How Brazil’s ethanol requirements kept gasoline inflation in check

The Hormuz energy shock might have been global, but drivers in Brazil barely noticed, at least relative to their European and North American counterparts.

Partly, this was due to emergency fuel subsidies. But it was also a result of Brazil’s unique biofuel regime, which requires gasoline to be blended with 30% ethanol. This is driven by both emissions goals and support for local agriculture, given Brazil’s status as the world’s largest sugarcane producer.

It also reflects a long-term plan for energy security that paid off (and helped contain inflation). Brazilian gasoline prices peaked at 8% above their level at the start of the US-Iran war. This compares with a 60% peak increase in the US and an EU average of about 18%.

Brazilians also have the option of buying “flex-fuel” vehicles, which lets them switch between pure #ethanol and the gasoline-ethanol blend. Ethanol prices were rising more quickly than gasoline before the crisis, but that trend reversed as the war continued. (Healthy sugarcane and corn production helped.)

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