THE slogan under which Petrobras, Brazil’s national oil company, was founded in 1953 was o petróleo é nosso (“the oil is ours”). Ours, not the foreigners’, was the implication. That, too, is the sentiment behind the oil policy of the Workers’ Party (PT) governments that have ruled Brazil since 2003. But as Brazilians contemplate the huge corruption scandal now engulfing Petrobras, they might ask themselves just who “ours” refers to.

The PT disliked a successful reform of Petrobras in the 1990s, which stripped it of its monopoly of production and distribution while subjecting it to market discipline and arm’s-length corporate governance. When the company and its new foreign partners made huge deep-sea oil strikes in 2007 Luiz Inácio Lula da Silva, Brazil’s president, saw a chance partially to restore Petrobras’s monopoly. New oil laws drawn up by Dilma Rousseff, his chief of staff and successor, gave the company sole operating rights and a minimum 30% stake in the new fields.

Lula and Ms Rousseff saw oil as the spearhead of an industrial policy that involved fostering favoured sectors and presumed national champions. Lula ordered Petrobras to build four new refineries, three in the poor north-east. A new rule required up to 85% of equipment and supplies for the oil industry to be nationally produced. A dozen new shipyards studded the Brazilian coast, fed on cheap government loans. They provided 74,000 new jobs, boasted Ms Rousseff during her campaign last year for a second term. “We created an immense industry.”

Much of this vision now lies in tatters. Prosecutors have identified at least 2.1 billion reais ($730m) in “suspicious payments” on Petrobras contracts; in a plea bargain, the company’s former purchasing chief has revealed that 3% of the value of all his division’s contracts was diverted to the PT and its allies for personal gain or campaign finance. The firm’s most recent quarterly results disclose a potential writedown of 88 billion reais in the value of its assets. This comes on top of the damage to its profits caused by Ms Rousseff’s freeze on petrol prices, in a now-abandoned effort to offset her inflationary fiscal policy. Minority shareholders in Petrobras have seen the value of their investment slashed by 80% since 2008.

But the ramifications of the scandal go much further. Dozens of managers from Brazil’s biggest construction companies, which were Petrobras contractors and the operators of the shipyards, are in jail. Banks are reluctant to lend to these companies until their future is clearer. A liquidity squeeze is being felt along the supply chain. Sete Brasil, a company set up by Petrobras and its bankers to build and lease to it 28 drilling rigs, has run out of cash, according to an industry source. Petrobras itself has scrapped two of the unbuilt refineries, after spending $1 billion on them; it has abandoned work on doubling output at another and on revamping a petrochemical complex. Thousands of workers are being laid off.

The PT’s expansive industrial policy was ruinously expensive for Brazil. Shielding Petrobras from competition just as the company embarked on the world’s biggest corporate investment programme proved to be an open invitation to steal. Fixing the level of national content so high was a recipe for delay and extra cost. Sharing out the work for political reasons deprived the shipyards of economies of scale.

The PT has placed Petrobras in serious jeopardy, at least until the accountants can agree on how to treat the losses caused by corruption. The drop in the oil price adds to the company’s woes. The deep-sea oil is only viable at today’s price “if we make an effort to reduce costs,” says Eduardo Braga, the new energy minister. The shipbuilding industry needs “consolidation”; the national-content rule should be “more flexible to guarantee competitiveness for our oil industry,” he says. The PT’s industrial policy is in full retreat.

What Brazil needs now is a policy that will align Petrobras with the national interest, rather than that of its managers and the ruling party. This means cutting the company down to size and exposing it to competition. And it means using oil money to upgrade skills, infrastructure and the research base, so that suppliers are encouraged to set up in the country.

In the inaugural speech of her second term on January 1st, Ms Rousseff pledged to defend Petrobras against “enemies abroad” and insisted her policies “assured our people control over our oil wealth.” Ordinary Brazilians now know exactly who “our people” are—and it isn’t them. Who extracts oil matters less than what is done with its benefits.