Nigeria’s $5 Billion Aramco Loan Stalls Amid Falling Oil Prices and Supply Concerns

Nigeria’s ambitious plan to secure a $5 billion oil-backed loan from Saudi oil giant Aramco has encountered significant setbacks, primarily due to a decline in global crude oil prices and hesitance from potential financial backers. The deal, which would represent both Nigeria’s largest oil-backed financing and Aramco’s first major funding arrangement in the country, is now in limbo as economic conditions grow more uncertain.

President Bola Tinubu initiated the loan discussions with Saudi Crown Prince Mohammed bin Salman during the Saudi-Africa Summit in Riyadh in November 2023. The proposed facility was intended to inject foreign exchange into Nigeria’s struggling economy and is part of a broader strategy of leveraging future oil revenues to secure upfront funding. However, with crude prices dropping, banks have become wary about the feasibility and risk exposure of the deal.

A significant concern for lenders is Nigeria’s ability to meet supply commitments amid falling prices. Lower oil prices would force Nigeria to commit more barrels to repay the same amount, effectively increasing the volume of crude needed to service the loan. This amplifies risks for financiers, who now fear that fluctuating market conditions and Nigeria’s internal production constraints could compromise repayment timelines.

Complicating matters further is Nigeria’s ongoing struggle with oil output. Years of underinvestment, rampant oil theft, and pipeline vandalism have diminished production capacity. Currently, over 300,000 barrels per day are used to service existing oil-backed loans, with one such loan expected to be paid off this month. Meanwhile, the Nigerian National Petroleum Company (NNPC) must still allocate crude to joint-venture partners like Shell, Seplat, and Oando, further limiting availability for new commitments like the Aramco deal.

Despite these challenges, Nigeria continues to rely on oil-backed loans to address foreign exchange shortages and stabilize its economy. Just recently, in April 2024, the country received the final tranche of a $3.3 billion oil-backed loan from Afreximbank, with repayment set at $65 per barrel using 90,000 barrels per day. Whether Nigeria can pull off a similar deal with Aramco amid current market headwinds remains uncertain, casting a shadow over the country’s economic recovery strategy.

Source: Nairametrics