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Brazilian President Dilma Rousseff meets with state governors in Brasilia on Friday. While Ms. Rousseff has not been accused of wrongdoing in the Petrobras corruption probe, she is facing impeachment for her government’s alleged use of the country’s pension fund to shore up budget gaps.UESLEI MARCELINO/Reuters

God, people around here like to say, is Brazilian – a cheery way of celebrating this country's natural beauty, bountiful resources, lovely people.

God, however, appears to be in an Old Testament phase.

Each day in Brazil of late is more dramatic than the one before, and the news is uniformly grim. There is a political crisis, an economic crisis and, as if that wasn't enough, a public-health crisis.

The country entered uncharted territory in the past two days, as President Dilma Rousseff was implicated in the country's giant graft scandal, and her predecessor, Luiz Inacio Lula da Silva, was briefly detained by police for questioning about the same case.

There are no precedents for any of this; there is only a national mood of bewildered anxiety. Will the police interrogations be extended to the President herself? Will she resign, or be forced out? And if so – who takes over? (The Vice-President is implicated in one of the legal processes targeting the President. The third in line, the lower-house Speaker, was ordered on Thursday by the Supreme Court to stand trial on charges related to the scandal. No. 4 is the President of the Senate, who is, yes, also under investigation).

The political upheaval only serves to fuel Brazil's economic crisis: The country has careened from hottest of the emerging markets to the sharpest economic contraction in decades. GDP fell a staggering 3.8 per cent last year. Inflation and unemployment rates are rising steadily, swiftly eroding gains in social inclusion made under Mr. da Silva's time in office.

And the country is scrambling to respond to a frightening public-health mystery, in which the once-benign Zika virus has been connected to devastating fetal brain damage. The Ministry of Health has confirmed 641 cases of congenital Zika virus and is investigating another 4,222 suspected cases. There is no vaccine for Zika, no treatment for the babies and almost nothing is known about how the virus, which has been recognized for decades, has come to cause these injuries. In other times, or other places, that might be big news. Here, along with the Olympic Games set for August, it has slipped utterly off the public agenda.

"We are living through a political and ethical crisis without precedent in the republic of Brazil," Claudio Lamachia, president of the Brazilian Bar Association, told the news agency Estadao.

This political drama escalated on Thursday, when a national magazine implicated both Ms. Rousseff and Mr. da Silva in the massive corruption scandal, which is often known as Lava Jato, or Car Wash, for its police operation code name. The national news ran for almost an extra hour … there was just so much to say.

Prosecutors investigating the case allege that more than $2-billion (U.S.) in kickbacks was paid by companies, including some of the biggest names in infrastructure and construction, who were seeking contracts with the state-owned oil firm Petrobras. And, they allege, a percentage of those bribes were funnelled to politicians – while the case initially looked at the ruling Workers' Party, by now there are politicians from every major party indicted or being investigated.

Lava Jato began in August, 2014, when a low-profile former Petrobras director, Paulo Roberto Costa, agreed to a plea bargain after he was arrested on bribery charges. Mr. Costa named names – and names, and names. The case landed in the courtroom of Sergio Moro, a federal judge in the southern state of Parana (because that's where the agent who bribed Mr. Costa first laundered money). It was driven by a team of young, male prosecutors, many of whom had studied in the United States, who are now sometimes referred to in the media as the Nine Horsemen of the Apocalypse.

From that one case, Judge Moro has become a cult figure, for his perceived fearlessness and personal rectitude. Simultaneously, he is also despised by loyalists of each party, who see him carrying out vendettas against their organization. He now presides over a Hydra-headed investigation – Friday's raids were part of "Phase 24" – unlike any in the country's history in its scale and in the way that it has moved relentlessly up the political ladder, with increasingly influential people implicated.

Until this week, Ms. Rousseff had managed to keep herself isolated from the sordid revelations. Although she was energy minister in Mr. da Silva's cabinet, and thus chair of the Petrobras board, when much of the activity under investigation allegedly occurred, she has insisted she did not know about it and no evidence has tied her to it. And she has repeatedly assured the Brazilian public that she was not interfering in the investigation and would let it play out unfettered, no matter where it led – something the prosecutors have also affirmed, that there is no pressure emanating from her office.

This week, however, her Minister of Justice, Jose Eduardo Cardozo, asked to be relieved of his post, saying he was tired of pressure from party members to intervene in the case. He moved to the job of Solicitor-General.

Then on Thursday, the magazine IstoE reported that a senator named Delcidio do Amaral, arrested on charges of interfering with the Lava Jato investigation last year, is negotiating a plea deal in which he implicates both Ms. Rousseff and Mr. da Silva. The magazine says that in a deposition, the senator, once a Rousseff confidant, reported that the President asked him to make sure that a judge she wished to appoint to one of the country's highest courts understood he must free political allies of hers who were being held in connection with Lava Jato.

