Nigeria’s attempt to secure a $5 billion oil-backed loan from Saudi Arabia’s Aramco is facing delays due to declining oil prices.
A Reuters report quoting four sources revealed that falling crude prices have made banks hesitant about backing the deal.
Nigeria has previously borrowed around $7 billion using oil-forward contracts, including $3.3 billion from Afreximbank.
If successful, the Aramco arrangement would be Nigeria’s biggest oil-backed loan yet, and Saudi Arabia’s most significant financial entry into the country. But the current price slump may reduce the loan’s final size.
Two sources said President Bola Tinubu raised the idea during his meeting with Saudi Crown Prince Mohammed bin Salman at the Saudi-African Summit in Riyadh last November.
Details of the deal have been under wraps until now. Progress has stalled, partly due to OPEC policy shifts prioritizing market share over output cuts, which triggered the price fall.
Brent crude has dropped roughly 20% from over $82 per barrel in January to about $65. For Nigeria, that means needing to commit more barrels to secure the same loan amount an issue complicated by years of low investment in oil infrastructure.
Just last month, Tinubu requested approval to borrow $21.5 billion to support the national budget. The $5 billion loan under negotiation with Aramco is a slice of that total.
But banks involved expected to co-finance the loan with Aramco are uneasy. Concerns around Nigeria’s ability to deliver oil shipments have stalled talks. Gulf banks and one African lender are part of the discussions.
“It’s hard to find anyone to underwrite it,” one source said, citing issues with cargo availability.
Aramco, NNPC, and Nigeria’s finance and petroleum ministries have stayed silent on the matter.
Oil-backed borrowing isn’t new for Nigeria. The funds usually support the national budget, replenish reserves, or finance refinery upgrades. This new deal would require Nigeria to commit at least 100,000 barrels per day as collateral.
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Currently, about 300,000 barrels per day are tied up in repaying existing loans, although one of these deals is set to be cleared this month.
When prices drop, repayments slow because fixed volumes bring in less revenue.
Falling oil prices also mean NNPC must allocate more crude to cover the operating costs of joint ventures with partners like Shell, Oando, and Seplat.
“You have to either find more oil, or find a way to renegotiate those deals,” another source said.
Sources say Oando will likely handle the physical offtake. The firm has not responded to inquiries.
NNPC is trying to increase output. Tinubu has issued an executive order to slash production costs in hopes of freeing more revenue per barrel.
Still, the 2025 budget is built on a $75 per barrel benchmark and production of 2 million barrels per day a figure the World Bank sees as too optimistic.
In April, Nigeria produced just over 1.6 million barrels daily, according to the Nigerian Upstream Petroleum Regulatory Commission.