Nigeria’s proposed $5 billion oil-backed loan deal with Saudi oil giant Aramco has hit a snag as falling global crude prices raise red flags among potential financiers, according to a Reuters report citing four sources close to the negotiations.
The deal, first initiated by President Bola Tinubu during a meeting with Saudi Crown Prince Mohammed bin Salman at the Saudi-African Summit in Riyadh last November, was expected to become Nigeria’s largest oil-backed loan yet — and Aramco’s first major financial involvement in the country.
However, Brent crude has plummeted by over 20% in recent months, dropping from above $82 per barrel in January to around $65. This decline has sparked concerns among Gulf and African banks set to co-finance the deal alongside Aramco, particularly over Nigeria’s capacity to deliver the required volume of oil cargoes.
At the heart of the matter is Nigeria’s longstanding reliance on oil-for-loan agreements. The country has previously secured about $7 billion through oil-backed facilities, notably $3.3 billion from Afreximbank. But the current downturn complicates matters — a lower price per barrel means Nigeria must pledge more barrels to raise the same amount, a tough task given ongoing production challenges.
Industry insiders estimate that the Aramco deal would require at least 100,000 barrels per day in collateral. However, Nigeria is already using around 300,000 barrels daily to service other oil-backed loans, stretching its production commitments thin. Although one of these facilities is expected to be paid off this month, under-investment in the oil sector and production inefficiencies remain significant obstacles.
“It’s hard to find anyone to underwrite it,” a source familiar with the talks said, referencing banks’ hesitation due to uncertainties surrounding cargo availability.
Meanwhile, trading company Oando is reportedly set to manage the physical offtake of oil cargoes for the deal, although the company has not commented publicly. Neither Aramco, the Nigerian National Petroleum Company Limited (NNPC), nor the federal finance and petroleum ministries have issued statements.
The pressure to secure the loan comes as President Tinubu recently sought approval for $21.5 billion in foreign borrowing to bolster Nigeria’s 2025 budget. The government’s oil price benchmark for the year stands at $75 per barrel with a production target of 2 million barrels per day — projections that the World Bank has already criticized as overly ambitious.
According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the country produced just over 1.6 million barrels per day in April, far below target. Meanwhile, mounting financial obligations require NNPC to allocate more oil to joint venture partners, such as Shell, Seplat, and Oando, further limiting oil available for loan repayments.
In an effort to improve Nigeria’s oil output and manage production costs, President Tinubu recently issued an executive order targeting cost reductions in the sector. But unless prices rebound and production is ramped up significantly, the fate of the Aramco loan — and Nigeria’s broader borrowing strategy — remains uncertain.
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