THE BLOG

Petrobras Scandal Goes Far Deeper Than Previously Thought

03/13/2015 04:52 pm ET | Updated May 12, 2015

The ongoing and seemingly widening scandal plaguing Petrobras is beginning to cause fissures in Brazil's political system. New evidence suggests that the ruling political party may have been much more involved than once thought.

The state-owned oil giant is embroiled in a scandal over kickbacks, in which it would overpay contractors in exchange for bribes. Some of the money was also diverted to the coffers of Brazil's Workers' Party (PT), the political machine that has run the country for over a decade.

A former Petrobras manager spoke at a hearing on March 11 and admitted to having taken bribes as far back as 1997. Pedro Barusco said he took over $100 million in bribes over the years, but he dropped a bombshell on the hearing when he said that the PT probably accepted twice as much.

Barusco met directly with the PT treasurer and would discuss the specifics of how the bribe scheme would work. "That makes me estimate that between $150 million and $200 million went to the PT," he said.

The scandal has the PT in a state of crisis. Brazilian President Dilma Rousseff has had no choice but to allow an investigation to unfold, which has now ensnared 47 top political officials and allies, including the most powerful members of Congress. To make matters worse, Rousseff's coalition partners are starting to abandon her, which will make responding to the deteriorating economy politically difficult.

Along with a stagnating economy, the high cost of living, and a horrific drought facing parts of Brazil, the public is angry at the extent of corruption that appears to reach all the way to the top of the Brazilian political system. Tens of thousands of people are expected to take to the streets this weekend to demand the resignation or impeachment of President Rousseff.

But the President and her party are not the only casualties of the Petrobras scandal. Petrobras itself is in serious trouble. According to Galp Energia, a company that partners with Petrobras to drill for oil, the fallout from the scandal will likely delay four major offshore oil projects. That could significantly cut into Petrobras' future production levels.

As debt piles up and the corruption probe digs deeper, Petrobras is looking weaker by the day. In late February, Moody's downgraded the oil giant to "junk" status.

By James Burgess of Oilprice.com