Brazilian President Dilma Rousseff on Tuesday called off plans for an October state visit to Washington because of revelations that the United States spied on her personal communications and those of other Brazilians.
Rousseff's decision, which came despite a 20-minute telephone call from President Barack Obama on Monday night in an attempt to salvage the trip, is a big blow to relations between the two biggest economies in the Americas and could hurt US business interests, such as a $4 billion sale of jets fighters.
Both the White House and Rousseff's office billed the decision as a mutually agreed postponement, and said a state visit could take place at an unspecified later date. However, two officials with knowledge of Rousseff's decision told Reuters that such a visit was unlikely to happen anytime soon.
White House spokesman Jay Carney said the presidents agreed in their phone call to postpone the visit because the disclosures of alleged US spying could overshadow their meeting. But US moves to address the surveillance complaints will be slow.
"As the President previously stated, he has directed a broad review of US intelligence posture, but the process will take several months to complete," Carney said.
Ties between Brazil and the United States had been improving steadily since Rousseff took office in 2011 and before the revelations that the US National Security Agency had snooped on emails, text messages and calls between the president and her aides. The spying revelations came from documents leaked by former NSA contractor Edward Snowden.
"Illegal surveillance practices intercepting the communication and data of citizens, companies and members of the Brazilian government constitute a serious affront to national sovereignty and individual rights, and are incompatible with democratic cooperation between friendly nations," the Brazilian government said in a statement.
In the absence of explanations and a "commitment to cease such surveillance activities, the conditions are not in place for the visit to go ahead as previously scheduled," it said.
US officials said the NSA surveillance was aimed at tracking suspected terrorist activity and did not pry into personal communications. But Rousseff was not convinced.
Next week, in a speech at the United Nations General Assembly, she plans to raise Brazil's concerns and push for an international agreement on Internet governance.
Rousseff's trip was expected to be a platform for deals on oil exploration and biofuels technology, and the Brazilian Air Force's potential purchase of F-18 fighter jets from Chicago-based Boeing Co.
The coveted defense contract, which has also involved years of negotiations with rival proposals from France and Sweden, could be the main victim of the spying affair. Brazilian officials have said Brazil will not buy such a strategic aircraft from a country it cannot trust.
Business leader Gabriel Rico, chief executive of the American Chamber of Commerce in Sao Paulo, lamented a lost opportunity to boost investment flows and advance talks to eliminate double taxation.
The spying revelations sparked a political uproar in Brazil that Rousseff could not ignore. A senior government official told Reuters that Rousseff's top advisers, including her mentor and predecessor as president, Luiz Inacio Lula da Silva, encouraged her to scrap the state visit.
The issue is not likely to go away soon in a country that has long harbored suspicions that the United States wants to control its rich mineral resources in the Amazon basin and off its Atlantic coast, where Brazil has made the world's largest oil deep-water discoveries in decades.
Brazil's Congress has opened an investigation and on Tuesday questioned oil industry regulator Magda Chambriard on whether NSA spying could have given US companies the edge in bidding for offshore production rights to be auctioned next month.
The spying scandal will raise risks for US companies operating in sensitive industries, such as the defense, telecom and energy sectors, and Boeing's chances of securing the jet fighter contract will be "significantly reduced," the Eurasia consultancy in Washington said in a note to clients.
"In the energy sector, there will certainly be a political firestorm if an American company wins the (subsalt) bid round in October," Eurasia said, referring to the deep sea oil deposits that sit beneath a thick layer of salt under the ocean floor.
Rousseff, who is widely expected to run for re-election in October 2014, could score political points from the spying scandal. "She will hype this trip cancellation as 'kicking Uncle Sam in the ass' and this will boost her popularity," said David Fleischer, a politics professor at the University of Brasilia.