Ms. Rousseff, speaking to reporters Friday afternoon, said that if it is true that Mr. do Amaral is making these allegations, it was a "an immoral and petty desire for revenge" and she categorically denied having interfered. The senator, who has not resigned his seat despite going to jail last November, issued a strange statement in which he said he did not recognize the documents the magazine posted online and that he had not been contacted by the reporter – but stopped short of making an actual denial that he was negotiating a deal. Under the law, such a deal would be void if he spoke about it.

The allegations about the deposition have not been confirmed by any other source or media organization so far, and the magazine in question has previously reported political information found to have been untrue.

The magazine also reported that Mr. do Amaral has said he will testify that Mr. da Silva made illegal payments to a businessman convicted in a vote-buying scheme.

While the country was absorbing that allegation, news came that the Supreme Court had ruled unanimously that Eduardo Cunha, the Speaker of the lower house of Congress, must stand trial on money-laundering and corruption charges in connection with Lava Jato. The Speaker is a bombastic social conservative who is a key figure in Brazil's largest political party, and he was once a key part of Ms. Rousseff's governing coalition. Last year, as investigators closed in on him, he emerged as her nemesis, spearheading a drive to impeach her over charges that she juggled loans from public banks to cover shortfalls in the federal budget.

Mr. Cunha has repeatedly denied any wrongdoing, despite published confirmation about the existence of Swiss bank accounts that he always insisted he did not have. Prosecutor-General Rodrigo Janot has been asking the Supreme Court since December to remove Mr. Cunha from his congressional seat, saying he is using his position to obstruct the probe into his affairs. But Mr. Cunha says he won't go.

Then came Friday, when Brazilians woke to the news that federal police had carried out an early-morning raid on the Sao Paulo home and offices of Mr. da Silva, who remains the most influential figure in the Workers' Party, and immensely popular. Police took him for questioning at an airport police station in the city and held him for three hours.

"No one is above investigation in this country," Carlos Fernando dos Santos Lima, a prosecutor in the Lava Jato task force, told reporters in Parana.

Police said they had evidence that Mr. da Silva received illicit benefits from the kickback scheme at Petrobras in the form of payments and luxury real estate, including use of a beachfront penthouse apartment. "Ex-president Lula, besides being party leader, was the one ultimately responsible for the decision on who would be the directors at Petrobras and was one of the main beneficiaries of these crimes," a statement from the prosecutors' office said on Friday morning, using the name by which Mr. da Silva is universally know here. "There is evidence that the crimes enriched him and financed electoral campaigns and the treasury of his political group."

The sight of the former president being taken away in a police car startled Brazilians, who are accustomed to politicians who flaunt their impunity, and supporters and detractors who gathered at his house began to scuffle.

When he was released three hours later, Mr. da Silva went to Workers' Party headquarters and spoke to reporters and loyalists, a vintage Lula performance in which he denied, then ridiculed, every accusation, alternately thumping the table in rage and charming with colourful metaphors.

"If they wanted to kill the jararaca [a venomous snake], they didn't hit the head, they hit the tail," he said. "The jararajca is alive, as it's always been."

Mr. da Silva's brief detention could have far-reaching consequences, and puzzled many of those who have closely followed the case. The prosecutors' decision to have police execute an "order to depose" has had the effect of sharply politicizing Lava Jato and further polarizing the country. Mr. da Silva has been questioned already in connection with the case, appearing voluntarily. "They could have sent me a communication asking me to depose, I would have gone," he said. "I felt like a prisoner this morning. Unfortunately, they preferred to be presumptuous, arrogant, to stage a pyrotechnic spectacle … They lit the flame inside me, and now the fight will go on."

Other party leaders began to talk about a "coup" and said they would call the rank and file to the streets in demonstrations in support of the 70-year-old former president, who had been seen as a leading candidate for the position in the 2018 election, and the party legacy.

Mr. da Silva, a former union leader who grew up in extreme poverty and has a Grade 4 education, suggested that the prosecution is being driven by the discomfort of the Brazilian elite with his success, and by extension with the social upheaval in this country when millions of poor people moved into the middle class during the period of prosperity over which he presided. "Everyone can have a friend with a beach house or a farmhouse – except this shitty steel worker here," he said.

So what happens now?

Three political experts contacted by The Globe and Mail said they could not be interviewed on the topic; a leading political columnist said he could not comment because he just didn't know.

It is clear that Ms. Rousseff's opponents are determined to redouble pressure to force her out. Her popularity ratings are below 10 per cent nationally and she has few friends left within the party either.

And yet, few people believe Ms. Rousseff, who was once a Marxist guerrilla and was tortured while imprisoned by the military dictatorship, will resign.

"Perhaps in other political cultures you would have that as something expected and maybe desirable, for the good of the country," said Michael Mohallem, a professor in the law school of the Getulio Vargas Foundation in Rio.

