Negotiations between Nigeria and Saudi oil giant Aramco over a $5 billion oil-backed loan have stalled, as falling global crude prices and concerns from potential financiers cast doubt over the deal’s viability.
The proposed facility, which would mark Nigeria’s largest oil-backed loan and Aramco’s most significant financial involvement in the country, was intended to strengthen Nigeria’s foreign exchange reserves. However, recent price volatility and uncertainty about Nigeria’s ability to meet crude supply commitments have slowed progress.
According to Reuters, banking partners expected to support the transaction have become increasingly hesitant. Lower oil prices mean Nigeria would have to commit more crude to service the same amount of debt, increasing exposure for lenders and raising concerns about repayment reliability.
The initiative was launched in November 2023 during a meeting between President Bola Tinubu and Saudi Crown Prince Mohammed bin Salman at the Saudi-Africa Summit in Riyadh. The strategy reflects Nigeria’s long-standing practice of using future oil revenues to secure financing for budgetary support and forex stabilization.
However, Nigeria’s crude production capacity remains constrained due to underinvestment, oil theft, and infrastructure challenges. Over 300,000 barrels per day (bpd) are already allocated to existing oil-backed loans, with one of those agreements due for repayment this month.
Compounding the issue, the Nigerian National Petroleum Company (NNPC) is obligated to allocate crude to its joint venture partners—including Shell, Seplat, and Oando—to cover operational costs, further limiting availability for new arrangements. Oando is also expected to oversee the offtake of physical crude cargo tied to the Aramco loan.
Context and Background
Earlier this year, Nigeria concluded the final $1.05 billion disbursement of a $3.3 billion oil-backed loan from Afreximbank. That facility was structured to improve liquidity and support economic stability, with repayment based on a crude price of $65 per barrel and 90,000 bpd set aside for repayment.
Now, with oil trading below that benchmark, replicating similar arrangements presents increased financial risk and could reduce the overall size of the proposed Aramco deal.
As stakeholders await further developments, the situation underscores the growing challenges Nigeria faces in leveraging its natural resources to secure funding amid volatile energy markets and domestic production constraints.
