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In a significant setback for Nigeria’s fiscal ambitions, negotiations for a record-breaking $5 billion oil-backed loan from Saudi Aramco have hit a wall, with falling crude oil prices casting a shadow over the deal. This development, first broached during a November 2023 meeting between Nigerian President Bola Tinubu and Saudi Crown Prince Mohammed bin Salman at the Saudi-African Summit in Riyadh, has been slowed by economic pressures and operational challenges. As Africa’s largest oil producer grapples with this delay, questions arise about the broader implications for Nigeria’s economy and whether Saudi Aramco is shouldering additional debt to support its sovereign wealth fund. Let’s unpack the story.
Why the Delay?
The primary culprit behind the stalled $5 billion loan is a sharp 20% drop in Brent crude prices, from $82 per barrel in January to around $65 today. This decline, driven by OPEC+’s strategic shift to recapture market share rather than restrict supply, has raised red flags among banks expected to co-fund the deal alongside Aramco. Lower oil prices mean Nigeria must pledge more barrels to secure the same loan value, but the country’s oil sector is hamstrung by chronic under-investment and operational inefficiencies.
Nigeria’s oil production has struggled to meet its OPEC quota of 1.8 million barrels per day (bpd), with output further eroded by persistent oil theft and aging infrastructure. The loan, which would require at least 100,000 bpd as collateral, adds pressure to an already strained system. Currently, Nigeria’s state-owned Nigerian National Petroleum Company (NNPC) is diverting at least 300,000 bpd to repay existing oil-backed loans totaling roughly $7 billion over the past five years. While one of these facilities is expected to be settled this month, lower crude prices extend repayment timelines, as fixed oil volumes generate less revenue.
Banks involved in the talks have expressed concerns about Nigeria’s ability to deliver the necessary oil volumes, slowing negotiations. Additionally, NNPC must allocate more crude to joint-venture partners like Shell, Oando, and Seplat to cover operational costs, further limiting available barrels for new financing. President Tinubu’s recent request for $21.5 billion in foreign borrowing to bolster the 2025 budget underscores Nigeria’s urgent need for funds, with the Aramco loan intended as a key component. However, the combination of falling oil prices and production challenges has made banks wary, delaying progress.
Is Saudi Aramco Picking Up Debt to Pay Its Sovereign Wealth Fund?
On the Saudi side, Aramco’s role in the loan is not directly tied to funding its sovereign wealth fund, the Public Investment Fund (PIF), but the broader context of Saudi Arabia’s fiscal strategy provides insight. Aramco, which is 81.5% owned by the Saudi government and 16% by the PIF, is a cornerstone of the kingdom’s economy, generating 62% of government revenue last year through oil exports, dividends, royalties, and taxes. The PIF relies heavily on Aramco’s dividends to fuel Saudi Arabia’s Vision 2030 diversification plan, which includes megaprojects like the $500 billion Neom city.
Recent reports indicate Aramco’s financial pressures are mounting. First-quarter 2024 profits dropped 4.6% due to lower oil sales and higher operating costs, and the company announced a 30% dividend cut for 2025, reducing payouts from $124 billion to $85.4 billion. This reduction will slash revenues for both the Saudi government and the PIF, with the latter expecting $6 billion less annually. To offset declining oil revenues, Aramco has turned to debt markets, raising $5 billion in a three-part bond sale in May 2025 and $9 billion in bonds earlier in 2024. The company’s CEO, Amin Nasser, has signaled plans to continue tapping debt markets to maintain dividends and fund growth, with Aramco’s debt-to-equity ratio remaining low at around 5%.
However, there is no direct evidence that Aramco’s bond issuances are specifically to cover PIF obligations or to facilitate the Nigerian loan. Instead, Aramco’s debt strategy appears aimed at optimizing its capital structure and supporting Saudi Arabia’s broader fiscal needs amid lower oil prices. The PIF itself has been active in debt markets, raising $11 billion in bonds and loans in 2025 and $50 billion in 2024, reflecting its own efforts to fund Vision 2030 projects. While Aramco’s financial health is critical to the PIF, the Nigerian loan delay is primarily a function of Nigeria’s production constraints and market conditions, not Aramco’s debt maneuvers.
What’s at Stake?
For Nigeria, the $5 billion loan represents a critical lifeline to shore up foreign reserves, support the budget, and potentially revamp state-owned refineries. If finalized, it would be the country’s largest oil-backed loan and Saudi Arabia’s most significant financial engagement in Nigeria, potentially paving the way for deeper energy partnerships. However, the deal’s size—nearly doubling Nigeria’s oil-backed debt from the past five years—raises concerns about long-term sustainability, especially with oil prices volatile and production lagging.
For Saudi Aramco, the loan is a strategic move to expand influence in Africa’s energy sector, but it comes at a time when the company is navigating its own challenges. Lower oil prices have strained cash flows, prompting asset sale considerations and increased borrowing. While Aramco’s balance sheet remains robust, the kingdom’s reliance on its dividends and taxes to fund Vision 2030 means any further oil price declines could amplify fiscal pressures.
The Bigger Picture
The stalled Nigerian loan underscores the fragility of oil-dependent economies in a volatile market. OPEC+’s decision to prioritize market share over price stability has ripple effects, complicating financing deals like this one. Nigeria’s struggle to boost output amid theft and under-investment highlights the need for structural reforms, while Saudi Arabia’s debt-fueled diversification push reflects the urgency of reducing oil reliance. As both nations navigate these challenges, the outcome of the Aramco loan talks will signal whether strategic energy partnerships can withstand the pressures of a low-price environment.
Stay tuned to The Energy News Beat Channel for updates on this developing story and its implications for global energy markets.
Sources: Reuters, OilPrice.com, AGBI, Businessday NG
The post Nigeria’s $5 Billion Oil-Backed Loan Stalls as Oil Prices Plummet: A Deep Dive into the Delay appeared first on Energy News Beat.
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