Though the payments are not yet enough to satisfy the expectations of IOCs, they have become far more predictable. Three months of back-to-back payment is an industry first since IOCs began using Ceyhan in early 2014.

Investors and bondholders are now eying the frequency of payments, and will watch the next three months closely. The regularity of payment depends on the Kurdistan Regional Government, though the value of payments is tied to global oil prices. Even if payments now meet the costs of most contractors, however, extra cash for investment is lacking, and there is no indication as to when payments will rise.

In order to improve its outlook, the KRG should tighten public finances and reduce spending. Recognition is growing that reform in public sector finances is long overdue, with the deputy prime minister acknowledging in early December that the large number of employees on government payrolls is crippling KRG finances.

The KRG is seeking to add value and kick-start its oil and gas industry with its infusion of state payments. Erbil appears set on quenching local demand and exporting considerable volumes of gas to Turkey by the end of the decade. Despite efforts by the KRG to boost the development of the gas sector, however, various obstacles have limited progress. Setting aside the global financial crisis, gas discoveries in Kurdistan have been a mixed bag. Extraction in some fields is technically challenging, pushing up the cost of development, while some firms have been prioritising oil over gas. Moreover, financing large-scale projects has proven challenging.

Kurdish gas is consumed locally and exported to Turkey, which has signed a 50-year gas deal with the KRG. The Turkish market is a ready buyer for discounted Kurdish gas, and demand may rise after Turkey’s downing of a Russian jet in Syria put Ankara in direct conflict with its biggest gas supplier.

The Turkish market is a ready buyer for discounted Kurdish gas, and demand may rise after Turkey’s downing of a Russian jet in Syria put Ankara in direct conflict with its biggest gas supplier.

As calls for diversification grow in Turkey, which depends on Russia for more than half of its gas imports, Ankara is well placed to take advantage of Kurdish gas. Turkey’s state entity, TEC, owns a number of concessions, while one of the KRG’s largest operators, Genel Energy, is an Anglo-Turkish firm.

For now, Moscow seems to have no appetite for cutting gas exports to Turkey, but diversification of the gas market in Turkey is likely to increase. Although Kurdish gas is not yet able to meet Turkish demand, it is one of the most viable medium and long-term solutions for Turkish diversification.

Once Kurdistan’s gas fields are fully developed, an export volume of 10 bcm to Turkey would be feasible. The development of gas largely depends on financing. To date, neither Erbil nor oil companies who have found gas in the KRG have the finances to develop it. Coupled with low oil prices, the threat of ISIS, and internal political instability, financing projects in Kurdistan remains a difficult task. The bond market is effectively closed to both the KRG and the oil companies it hosts, while rates are at an all-time high.

Guaranteed financing from Turkey is one of the most viable solutions for now. Turkey has a stake in the Kurdish gas, especially in terms of diversification, pricing and geopolitics. Through either direct investment, the expansion of Turkish state-owned companies operating in Kurdistan, or financing guarantees for private stakeholders, Turkey has the incentive to encourage development.?