Crude price drop threatens Nigeria’s $5B Aramco deal

Negotiations between Nigeria and Saudi Arabia’s Aramco for a record $5 billion oil-backed loan are stalling due to a recent drop in crude oil prices, raising concerns among banks expected to co-fund the deal, sources told Reuters. 

The loan, Nigeria’s largest of its kind and Saudi Arabia’s first major financial venture in the country, was proposed by President Bola Tinubu during a meeting with Saudi Crown Prince Mohammed bin Salman in Riyadh last November.

The decline in Brent crude prices by about 20% to $65 per barrel from $82 in January has complicated the deal, as lower prices require more oil to secure the loan. 

Nigeria’s chronic under-investment in its oil sector has also hindered its ability to meet production targets, further slowing talks. The loan is part of Tinubu’s $21.5 billion foreign borrowing plan to support the budget.

Banks, including Gulf and African lenders, are wary of Nigeria’s capacity to deliver the required oil cargoes, estimated at 100,000 barrels per day. 

Nigeria already allocates 300,000 bpd to repay existing oil-backed loans, and lower prices mean longer repayment periods and increased crude allocations to joint-venture partners like Shell and Oando.

Aramco and Nigeria’s NNPC declined to comment, as did the finance and petroleum ministries. Oando, expected to manage the oil offtake, also did not respond. Despite efforts to boost output and cut production costs, Nigeria’s April production was 1.5 million bpd, below the 2 million bpd budgeted at $75 per barrel, according to OPEC’s May report.