Nigeria’s $5bn Oil-Backed Loan Talks with Aramco Stalled as Crude Prices Fall, Lenders Grow Cautious

Negotiations between the Nigeria oil giant and Saudi Aramco oil on a $ 5 billion loan of $ 5 billion – which should be the most important in Nigeria history – has slowed considerably, because the drop in world oil prices and concerns about Nigeria’s gross capacity makes them more and more hesitant.

The agreement, initially advanced by President Bola Tinubu at a meeting with Saudi Crown Prince Mohammed Bin Salman at the Saudi Summit in Riyadh in November 2023, was designed to guarantee foreign exchanges essential for the Nigerian economy. If he is concluded, he would mark the first major finance company in Aramco in Nigeria and represent the oil agreement for the deepest country that the country has ever sought.

However, familiar sources with talks have told Reuters that the decrease in world crude prices have sparked renewed skepticism among the banks that were to participate in the financing of the installation.

“The installation would be the largest oil loan in Nigeria to date and the first participation by Saudi Arabia on this scale in the country, although the drop in oil prices can reduce the size of the agreement,” said a source.

The problem lies in the mechanics of loans supported by oil: when oil prices drop, the borrower must commit a higher volume of gross to reimburse the same amount of money. For Nigeria, a country already devoting more than 300,000 barrels per day (BPD) to the maintenance of previous oil agreements for CAP, this creates significant pressure on the gross available for new obligations. One of the existing loans would be due to the reimbursement this month, which limits the margin more.

Experts say that the Aramco agreement has become complicated by these variables, which raises the overexploitation of the already extended oil commitments of Nigeria.

The raw production of Nigeria has been constantly hampered by years of underinvestment, theft of oil, vandalism of pipeline and disturbances in the Niger Delta. These structural problems have undergone confidence in the country’s ability to guarantee stable long -term gross deliveries – a key requirement for any establishment supported by oil.

The Nigerian National Petroleum Company Limited (NNPC) also faces pressure to allocate crude partners like Shell, Seplat and Oando to cover production costs. This limits the amount of oil that the state can freely allocate to financing purposes. In the agreement proposed by Aramco, Oando should manage the derivation of physical cargoes, further complicating logistics.

The prices of oil falling below expectations – currently oscillating about $ 75 per barrel, well below the fork from $ 85 to $ 90 observed earlier in the year – The loan economy has weakened. For banks, the drop in oil prices increase the risk that Nigeria can be lacking on the agreed reimbursement calendar, especially if production cannot increase.

The Aramco loan had also been considered a potential bridge so that Saudi Arabia extends its financial and strategic footprint in the largest oil producer in Africa. Many hoped that such an agreement would stimulate larger investment cooperation, perhaps involving downstream assets and refinery partnerships.

But the current blocking can push both sides to reconsider the conditions. Analysts believe that if a consensus can be reached, perhaps by renegotiated volume commitments or partial guarantees, it could unlock a new model for future loans supported to resources in Nigeria.

It is not the first foray in Nigeria in the borrowing supported by oil. In April 2024, the country obtained the final tranche of $ 1.05 billion with an installation of 3.3 billion dollars guaranteed by the African Bank of important African Bank (AfrixBank). This agreement, structured in a similar way to that of Aramco, is reimbursed with 90,000 barrels per gross day, at a price of $ 65 per fixed barrel.

Although this arrangement has contributed to stimulating the liquidity of the dollar and stabilizing short -term Nairas, it also locked Nigeria in long -term delivery obligations – a model that certain criticisms warn is not durable without growth or recovery of price or significant prices.

The administration of President Tinubu defended the practice as needed to stabilize the exchange market and rebuild the reserves. But the drop in oil prices now threatens logic behind these loans.

The delays to reach an agreement with Aramco are at a time when Nigeria puts a lot on petroleum back loans to fill tax and external imbalances. The country’s foreign reserves were under pressure and the Naira experienced prolonged volatility among the shortages in dollars and speculative exchanges.

If the loan of $ 5 billion does not materialize, it can force the government to seek elsewhere – perhaps revisiting bilateral talks with China or turning again in AFREXBANK – although few partners offer the scale and the strategic potential of an agreement with the Saudi Arabia oil giant.

While the talks come on, it is believed that finding a consensus on the Aramco agreement could open the way to the larger problem solving concerning the use of oil arrangements for housing by Nigeria. But this will depend on the question of whether the two parties can overcome the current risks of the market and reconstruct the confidence of loans in the oil supply capacities of Nigeria.