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Talks between Nigeria and Saudi energy giant Aramco over a proposed $5 billion oil-backed loan have slowed as falling crude prices rattle lenders, according to sources familiar with the matter.
Reuters reported that the deal, if successful, would mark Nigeria’s biggest oil-backed loan to date and Aramco’s most significant financial involvement in Africa’s largest oil producer.
But the recent slide in Brent crude, down roughly 20 per cent from over $82 in January to around $65 per barrel, has triggered caution among banks expected to co-finance the loan.
President Bola Tinubu reportedly raised the loan proposal during a bilateral meeting with Saudi Crown Prince Mohammed bin Salman in Riyadh last November, on the sidelines of the Saudi-Africa Summit.
However, sources familiar with the matter told Reuters that progress since then has been sluggish.
A drop in oil prices means Nigeria would need to commit more crude to secure the loan, making talks harder as the country continues to face production shortfalls amid years of underinvestment.
While the Dangote Refinery with its 650,000 barrels per day capacity has helped reduce reliance on fuel imports and improved local refining, it has not fully resolved Nigeria’s supply issues.
In April, Nigeria produced just under 1.5 million barrels per day, well below its 2 million bpd target and far from enough to support a loan of this size. Already, about 300,000 bpd is tied up in repaying existing oil-backed debts, according to Reuters.
The proposed Aramco facility would require pledging at least 100,000 additional barrels per day, and its final size may now be reduced, sources said.
There are concerns about whether Nigeria can deliver the cargoes consistently, and some banks are hesitant to underwrite the deal under current conditions. Gulf lenders and at least one African bank are said to be involved, though their identities were not disclosed.
The loan is expected to form part of a $21.5 billion external borrowing plan recently submitted by President Tinubu to the National Assembly to shore up the budget and boost foreign reserves.
Crude-backed financing is not new to Nigeria.
Over the past five years, the country has taken out about $7 billion in similar loans, typically used to plug budget gaps or fund refinery upgrades. But the financing becomes riskier when prices fall, extending repayment timelines and reducing government oil earnings.
In addition, the Nigerian National Petroleum Company (NNPC) is allocating crude to its joint-venture partners including Shell, Seplat, and Oando, to cover operating costs even though it further limits the volume available for debt servicing.
To free up more oil revenue, President Tinubu recently signed an executive order aimed at cutting production costs.
The country’s 2024 budget is based on a benchmark oil price of $75 per barrel — significantly above current market levels. That target now looks too high, raising worries that the government may need to borrow even more to fund its budget.