Russia has dropped plans for a pipeline to send gas to Europe, President Vladimir Putin announced on Monday, blaming the European Union for stalling the project.

Putin, speaking during a visit to Turkey, said the South Stream pipeline, which Russian officials have hailed for years as an important step towards improving European energy security, was over.

“We see that obstacles are being set up to prevent its fulfilment,” said Putin, speaking at a joint news conference with the Turkish president, Recep Tayyip Erdoğan. “If Europe does not want to carry it out, then it will not be carried out.”

The pipeline, along with the North Stream pipeline that carries gas to Germany through the Baltic Sea, was meant to bypass Ukraine. Mikhail Krutikhin, a Russian energy analyst, said: “From the beginning this was a political project, and the goal was to punish Ukraine and cut it off from gas flows. It was never economical to spend so much on this pipeline.”

However, Moscow will boost increase gas supplies to Turkey and Putin said that instead of South Stream, a new hub could be built on the Turkish-Greek border to supply Europe with gas. He also issued a thinly veiled threat to Europe, hinting that since concluding a massive, long-term gas deal with China earlier this year, the European market was no longer that important for Russia, after a year during which the Kremlin has been targeted by western capitals for its role in Ukraine.

“We will re-concentrate our energy resources on other regions of the world,” said Putin. “We will work with other markets and Europe will not receive this gas, at least not from Russia.

“We think this is against Europe’s economic interests and is causing damage to our cooperation.”

Construction had already started on sections of the pipeline, which was due to carry its first gas at the end of next year. The pipeline was meant to take Russian gas across the Black Sea to southern Europe, via Bulgaria, but the European commission has said the pipeline needs to conform to European competition rules, and has put pressure on Bulgaria not to back the project in its current form.

“My Bulgarian partners would always say that whatever happens, South Stream will go ahead, because it is in the Bulgarian national interest,” said Putin.

“If Bulgaria is deprived of the possibility of behaving like a sovereign state, let them demand the money for the lost profit from the European commission,” he said.

Putin met his Turkish counterpart, Recep Tayyip Erdoğan, amid striking differences over the crises in Syria and Ukraine, but the leaders focused instead on their countries’ booming economic and trade ties. The Russian leader arrived in Turkey accompanied by a large delegation, including 10 ministers.

The two countries, which are major trading partners, have set an aim of increasing their two-way trade volume from £21bn ($33bn) to £64bn by 2020. Russia provides the bulk of Turkey’s gas and is set to build Turkey’s first nuclear power plant. Turkish construction firms are active in Russia, while millions of Russian tourists travel to Turkey each year.

A description of the project on Gazprom’s website said South Stream was “another step in Gazprom’s strategy to diversify the supply routes for Russian natural gas” and would “significantly improve the energy security of the whole European continent”.

But after Putin’s announcement in Ankara, Gazprom’s chief executive, Alexei Miller, confirmed that the plug had been pulled on South Stream. “The project is closed. This is it,” he told reporters.

Russia’s economy, which is heavily dependent on the export of oil and gas, has been struggling in recent weeks as tumbling oil prices combine with the effects of western sanctions to stoke fears and send the rouble tumbling. On Monday the currency hit new historical lows.

The Russian and Turkish leaders, often compared to each other for their drift toward authoritarianism, have opposing positions on Syria’s crisis, but were expected to set their differences aside during their meeting at Erdoğan’s new mega-palace, which has been strongly criticised by Turkish opposition parties, environmentalists and activists, who say the 1,000-room complex is too costly and extravagant.

Russia remains the closest ally of the Syrian leader, Bashar al-Assad, while Turkey supports Syria’s opposition forces. Turkey has also been a strong advocate of the Tatar community in the Crimean peninsula annexed by Russia and has publicly supported Ukraine’s territorial integrity. Barred from Crimea by Russian authorities, Tatar leaders, who strongly opposed the annexation, are feted in Turkey. On a visit just a month after the annexation, Mustafa Dzhemilev, a Soviet-era Tatar dissident, was given Turkey’s highest award.