Lula Returns to Power in Brazil as Markets React to Split Congress

Luiz Inácio Lula da Silva secured his fourth term as Brazilian president on Sunday, but his victory did not bring unified control of Brasília. The left won the presidential race, yet conservative forces captured a commanding majority in Congress. This divided government leaves Lula facing a legislature that can block spending packages while demanding funds for local projects.

Lula received 64,256,232 votes compared to 59,826,041 for Flávio Bolsonaro. The margin of 4.4 million votes marked a comeback for the incumbent, who had trailed in the first round. However, Bolsonaro’s Liberal Party won 121 seats in the lower chamber and 28 in the Senate. Gilson Schwartz of the University of São Paulo estimates the broader right now controls approximately 59% of the Chamber of Deputies.

The market reaction was immediate and severe. The Ibovespa index fell 13.88% on Monday after trading was temporarily halted. The dollar rose more than 8% against the real. Igor Barenboim, a former Brazilian economic policy secretary, attributed the volatility to traders unwinding positions they had taken when Bolsonaro led the first round. He noted that government debt increased from 72% to 83% of GDP during Lula’s previous term, with a nominal deficit near 9%.

Bolsonaro departed for the United States on Tuesday, two days after the election. He failed to surrender his passports as ordered in a money-laundering investigation, which he denies. A senior US official stated that Bolsonaro and his family would be granted visas, though Washington did not confirm asylum. His move comes after he shifted from seeking annulment of the election to a bid to disqualify Lula’s ticket over alleged abuse of power.

Trump questioned the Brazilian result without presenting evidence of fraud. His administration’s decision to admit Bolsonaro adds friction to a relationship already strained by trade disputes and critical minerals. Schwartz advised Brasília to distinguish between legitimate US economic interests and institutional interference, calling sovereignty the red line. Barenboim expects Brazil to pursue limited fiscal consolidation by withdrawing tax breaks rather than cutting spending.

Regional leaders offered Lula early support. Presidents José Antonio Kast of Chile, Keiko Fujimori of Peru, Daniel Noboa of Ecuador, and Abelardo de la Espriella of Colombia all acknowledged his victory. These right and center-right governments still rely on Brazil for border security, energy, and migration cooperation, making practical engagement more likely than ideological division.

The election also altered Brazil’s diplomatic posture toward Israel. Bolsonaro had promised to move the embassy to Jerusalem and expand defense ties. Lula, who has supported Palestinian statehood, offers no such opening. Neither country currently has an ambassador posted in the other’s capital, a diplomatic gap that persists despite ongoing trade flows.

Brazil sold about $569 million in goods to Israel in 2025 and bought roughly $1.3 billion. Agricultural sales from January through September 2026 have already surpassed the total for all of 2025. The exchange includes food, fertilizer, machinery, and medical equipment. Lula must now determine if he can leverage this commercial connection to maintain political access while defending his stance on Gaza.

Lula’s path forward involves muddling through fiscal challenges. Barenboim predicts the president will do enough to prevent disorganization but will stop short of deep adjustments. The outcome depends on whether Lula can balance his coalition politics with a Congress that prefers spending over austerity.