Negotiations between Nigeria and Saudi oil giant Aramco over a proposed $5 billion oil-backed loan are facing delays with banks expressing caution amid falling crude prices and concerns over Nigeria’s oil production capacity.
The facility, if completed, would represent Nigeria’s largest oil-backed loan to date and mark Saudi Arabia’s most significant financial engagement with the country’s energy sector.
Sources familiar with the matter confirmed that discussions have slowed as Brent crude continues to trade around $65 per barrel, down nearly 20% from January levels.
The drop in prices has raised red flags among Gulf and African lenders expected to co-finance the facility alongside Aramco, citing reduced value of the oil collateral and uncertainty around Nigeria’s delivery capacity.
President Bola Ahmed Tinubu initially broached the loan during a high-level meeting with Saudi Crown Prince Mohammed bin Salman at the Saudi-Africa Summit in Riyadh last November.
The loan is expected to form part of Nigeria’s broader $21.5 billion foreign borrowing request aimed at addressing budget shortfalls, stabilizing the naira and supporting infrastructure commitments.
The financing structure would require Nigeria to commit at least 100,000 barrels per day (bpd) of crude oil to secure the loan. However, industry analysts and market insiders indicate that Nigeria’s current production challenges, coupled with existing oil-backed loan obligations, are complicating its ability to meet further volume pledges.
Nigeria is already allocating approximately 300,000 bpd to service existing facilities obtained through the state-owned Nigerian National Petroleum Company Limited (NNPC). With global crude prices under pressure due to OPEC+ supply shifts and market realignment, the effective repayment period for these obligations could extend significantly, further straining available oil cargoes.
“There is hesitation from financial institutions to underwrite this deal,” one source familiar with the negotiations said, referencing the growing concerns around Nigeria’s oil output reliability and price-based volatility.
Nigeria’s April crude production stood at just under 1.5 million bpd, according to OPEC’s May market report — well below the 2 million bpd benchmark assumed in the 2025 budget. The budget also pegs oil prices at $75 per barrel, a level now out of sync with prevailing market realities.
Additionally, with lower prices impacting state revenue, NNPC is reportedly diverting more crude to joint venture partners such as Shell, Oando, and Seplat to cover upstream operational costs. This further limits volumes available for new loan securitization.
“There is a need to either find more oil or renegotiate existing repayment structures,” another source added.
Nigerian trading firm Oando is expected to manage the offtake and marketing of the cargoes tied to the Aramco facility. However, no official comment has been issued by Oando, NNPC, the Ministry of Petroleum Resources, or the Ministry of Finance regarding the ongoing negotiations.
Despite the delay, government officials maintain that efforts are ongoing to close the deal. President Tinubu has issued an executive order aimed at lowering upstream production costs, in a bid to increase margins per barrel and free up fiscal space for debt servicing and investment.
Nigeria has a history of using oil-backed loans to bolster its budget and foreign exchange reserves. However, the scale of this proposed facility and the shifting oil market dynamics have introduced a level of complexity not seen in prior arrangements.
With global lenders becoming more risk-sensitive and oil market fundamentals remaining volatile, analysts suggest that successful execution of the deal will depend on Nigeria’s ability to reassure counterparties on its production reliability, fiscal discipline, and policy consistency.
Until then, the fate of the $5 billion oil-backed loan with Aramco remains uncertain.
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