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Nigeria and Saudi Arabian oil giant Aramco are facing challenges in finalizing a record-breaking $5 billion oil-backed loan agreement. The deal, which would be Nigeria’s largest oil-backed loan and Saudi Arabia’s most significant participation in the country, has been put in jeopardy due to the recent downturn in crude oil prices. This price drop has raised concerns among the banks involved in the loan, potentially impacting the deal’s size and feasibility.

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President Bola Tinubu first discussed the loan with Saudi Crown Prince Mohammed bin Salman in November at the Saudi-African Summit. The slow progress in discussions reflects the strain of the recent oil price drop, caused largely by a shift in OPEC+ policy. Brent crude has fallen about 20% to around $65 per barrel from above $82 in January.

A lower oil price means Nigeria may need more barrels to back the loan, but years of under-investment are complicating its ability to meet production goals. Tinubu sought approval for $21.5 billion in foreign borrowing last month to bolster the budget, and the $5 billion oil-backed facility would be part of that.

The banks involved in the talks have expressed concerns about oil delivery, slowing discussions. “It’s hard to find anyone to underwrite it,” one source said, citing concerns over the availability of cargoes. If agreed, the loan would be backed by at least 100,000 barrels per day of oil, almost doubling the roughly $7 billion of oil-backed loans taken in the last five years.

Nigeria is using at least 300,000 bpd to repay existing oil-backed loans. With lower oil prices, NNPC has to funnel more crude oil to joint-venture partners for operational costs. “You have to either find more oil, or find a way to renegotiate those deals,” another source said. NNPC is trying to boost output, while Tinubu issued an executive order aimed at cutting production costs. Africa’s largest oil exporter assumed a price of $75 per barrel in its budget but pumped just under 1.5 million bpd in April, below the projected 2 million bpd

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