But Ms. Rousseff appears to view resignation as an admission of guilt, which she rejects – and perhaps, he added, she also believes that if the economy begins to rebound next year, she might finish her mandate with her reputation at least partially restored. (He called that an "excessively optimistic narrative.")

But the events of the past days will bring the impeachment effort to the fore again. If Ms. Rousseff is removed by impeachment, Vice-President Michel Temer of the Democratic Movement Party would in theory take over.

But separately, Brazil's electoral court is analyzing a request by the opposition to annul Ms. Rousseff's 2014 re-election, on the grounds that the campaign was financed with illegal funds. If that claim were found to be valid, and the election annulled, this would also remove Mr. Temer as Vice-President. If this happens before 2017, new elections will be called.

None of the legal processes, Prof. Mohallem noted, will happen quickly. And in the meantime, Congress is stalemated, and by extension so is much of government.

"Unless there is a quick victory for one of these sides, the country will be paralyzed for a long time," said Wagner Romao, professor of political science at State University of Campinas. "And we have to think about how good a fast decision would be for this democracy – is it better to get out of this crisis fast? Or to preserve democratic institutions?"

And the paralysis, in turn, prevents action on the economy. The commodity prices that drove the boom have collapsed. A Workers' Party intervention based on giving big companies cheap credit was a failure. But Mr. Cunha, the Speaker with the Swiss bank accounts, has steadfastly blocked Ms. Rousseff's efforts to pass economic-reform legislation.

In the way of such things, the darkening of her political prospects has bolstered financial markets. Bovespa, the Sao Paulo bourse, finished the week up 18 per cent, its biggest gain since 2008. The real, which had lost more than 70 per cent of its value in the year from September, 2014, sinking to a low of 4.2 against the U.S. dollar, strengthened to 3.8 on Friday. The value of Petrobras stock rose 48 per cent this week.

But none of that matters much right now. On Friday, the leading financial publication, Valor, updated a blog it runs for investors. "Forget the Fed, China and balance sheets; the plunging GDP, the fiscal deficit and the inflation rate being beyond the target," Fernando Torres wrote. "The 24th phase of Lava Jato – that's the news."

With reports from Manuela Andreoni


March 20, 2014

Federal police arrest the former head of Petrobras's refining and supply department, Paulo Roberto Costa, the result of an investigation that started when they noticed Mr. Costa had been given a Range Rover car by convicted black-market money changer Alberto Youssef.

Aug. 22, 2014

Mr. Costa signs a plea-bargain deal with prosecutors, agreeing to explain the corruption scheme and name beneficiaries in exchange for a lighter sentence. Plea bargains become a cornerstone of the investigation.

Dec. 11, 2014

Prosecutor Deltan Dallagnol declares war on corruption in Brazil in a nationally televised news conference.

March 6, 2015

Brazil's Supreme Court says it will investigate the Speakers of both houses of Congress and 32 other sitting politicians in connection with the Petrobras scheme.

April 15, 2015

Police arrest the treasurer of the ruling Workers' Party, Joao Vaccari, moving the investigation closer to Brazilian President Dilma Rousseff's inner circle.

May 26, 2015

Nestor Cervero, former international director of Petrobras, is sentenced to five years in jail for money laundering.

June 19, 2015

Brazilian police arrest the chief executive of the country's largest construction company, Marcelo Odebrecht, head of family-run conglomerate Odebrecht SA.

July 14, 2015

Federal police carry out search-and-seizure operations at the home of Senator and former president Fernando Collor de Mello, the first such operation targeting a sitting politician.

July 16, 2015

Federal prosecutors open a formal inquiry into whether former president Luiz Inacio Lula da Silva improperly used his connections overseas to benefit Odebrecht after leaving office.

Aug. 20, 2015

Prosecutors in Brasilia charge Eduardo Cunha, the Speaker of Brazil's lower house, the Chamber of Deputies, with taking a $5-million (U.S.) bribe related to two drill-ships contracts.

Sept. 30, 2015

Switzerland provides Brazilian prosecutors with Swiss bank accounts in Mr. Cunha's name.

Nov. 25, 2015

Police jail Senator Delcidio do Amaral, Ms. Rousseff's point man in the Federal Senate, and billionaire banker Andre Esteves, the CEO of Brazil's biggest independent investment bank, on suspicion of obstructing the investigation.

Jan. 29, 2016

Prosecutors in Sao Paulo call Lula and his wife to testify in a money-laundering investigation of beachfront apartments that may have been used as bribes. The testimony was later suspended.

March 3

The magazine IstoE reports Mr. do Amaral, the senator who was arrested the previous November, testified in a plea bargain that Ms. Rousseff and Lula helped install widespread graft in state oil company Petrobras and have repeatedly tried to thwart the investigation.

March 4

Police briefly detain Lula, family members and Workers' Party loyalists.