Nigeria’s negotiations with Saudi oil giant Aramco for a $5 billion oil-backed loan have slowed due to a decline in global crude oil prices and growing concerns among potential banking partners.
The initiative, aimed at securing Nigeria’s largest oil-backed loan to boost foreign exchange inflows, is facing delays as lenders grow cautious amid falling crude prices and concerns over the country’s ability to meet supply commitments.
According to Reuters, the proposed $5 billion loan would be Nigeria’s largest oil-backed deal and Aramco’s first major financing in the country.
However, falling oil prices and uncertainty around Nigeria’s crude supply capacity are a concern.
“Nigeria and Saudi Arabian oil company Aramco are struggling to reach an agreement on a record $5 billion oil-backed loan after a recent decline in crude prices sparked concern among banks that were expected to back the deal.
“The facility would be Nigeria’s largest oil-backed loan to date and Saudi Arabia’s first participation of this scale in the country, although the decline in oil price could shrink the size of the deal,” the source read in part.
President Tinubu initiated the Aramco loan discussions during a meeting with Saudi Crown Prince Mohammed bin Salman at the Saudi-Africa Summit in Riyadh in November 2023.
The move shows Nigeria’s long-standing approach of using future oil earnings to secure upfront funding, often used to support the budget or stabilize foreign exchange reserves.
However, falling oil prices have made lenders uneasy. Lower prices mean Nigeria would need to commit more crude oil to repay the same amount of money, increasing the risk for lenders.
Nigeria’s oil output has been hampered by years of underinvestment, oil theft, and pipeline vandalism. The country already uses over 300,000 bpd to service previous loans, and one of those is expected to be paid off this month.
The Nigerian National Petroleum Company (NNPC) must allocate crude to joint-venture partners like Shell, Seplat, and Oando to meet operating cost obligations, limiting available supply for new deals. Oando is also expected to manage the offtake of physical cargo involved in the Aramco loan.
What you should know
In April 2024, Nigeria received the final $1.05 billion tranche of a $3.3 billion oil-backed loan from Afreximbank by the end of May. The facility, aimed at boosting the economy and improving dollar liquidity, as reported by Nairametrics.
- The federal government disclosed that the loan will be repaid with crude oil priced at $65 per barrel, with approximately 90,000 barrels per day allocated for the repayment.
