The royalty income received by the government of Rio de Janeiro has grown almost six times above inflation in the last 25 years, since the Oil inaugurated the era of concessions in the oil sector. The value reached R$26 billion in 2025, equivalent to 42% of what the state collects from ICMS. This year, the amount could reach R$34 billion, in the wake of the rise in oil prices on the international market.
However, this dependence on oil and royalties, instead of contributing to overcoming the structural crisis in Rio de Janeiro’s finances, has produced the opposite effect, points out the study by economists Sérgio Gobetti and Luana Rebouças.
For Gobetti, Rio de Janeiro presents symptoms of the so-called Dutch disease or “curse of natural resources”. This economic phenomenon portrays the situation in which the abundance of revenue resulting from the expansion of extractive activities, such as in the oil and gas sector, is not managed properly and ends up harming the rest of the economy.
The term emerged in the 1970s, when the Netherlands discovered large reserves of natural gas. At the time, the appreciation of the currency, the guilder, increased the cost of other Dutch products abroad, leading to the decline of the manufacturing industry.
Gobetti states, however, that in the case of Rio the “curse of natural resources” seems to be explained more as a result of corruption and mismanagement of revenues than by the exchange rate problem.
Between 2010 and 2023, according to economists, the GDP of the state’s extractive industry, led by the oil sector, grew 56%, while the GDP of other industrial sectors shrank 14.5% and that of civil construction, 19.5%.
“This economic regression in traditional sectors of Rio’s economy is a sign that the abundance of oil resources, instead of contributing to the development of the entire economy, ends up having the opposite effect”, says Gobetti, who is a researcher at Ipea (Institute of Economic and Applied Research).
“The idea is that you get very rich with a resource, receive easy money and relax in the sense of not having a policy of developing other sectors.”
When contacted, the Rio government said in a note that it rejects any thesis that places the state within the Dutch disease classification and says that the comparison is mistaken.
“The State of Rio is currently the second largest economy in Brazil, it houses the largest logistics hub in South America and accounts for around 20% of federal revenue, which represents approximately R$460 billion per year. Therefore, any attempt to fit Rio into a definition that limits its productive potential is a biased strategy, as well as unfair, leading to errors”, says the note.
The study by the two economists, called “Oil Royalties: what does the analysis of historical series reveal?” and published by Ibre-FGV (Brazilian Institute of Economics), is part of the extensive defense material that non-producing states presented to the STF (Federal Supreme Court) in recent weeks.
The law that redistributes oil royalties, reducing the percentage reserved for the so-called confrontational states from 30% to 20%, was approved in 2013 by Congress, overturning the veto of then president Dilma Rousseff, but was blocked by the STF due to a preliminary (provisional) decision by minister Cármen Lúcia.
Confronting states are those whose coastlines face the maritime area where the oil wells or fields are located, even when this distance exceeds 200 kilometers, as in most current cases. These states and also the neighboring municipalities had this right inaugurated by a 1985 law, when offshore oil production was very small.
After 13 years of waiting, the STF finally decided to assess the merits of the action filed by the state of Rio against the new law, and the main point of argument is that the change could destabilize Rio de Janeiro’s finances.
Started on May 6th, the trial was interrupted by a request for a view (more time to study the subject) by minister Flávio Dino.
The numbers gathered in the study indicate that, in 2013, Rio de Janeiro’s royalty revenue was R$8 billion annually and today, if the new law were in force, it would be R$17 billion — twice as much as in the past.
“The growth of the pie, resulting from the increase in oil production in the country, would have compensated for the smaller slice reserved for the confrontations”, says Gobetti. “And in the next decade we will continue to see an increase in production and revenues, making it fully feasible to gradually migrate to a model in which those confronted receive proportionally less than today, as provided for in the transitional rule of the new law.”
In the economist’s assessment, Rio de Janeiro’s degree of dependence on oil revenues needs to be reduced, and resources must be managed more efficiently to establish a virtuous relationship between the oil sector and the rest of Rio’s economy.
The recently approved tax reform, which will replace ICMS with IBS (Goods and Services Tax), opens this window of opportunity by increasing the state’s revenue prospects from the consumption of its own population.
In the studies that supported the tax reform, Rio de Janeiro is identified as the state that will gain the most revenue from the changes, going from a 7% share in the current ICMS to around 8.5% in the future IBS.
This distribution already occurs today, but it amounts to 5% of the entire pie and would be expanded to more than 40% with the new law, which is defended by the CNM (National Confederation of Municipalities) and 21 other state governments.
The trial portrays a major dispute over the distribution of resources. Today, the opposing states and municipalities receive more than 50% of all revenue, while the federal government receives 38%, although the Constitution says that the oil belongs to the Union.
The political pressure to decentralize this revenue created a conflict between the confrontationists, who consider themselves legitimate beneficiaries because they are affected by production, and the non-confrontational parties, who claim equal rights over production that takes place on the high seas and not in the territory.
For the authors of the study, the new royalty law promotes a rebalance in the distribution of revenues that is more compatible with the new reality of oil production.
The Rio de Janeiro government argues that the Constitution establishes financial compensation to producing states and municipalities for the exploitation of natural resources in their territories and adjacent areas. “This same concept is applied to other economic activities in the country, such as mineral exploration in states such as Pará and Minas Gerais and the use of water resources in Paraná and Rondônia.”
For the state, Rio’s economy has “a broad, diversified and strategic base for national development that brings together industrial, logistical, tourist and productive activities that consolidate Rio as one of the main drivers of the Brazilian economy”.
The note mentions tourism, which generated R$10.6 billion, the steel industry and the automotive hub in the south of the state.
