It's been a rough run for Brazilian state-controlled oil giant Petrobras (PBR). The stock has been in almost continuous decline since late 2009 and its u.s.-traded ADR has lost nearly two-thirds of its value since July.

This is a stock that was trading at over $70 per share in mid-2008. It now trades for barely one tenth of that value; the Petrobras ADR now trades at 2004 prices. It's as if the massive mid-2000s bull market in Brazil and the rest of the emerging markets never happened.

So, what's the story here? Why are investors giving Petrobras such a thorough thrashing?

It's a long list, but I'll start with the most pressing. Petrobras is engulfed in a nasty corruption probe that alleges the company systematically overpaid for assets and labor and that the proceeds were used by the government to give kickbacks to prominent politicians in exchange for votes. It's so bad that Petrobras had to delay its third quarter earnings release  because its auditors refused to approve them.

This brings me to the second reason for Petrobras fall from grace: Dilma. Brazilian President Dilma Rousseff is…ahem…not known for being friendly to business. Much of the  massive bull run in Brazilian stocks during the first half of the year was based on the believe that Dilma would lose reelection. And most of the brutal bear market that has endured since has been a result of her expected (and realized) reelection. Dilma herself has not been personally implicated in the kickback scandal…though dozens of congressmen from her party have. Dilma's real damage is not due to corruption, however, but her preference for using the company as an instrument of the state.

Rather than allow Petrobras to be run like a normal, for-profit business, she has used it as a social policy tool. A cynic might say she forced Petrobras to keep retail gasoline prices low as a way of buying votes for reelection. (And yes, count me as a cynic in this case.)  Unfortunately for Petrobras shareholders, politics trump economics.