June 11, 2025/CSL Research

Nigeria and Saudi Arabian oil company Aramco are reportedly facing difficulties finalising a record US$5 billion oil-backed loan – equivalent to around 3% of Nigeria’s GDP – which was first announced last November following a meeting between President Bola Tinubu and Saudi Crown Prince Mohammed bin Salman at the Saudi-African Summit.

According to a Reuters report citing sources familiar with the development, the delay in negotiations has been attributed to the recent declines in global crude prices, prompting caution among the banks expected to finance the deal.

We believe that the reluctance of lenders to commit to the proposed US$5 billion oil-backed loan reflects a combination of structural and market-related concerns. Chief among these are doubts about Nigeria’s ability to consistently meet its oil supply obligations, given persistent production shortfalls and existing oil-backed deals. These concerns are compounded by a significant decline in global crude oil prices – down by over US$10 per barrel since the deal was first announced in November 2024 – which has materially weakened the projected value of the future oil cargoes pledged as collateral. It is worth noting that Nigeria’s dependence on oil-backed loans is not new, but the scale of this proposed deal is unprecedented. Securing the loan would require pledging at least 100,000 barrels per day (bpd) of crude oil – on top of the estimated 300,000 bpd already committed to servicing existing oil-backed debt.

This raises serious concerns about the overleveraging of future oil revenues, particularly given ongoing production shortfalls. In April, oil output inclusive of condensates stood at just 1.68 million bpd, significantly below the 2 million bpd target set in the budget, further straining Nigeria’s ability to meet both domestic fiscal needs and external loan obligations.

With crude oil prices increasingly expected to average around US$65 per barrel this year, a downsized version of the proposed loan facility appears more likely. While such a deal could provide short-term fiscal relief and a boost to foreign exchange reserves, it would also deepen Nigeria’s dependence on volatile oil markets and further encumber future oil revenues.

Against this backdrop, the government must proceed with extreme caution. First, authorities should urgently focus on expanding its oil production capacity – not only through investment but also addressing persistent challenges such as pipeline vandalism, oil theft, and operational inefficiencies. Second, Nigeria should adopt a more balanced debt strategy that avoids excessive reliance on oil-backed instruments.

Diversifying the economy and broadening non-oil revenue streams must become a national priority. Finally, transparency in debt negotiations is essential. Citizens and stakeholders must have clear insight into the terms of oil-for-loan deals, as this is critical for understanding its implications on the fiscal space.

In short, while the proposed loan may help address immediate budgetary pressures, it risks exacerbating Nigeria’s long-term fiscal vulnerabilities. Without a coherent strategy to manage debt sustainably and boost domestic revenue generation, Nigeria could find itself trapped in a cycle of borrowing against future oil production.

Click here to download full report: CSL Nigeria Daily – 11 June 2025 – Public debt.pdf