US-Iran Conflict Heightens Economic Risks for Brazil Amid Oil Price Volatility

The ongoing US-Iran conflict continues to cast uncertainty over Brazil's economic outlook, primarily through its influence on oil prices and fiscal conditions. According to Brazil's monthly economic report, conservative assumptions peg oil prices at $60 per barrel, yet recent rises to approximately $80 per barrel exacerbate inflation and current account deficit pressures. The report projects Brazil's GDP growth at 2.0% in 2026, with a slight improvement expected in 2027. Despite a stabilization in 2025, Brazil's tax revenues remain robust, enabling the government to maintain its primary surplus targets amid growing public debt. The current account deficit is forecasted at 3.1% of GDP for 2026, reflecting the heightened economic activity and elevated oil prices. Politically, Flávio Bolsonaro is actively crafting a government plan and building alliances to bolster the administration's standing ahead of upcoming elections. The report also warns that fiscal and political uncertainties linked to the conflict could raise risk premiums on Brazilian assets, with the exchange rate predicted to reach 5.60 reais per US dollar by year-end. Meanwhile, inflation is anticipated at 3.8% for the year, with potential upward pressures tied to ongoing oil price volatility. These intertwined economic and political dynamics underscore Brazil's vulnerability to external geopolitical tensions and emphasize the challenges facing policymakers in navigating fiscal stability and growth amidst global uncertainties.