Nigeria and Saudi Arabian oil giant Aramco’s discussions regarding a $5bn oil-backed loan have hit a snag following a significant drop in crude oil prices, reported Reuters, citing sources.

The development has raised concerns among potential banks that were expected to support the agreement.

The proposed facility represents Nigeria's largest oil-backed loan to date and Saudi Arabia's first major involvement in the country's financing.

However, the recent decline in oil prices, with Brent crude falling around 20% to approximately $65 per barrel, from more than $82 in January, has cast doubt on the size of the deal.

Nigerian President Bola Tinubu initiated the loan discussions during a meeting with Saudi Crown Prince Mohammed bin Salman at the Saudi-African Summit in Riyadh last November.

The loan is intended to be part of a larger $21.5bn foreign borrowing plan proposed by Tinubu to support the national budget.

The drop in oil prices has complicated the negotiations, as Nigeria may require a greater volume of oil to secure the loan.

Banks expected to co-fund the loan alongside Aramco have expressed concerns about the reliability of oil delivery, which has slowed the progress of the talks.

Gulf banks and at least one African bank are reportedly involved in the discussions, although their identities have not been disclosed.

Saudi Aramco, Nigeria's state-owned oil company NNPC, and Nigeria's finance and petroleum ministries have not commented on the ongoing discussions.

Nigeria, with a history of utilising and repaying oil-backed loans for various financial needs, would need to back the Aramco loan with at least 100,000 barrels of oil per day (bopd).

The country is already using at least 300,000bopd to service existing oil-backed loans, with one such facility anticipated to be repaid this month.

Furthermore, the lower oil prices necessitate NNPC to allocate more crude oil to joint venture partners, ranging from international companies such as Shell to local operators like Oando or Seplat, to cover operational costs.

"You have to either find more oil, or find a way to renegotiate those deals," mentioned one of the sources.

Nigerian trading firm Oando is expected to handle the offtake of the physical cargoes, although the company has not provided any comment.

To alleviate the situation, NNPC is striving to boost output, and President Tinubu has issued an executive order to reduce production costs and increase revenue from oil and gas projects, potentially freeing up more funds from each barrel of oil.