. At the same time, I do think these protests have been telling from the standpoint of exposing the tensions and feelings at the heart of the Brazilian economy and its complicated position towards global markets.