Though there are a variety big issues in Brazil right now, mostly involving the Sarney corruption scandal and the Senate’s Internet censorship during the upcoming elections, there is another issue, one of President Lula’s pet projects and evidently one of the federal government’s top priorities: oil.

Petrobras, the state-run petroleum company, has long been a leader in the oil industry and one of Latin America’s largest and highest-grossing companies. It has offices all over the world and not only explorations in Brazil, but also in the Gulf of Mexico. This week, statistics released by consulting company Economatica indicate that during the third trimester of 2009, Petrobras showed the second highest profits of all companies in the Western Hemisphere. It is posed to be the leader in explorations of the Tupi oil field, with recently discovered reserves that could make Brazil one of the world’s oil giants.

Now, President Lula wants to reform how Petrobras is run, which in the past has allowed 60% of its shares on the market with considerable foreign investment. He’s seeking much tighter federal control over the oil reserves and the company, which would reduce shareholders’ stakes and also state-based oil revenues (it’s no surprise that Rio de Janeiro’s governor is opposed to the reform). He has promised to funnel the profits into social welfare projects so that the fruits of Petrobras’ labor will go to the people, and not the government (or the politicians’ pockets). Incidentally, Lula’s also promoting his own Chief of Staff, Dilma Rousseff, for president in 2010; she seems poised to push the reforms, and it’s no coincidence that she spent much of her political career as MInister of Mines and Energy (for the federal and Rio Grande do Sul governments).

So I’d like to take a look at a couple of strategies the Brazilian government and Petrobras have been dealing with the oil issue, very much on the offensive in the international media and blogosphere.

Most notably, President Lula launched a blog this week, inspired by Obama’s internet success. But as it turned out, the blog wasn’t so much a blog as a series of articles to promote Lula’s projects (there are no comment sections; this afternoon they were recently added), and Lula doesn’t actually write it (it’s run by a team of “bloggers”). The first week, the blog was full of articles about the new oil legislation and the pre-sal, the layer Petrobras will have to get through to get to the oil, with titles such as “Pre-sal is the future of the country” and “Pre-sal: patrimony of the Union, wealth of the people, and future of Brazil.” An excerpt:

“With the pre-salt, Brazil has a promising future ahead of it, but it will only come with the best use of resources that are created by Petrobras’ recently discovered large petroleum and natural gas reserves. Ministers Dilma Roussef (Chief of Staff) and Edison Lobão (Mines and Energy) affirmed in their speeches during the announcement of the new pre-salt regulations, that it is necessary to guarantee that the profit created is used as a priority to combat poverty, education, scinece, technology, and environmental sustainability.”

In this month’s Foreign Policy Magazine, which is a series of articles about oil entitled “Oil: The Long Goodbye,” there are a few mentions of Brazil’s oil potential and of Petrobras’ role in the industry, but not much beyond mentions. However, the Brazilian government took out a twelve page advertising section with “articles” about Petrobras, the oil question, the Rio 2016 Olympic bid, and other promotions of Brazilian industry, including the ports and construction. It also features interviews with Rio’s mayor and governor, as well as business leaders.

This, in contrast to the edition’s op-ed piece about oil, written by Moises Naim, the editor in chief of the magazine, entitled “The Devil’s Excrement.” A Venezuelan who attests to the curse oil becomes for oil-rich countires, he provides a warning about the dangers of oil wealth:

“Perhaps even more significantly, the oil curse also nurtures bad politics, and herein lies its autoimmune nature. Because governments of such countries do not need to tax the population to amass giant fiscal revenues, their leaders can afford to be unresponsive and unaccountable to taxpayers, who in turn have tenuous and often parasitic links with the state. With their ability to allocate immense financial resources pretty much at will, such governments inevitably grow corrupt.

…Once in power, oil-rich governments are deadly hard to dislodge. They stick around by spending their vast public resources to buy out or repress their political opponents. Statistically, it is far less probable that an authoritarian oil country will transition to democracy than that a resource-poor autocracy will. Oil-rich governments spend two to 10 times more on their militaries than countries without oil and are more prone to go to war. Most oil-exporting countries that do not have strong democratic institutions before they start exporting crude inevitably create an inhospitable environment for democracy.”

While Brazil has relatively strong institutions and democracy, as well as being one of the highest taxing governments in the region, this may not be a problem.

But unfortunately, the Brazilian government does have problems with corruption, and that includes Petrobras. Accused of tax evasion and funneling charity money to political croonies, Petrobras has started a corporate blog entitled “Facts and Figures” to lash out at Brazilian journalists accusing the company of wrong-doing. SImilar to Lula’s blog, it’s more of a one-way dialogue, and has been accused by some as a way of intimidating the media. MSNBC reported:

“[CEO] Gabrielli says he personally signs off on many of the company’s daily postings on the blog, which is published only in Portuguese. The idea is to rebut what he calls “false information” in the Brazilian press about the company. But the site, which has had more than 1.5 million visitors, is raising questions about whether one of the region’s most respected state-run companies is harming its reputation by being so combative. “We’re going to defend ourselves,” Gabrielli told a reporter from leading newspaper Folha de So Paulo in late June, in a Q&A posted on the blog. “Attacking is also part of defending oneself.”

Though Petrobras has had a relatively good track record, the reforms and the subsequent exploration projects could be a real test of Brazil’s still fragile democracy. The Economist summed it up best in today’s article about the new policy:

“…Brazil is better placed to deal with them than many other countries. Still, as Lula pointed out, what looks like a winning lottery ticket can all too easily become a curse. Anyone who has been following the recent corruption scandals in Brazil’s Congress will know that such a disaster is well within the powers of the country’s lawmakers.”