NIGERIA and Saudi Arabia’s state-owned oil company, Aramco, are struggling to reach an agreement on a record $5 billion oil-backed loan following a recent decline in crude oil prices, according to a Reuters report on Tuesday, June 10.
It said the difficulties in finalising the agreement have raised concerns among banks expected to support the deal, as the declining oil prices might reduce the size of the agreement.
According to the report, President Bola Tinubu had first made an official approach on the loan in November 2024, when he met with Saudi Crown Prince Mohammed bin Salman in Riyadh at the Saudi-African Summit.
The loan would be Nigeria’s largest oil-backed facility to date and Saudi Arabia’s first significant involvement in such a deal with the country.
It stated further that the slow progress in discussions reflects the strain of the recent oil price drop, caused largely by a shift in OPEC+ policy to regain market share rather than curtail supply.
Brent has fallen about 20 per cent to around $65 per barrel from above $82 in January, it noted.
“A lower oil price means Nigeria could need more barrels to back the loan, but years of under-investment are complicating its ability to meet production goals,” it maintained.
It also hinted that Tinubu had last month sought approval for $21.5 billion in foreign borrowing to support the country’s budget, with the $5 billion oil-backed loan from Aramco expected to form part of that amount.
The banks expected to co-fund part of the loan alongside Aramco were concerned about oil delivery, which has slowed the negotiations.
“Gulf banks and at least one African lender are involved,” Reuters stated, but could not establish the banks’ identities.
“It’s hard to find anyone to underwrite it,” it added, pointing to concerns over cargo availability.
“Saudi Aramco declined to comment. Nigeria’s state-owned oil company NNPC did not comment, and neither did the finance or petroleum ministries,” it said.
The report noted that Nigeria has a history of securing and repaying oil-backed loans to support its budget, boost foreign reserves, or rehabilitate state-owned refineries.
At $5 billion, the Aramco loan would require at least 100,000 barrels per day (bpd) of oil for collateral, it said.
“However, it would almost double the roughly $7 billion of oil-backed loans taken in the last five years. Nigeria is using at least 300,000 barrels per day (bpd) to repay NNPC’s other oil-backed loans, though one facility is expected to be paid off this month.
“The amount of oil going towards repaying existing oil-backed loans is fixed, but when the crude price falls, it takes longer to repay them,” it also explained.
It cited further that lower oil prices had compelled the Nigerian National Petroleum Company Limited (NNPCL) to allocate more crude to joint-venture partners, ranging from international majors like Shell to local producers like Oando or Seplat, for operational costs.
It added that it is either Nigeria finds more oil, or finds a way to renegotiate those deals.
“Nigerian trading firm Oando is expected to manage the offtake of the physical cargoes,” the report hinted.
The ICIR had previously reported that the NNPCL had resorted to resource-backed loans and, at the time, sealed a deal for a $3.3 billion loan swapped with crude oil from the African Export-Import Bank (Afreximbank).
The move was to stabilise the naira against other foreign currencies; however, the naira has remained weaker against the dollar.
More so, there are questions about the long-term implications of the swap deal in the nation’s economy, amid Nigeria’s growing debt.