The Nigerian government’s effort to secure a $5 billion oil-backed loan from Saudi Arabia’s Aramco has encountered serious delays. Falling global crude oil prices have made banks nervous about backing the deal, according to a Reuters report that cited four sources familiar with the talks.
In previous years, Nigeria secured around $7 billion in oil-backed loans, including $3.3 billion from Afreximbank. The Aramco loan, if finalized, would be the largest of such deals Nigeria has ever undertaken. It would also mark Saudi Arabia’s biggest involvement of this kind in the country. However, the recent slump in oil prices is putting pressure on the structure and scale of the loan.
Sources confirmed that President Bola Tinubu initiated talks with Saudi Crown Prince Mohammed bin Salman during the Saudi-African Summit in November. Since then, negotiations have progressed slowly. The delay has been linked to a strategic shift in OPEC+ policies that has focused on capturing market share instead of limiting supply. As a result, Brent crude has dropped roughly 20%, falling from over $82 in January to around $65 per barrel.
This lower price point complicates Nigeria’s ability to use oil as collateral. It would now take more barrels to secure the same loan amount. Unfortunately, years of underinvestment have hindered Nigeria’s capacity to increase oil production to match the demand needed for the deal.
President Tinubu recently sought approval for a $21.5 billion foreign loan package, with the proposed $5 billion Aramco loan included in that figure. But banks expected to co-finance the deal with Aramco are raising red flags. Concerns include the availability of oil cargoes and Nigeria’s ability to deliver them reliably. Gulf banks and at least one African lender are reportedly involved in the talks. One source explained that many institutions are hesitant to underwrite the loan due to delivery risks.
Neither Saudi Aramco nor the Nigerian National Petroleum Company (NNPC) has commented on the deal. The ministries of finance and petroleum have also remained silent.
Despite its challenges, Nigeria has experience with oil-backed loans, which are often used to support the national budget, stabilize foreign reserves, or fund refinery upgrades. However, the proposed $5 billion loan would significantly raise Nigeria’s debt exposure. Over the past five years, the country has already committed at least 300,000 barrels per day (bpd) to repay existing loans. One of those facilities is expected to be fully repaid this month.
Oil prices affect repayment timelines. When crude prices drop, it takes longer to repay oil-backed loans. Lower prices also force NNPC to allocate more oil to joint venture partners to cover operational costs. These partners include major global firms like Shell and local companies such as Oando and Seplat.
According to sources, Oando is expected to manage the offtake of the physical oil cargoes involved in the Aramco deal. The firm has not issued any public comment.
In an effort to increase crude production and reduce costs, President Tinubu issued an executive order targeting operational expenses in the oil sector. The federal budget for 2025 is based on a projected crude price of $75 per barrel and daily production of two million barrels. However, the World Bank has labeled this target as unrealistic. In April, official records from the Nigerian Upstream Petroleum Regulatory Commission showed the country producing just over 1.6 million bpd.
This situation underlines the deepening impact of oil market volatility on Nigeria’s economic plans, especially those tied to foreign borrowing and crude-backed funding strategies.
