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Yet another Brazilian crisis

The country's oil reforms are promising, but the president's scandal-plagued term could undermine their longevity

Those applauding Brazilian president Michel Temer's efforts to kick-start its moribund oil industry by reducing costly local procurement rules, resolving regulatory impasses and widening investor access to massive offshore prospects through an unprecedented three-year schedule of oil-rights auctions should probably curb their enthusiasm.

Brazil's rumbling political crisis isn't going away, and it risks undermining the reforms. The most recent turn came when Brazil's Supreme Court released recordings in May that implicate Temer and other key political supporters in efforts to obstruct the rapid progress of Brazil's Lava Jato, or "Car Wash", corruption probe.

The tapes strongly suggest that Temer and other top politicians and business allies sought to buy the silence of suspects, manipulate Supreme Court justices and stymie investigations by replacing independent police chiefs and prosecutors with more pliable officials.

The upshot? Temer is now directly implicated in the same massive web of bribery, contract-fixing, accounting fraud and political kick-backs that raised him to Brazil's highest office by sparking the 2016 impeachment of his predecessor Dilma Rousseff.

For now, Temer is holding on to power, and despite widespread calls for him to step down, he has received some good news that has strengthened his hand. The Supreme Court, in a surprise move, absolved Temer of allegations that he broke campaign finance laws during the 2014 election. A conviction likely would have led to his removal from office. Following the decision, Temer's most important coalition partner, the Brazilian Social Democratic Party (PSDB) said they would stick by the embattled president to help push through the economic reforms. But the alliance is shaky, with some in the PSDB keen to exit the governing coalition to keep their distance from the Temer's scandal-tainted administration.

Car Wash has done little to shake a bedrock Brazilian belief that Petrobras, which lies at the centre of the vast corruption scandal, is a force for good

The threat to Temer's oil policies, the first serious concession to Brazilian oil-industry grievances after 13 years of increasingly intrusive and costly state control, might have been limited to implementation delays if the allegations had not been immediately seized upon as a partisan hammer to rally opposition to Temer's economic agenda—including the oil reforms.

Many, particularly supporters of impeached president Rousseff, her predecessor Luiz Inácio Lula da Silva, their Workers' Party (PT) and assorted leftist or economically nationalist allies still insist that Car Wash is not really about corruption at all. Rather, it's a sinister, right-wing witch-hunt. Evidence of PT leaders' central role in the scandal, they say, are lies. Car Wash's real aim is to discredit and reverse the party's economic and social agenda. Temer's own entanglement in the Car Wash scandal has done little to shake this nakedly partisan reading of the affair.

Industry threat

Instead, outrage over Temer's acts has done more to mobilise opposition to his policies, oil measures included, than bolster an anti-corruption crusade essential to Brazil's future political and economic health and any sustainable revival of Brazil's oil industry.

Oil has always been central to the PT agenda. Which is why anyone counting on the permanence of the Temer oil reforms, should be very worried.

Temer's PMDB party—for more than a decade the PT's key co-conspirator in Car Wash graft—only signed on to reform after Rousseff's ouster and after the corruption was exposed.

Surprisingly, Car Wash has done little to shake a bedrock Brazilian belief that Petrobras, which lies at the centre of the vast corruption scandal, is a force for good, an essential pillar of Brazilian sovereignty and key to Brazil's future development.

As a result, political support for Temer's oil measures is largely opportunistic and he hasn't built a popular movement to entrench his reforms. Passion, on the other hand, drives opposition, whether it flows from an exaggerated devotion to Petrobras or a cynical self-interested scramble to escape the clutches of Car Wash.

With many afraid of the economic and social uncertainty likely to accompany the decimation of Brazil's political elite, maintaining support for policies predicated on the benefits of reducing Petrobras' power and the role of the state in guiding oil investment is getting more difficult.

While Temer remains in power, there is no guarantee he'll make it until the 2018 elections. If he goes, Congress will be replaced by an interim head of state ahead of scheduled elections in 2018, though the PT and a growing chorus of supporters want to hold snap elections. It's little surprise. Their leader, Lula leads all presidential polls. This will worry the country's oil investors. He has firmly opposed Temer's reforms and the Car Wash investigation.

It may be some time before there are any safe bets on Brazil.

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