Nigeria’s $5bn oil-backed loan from Aramco stalls amid falling crude prices

Negotiations between Nigeria and Saudi oil giant Aramco over a landmark $5 billion oil-backed loan have hit a roadblock following a sharp drop in crude oil prices, sparking caution among banks expected to co-finance the deal.

According to a Reuters report, the proposed facility—set to be Nigeria’s largest oil-backed loan and Aramco’s most significant financial engagement with the country—has slowed amid concerns that falling oil prices could reduce the deal’s value. Market sources say the downturn is making lenders uneasy about Nigeria’s ability to meet its delivery obligations.

President Bola Tinubu first initiated discussions with Saudi Crown Prince Mohammed bin Salman during the Saudi-African Summit in Riyadh last November. However, until now, little has been disclosed about the progress or scale of the talks.

The sluggish pace of negotiations mirrors the pressure Nigeria faces from weaker oil markets. Brent crude has slumped nearly 20 per cent, from over $82 per barrel in January to around $65, following a shift in OPEC+ policy that prioritized market share over price control. The declining prices complicate loan structuring, as Nigeria may need to commit more barrels to secure the same financing—challenging, given its current production constraints.

The $5 billion Aramco deal is part of a broader $21.5 billion external borrowing plan president Tinubu submitted last month to plug budget shortfalls. But sources say banks involved in the loan—Gulf institutions and at least one African lender—have raised concerns over Nigeria’s ability to guarantee steady oil shipments.

“There’s hesitation to underwrite the facility because of uncertainties around cargo availability,” one source said.

While Aramco, Nigeria’s state-owned NNPC, and the finance and petroleum ministries have all declined to comment, market insiders point to broader issues of under-investment and structural inefficiencies in the country’s oil sector.

Nigeria has a track record of securing oil-backed loans, typically used for budget support, foreign reserves stabilization, or refinery upgrades. However, the proposed $5 billion loan—backed by at least 100,000 barrels of crude per day—would represent a substantial increase over the roughly $7 billion borrowed through similar arrangements over the past five years.

Currently, NNPC is using an estimated 300,000 barrels per day to service existing oil-backed loans, though one of these facilities is due for completion this month. As oil prices decline, the fixed repayment structure means it takes longer to settle outstanding debts, further straining available crude volumes.

Compounding the challenge, lower prices require NNPC to allocate more barrels to joint-venture partners like Shell, Seplat, and Oando to meet operating cost obligations.

“You either find more oil or renegotiate the terms of existing deals,” another industry source noted.

Trading firm Oando is expected to handle the physical offtake of the crude cargoes backing the loan, though the company has not issued a public statement on its involvement.

Boosting Production, Cutting Costs

In a bid to boost output, President Tinubu recently signed an executive order aimed at reducing production costs, thereby increasing net revenue per barrel. Still, challenges persist. Although the government’s 2025 budget assumes a $75 per barrel benchmark and daily output of 2 million barrels, actual production in April fell short at just under 1.5 million barrels, according to OPEC’s May market report.

With declining prices, constrained output, and increased fiscal pressure, Nigeria’s ambition to secure a $5 billion oil-backed facility faces mounting headwinds. Unless oil prices recover or production significantly improves, both the scale and viability of the deal with Aramco remain uncertain.

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