Juncker calls Putin's bluff on South Stream

"The ball is in Russia's court," Juncker said.

He also said he will not accept that Bulgaria, who already started construction on its part of the pipeline, be blackmailed by Russia.

The remarks come after Russian president Vladimir Putin earlier this week announced he is scrapping the project altogether because Bulgaria is not granting all the necessary permits. He urged the Bulgarian government to seek compensation from the EU over the lost investment.

Earlier this year, the EU commission told Bulgaria to suspend work on the pipeline, citing concerns that EU public tender rules were breached.

Juncker, who took office on 1 November, said that "as regards South Stream, the European Union and Bulgaria are working together to solve the outstanding issues. These outstanding issues are not insurmountable."

Asked whether he also ceased to consider Russia as a "strategic partner" but rather a "strategic problem", as the new EU council chief, Donald Tusk, recently put it, Juncker said: "Yes, Russia is a strategic problem. But I hope it can soon become a strategic partner again, we will do our best to achieve this."

Bulgarian prime minister Bojko Borisov, speaking alongside Juncker, said Russia has not given any official notification about the cancellation of the project.

Borisov said Putin's statements were "premature" and gave reassurances that Bulgaria - and the EU commission - want South Stream to be built.

The pipeline, which would cross the Black Sea, has been often criticised as a political project that makes no commercial sense because of the high construction costs. It is aimed at circumventing Ukraine, currently the main transit country for EU's gas imports from Russia.

But with the ongoing war in Ukraine, Putin may no longer feel the need to pressure Kiev with an alternative gas pipeline. And with the EU sanctions taking a toll on the Russian economy, funds are scarce for him to go ahead with the project.

Speaking in Moscow on Thursday in his annual address to the nation, Putin blamed the West for seeking to destroy the Russian economy and praised his people for their resilience.

He suggested the West was so determined to destroy Russia that sanctions would have been imposed even without the crisis in Ukraine.

But he also promised amnesty for people who repatriated their capital, with no questions asked on how they earned it.

Capital flight from Russia is expected to reach €100bn this year and the Kremlin may resort to capital controls.