Brazil’s state oil company Petróleo Brasileiro SA (PBR), commonly referred to as Petrobras, was once the darling of emerging market investors. But, no more.

For the past year, the company has been embroiled by the biggest political bribery scandal in Brazil’s history.

Dubbed the “car wash” by the police, Brazilian prosecutors allege that politicians colluded with former company officials and contractors to extract billions of dollars in bribes. More than 750 individual projects are under investigation.

The scandal caused Petrobras to write off about $2 billion in its latest (and much-delayed) financial results.

If that isn’t bad enough, the tumble in oil prices and project delays have started to hit home.

The company wrote off an additional $15 billion as an impairment charge due to the value of its oil assets tumbling.

That brings the total write-offs to nearly $17 billion!

Unfortunately for the company and its investors, the scandal is only the tip of the iceberg for Petrobras.

World’s Most-Indebted Major Oil Company

Petrobras’ real problem is too much debt.

In fact, it’s the world’s most-indebted major oil company. Petrobras carries a net debt load of $106.2 billion as of the end of 2014.

According to The Wall Street Journal, that’s nearly 4.8 times the company’s earnings before interest, taxes, depreciation, and amortization. The Wall Street Journal went so far as to call the company “an oil major with the leverage of a Texas wildcatter.”

Now, Petrobras faces the very stiff task of somehow servicing this debt at a time when oil prices are down about 50% from the levels they were a year ago.

In an effort to carry its debt burden, Petrobras has tried to eliminate the dividend. It will also slash its capital expenditures next year to $25 billion, down 37% from its original forecast of $39.5 billion.

Additionally, it says it will sell an estimated $13.7-billion worth of assets to help with its debt.

Some of the assets to be sold may even include part of its crown jewel – the pre-salt oil fields that lie in deepwater offshore. Some are already in production, but Petrobras says it will take on partners for the fields not yet developed.

The problem is, Petrobras probably won’t get a good price, despite the quality of the assets. Buyers will no doubt low-ball Petrobras, knowing the company is in dire straits. These fields’ breakeven point is somewhere in the $50- to $55-per-barrel range, which will also hold down the price.

And Petrobras has other worries too besides its debt problem…

You see, the company buys some oil at prevailing market prices. But, because of government intervention, it must sell refined products at a fixed price that often leads to losses.

Another headache is a weakening Brazilian real. Not only does the currency’s value cause the company’s refining margin to take a hit, but it increases its debt burden. Plus, two-thirds of the company’s debt is denominated in U.S. dollars.

But Petrobras’ woes don’t stop at the company’s doors.

A Major Headache for Brazil

Petrobras’ problems are being felt by the Brazilian economy – the world’s seventh-largest – as a whole.

The company’s budget slashing will likely deepen the country’s expected recession. In fact, it could account for shaving off 1.5% of the gross domestic product!

Some economists predict that Brazil will experience its worst recession in 25 years. There’s also a fear that the corruption scandal will spread to other state companies, such as Brazil’s electricity provider, Eletrobras (EBR).

Even if the scandal doesn’t spread, Brazil will still be hit by the turmoil at Petrobras.

A key reason for that is Petrobras invested double the government’s entire discretionary infrastructure budget each year. It had accounted for 10% of Brazil’s total annual investments. And, at its peak, its revenue equaled 8% of the gross domestic product.

Already, two refinery projects worth $30 billion have been canceled. A $1.3-billion fertilizer plant and dozens of drilling and production vessels (worth hundreds of millions each) are all in limbo.

Add to that, 23 of the company’s major suppliers – including some of Brazil’s largest construction firms – are on a payment blacklist, meaning the government will no longer do business with them. This “blacklist” has already pushed five companies into bankruptcy since November.

None of this bodes well for Brazil or holders of a broad-based Brazil exchange-traded fund, such as the iShares MSCI Brazil CappedETF (EWZ).

Until the scandal starts to die down, any investment in Brazil – especially Petrobras – should be put on the back burner.

And the chase continues.