On Dec. 1, the latest round in the European gas wars kicked off. The battle began in May when Russia snubbed European gas markets by signing away much of Siberian gas eastward toward China. A month later, Russia threatened Ukraine with shutting off its gas over this winter.

Now, Russia has formally abandoned the half-built $40 billion South Stream gas pipeline, designed to bring 63 billion cubic meters (bcm) of gas into Europe via a subsea route under the Black Sea and a land route across Bulgaria.

While Vladimir Putin's cancellation of the route — and the announcement of a new route via Turkey — strikes a strident note to European leaders, South Stream's biggest obstacle has been a package of European energy and competition regulations that predate the Russian annexation of Crimea last year.

Russia has been in the headlines lately for its precarious and worsening financial situation, as sanctions and falling oil prices bite. As a project, the main objective of South Stream was to circumvent unfriendly Ukrainian territory and deliver gas directly to the EU. As such, it was arguably a strategic decision rather than one based on pure economic rationale.

However, Russia's finances and its adventures in Ukraine are only part of the story.

The demise of South Stream really began back in March 2011 when new European energy legislation — the notorious "Third Energy Package" — came into force. The Third Energy Package is an ambitious package of reforms adopted in 2007 designed to liberalize and integrate EU energy markets in a bid to promote competition in European gas and electricity markets, and push energy prices down.

Its central demands for network operators are for separate ownership and management of producing and transportation units (so-called "unbundling"), causing a problem for Russia's vertically integrated gas company Gazprom, the umbrella entity for both. The new regulations also stipulate third-party access to all pipelines, as is more common in the U.S., and the "third country clause."

The new regulations revolve around the three pillars of EU energy policy since the 1990s: sustainability, competition and security of supply. In other words, "no room for monopolies."

There were outward signs of progress for South Stream in 2014, such as the signing of an agreement with Austrian officials in June and announcements in Russian media that sections could be operational as early as this year.

However, the underlying legislative obstacles have always dampened enthusiasm. In 2013, the EU Energy Commission announced that bilateral agreements between Russia and seven transit countries for the construction of South Stream were in breach of EU law and must be renegotiated from scratch.

Russia has insinuated that the European regulations were drafted with Gazprom in mind, and even filed a suit with the WTO against the Third Energy Package, alleging that the package violates EU obligations to principles of international law. Russia eventually backed down, but the project was left in legal limbo, and the delivery of gas began to look distant.

Of course, Gazprom must abide by the same rules as any other energy company in Europe. But the breakdown in EU-Russian relations since last spring has put an end to Russian hopes of an exemption from those rules.

When initial drafts were circulated, Gazprom and its backers lobbied heavily for modifications that would protect Gazprom's business model. However, even six months before Russia's takeover of Crimea in March 2014, Bulgarian energy analyst Valentin Stoyanov noted that "the process of legal approval of South Stream inside the EU remains distant, not to mention the economic, technological, environmental, let alone political challenges that still confront it."

Exemptions are permitted for those large infrastructure projects deemed vital to Europe's energy security. Gazprom must satisfy two criteria if it is to qualify for an exemption from EU rules.

Firstly, it must prove that the company would not invest unless exempted. Secondly, they must prove that the infrastructure project will enhance competition in gas markets and security of supply for Europe. While recent events prove that the first criteria is clearly satisfied, Russia's current reputation as a reliable partner for Europe casts doubt on the second.

Alternative gas routes into Europe, on the other hand, have won such exemptions. TAP, the Europe-backed pipeline carrying Azeri natural gas from Turkey into south-eastern Europe, won exemption from unbundling and third-party access rules during the construction phase.

But Russia's gas export plans do not end there. Putin made the announcement of the death of South Stream, not from Moscow but from Turkish President Recep Tayyip Erdogan's lavish new presidential palace.

Never to turn down an opportunity for political theater, Putin simultaneously announced the construction of an alternative pipeline to carry South Stream's gas volumes into Turkey rather than Bulgaria; Turkey would then re-export the gas to Europe. The new project was quickly dubbed "Turkish Stream."

As it stands, this agreement is nothing more final than an MoU but signals Russia's decision to renounce selling its gas directly to end consumers and to instead further empower Turkey as a regional gas hub. In effect, South Stream has not been canceled at all, merely diverted in order to use Turkey as a "cutout" in Russia's energy dialogue with Europe. It will largely follow the same route as the existing Blue Stream pipeline, operational since 2003, but with four times the capacity.

Whether Gazprom will concede its strategic marketing power with end users, selling the gas to Turkey at the Russian-Turkish border, or sell directly to European consumers at the Turkish-Greek or Turkish-Bulgarian border, is an open question and an an important one.

In many ways, this is not a story about Russia but Turkey, as we are seeing the center of gravity shift from European hubs in Austria and Italy to Turkey. Russia has already offered Turkey a preliminary 6 percent discount on gas import prices, and the Russians can expect a tougher negotiator in Turkey than they are used to. But Turkey offers the key advantage of not being bound by the EU and its regulatory demands.

The South Stream announcement rounded off a year when the map of hypothetical European gas flows has been redrafted again and again, as political alliances have been made and broken. But at the heart of this game lies Europe's gradual shift toward an integrated market, which began in the 1990s, long before Russian absorbed Crimea.

This new continental framework appears to be showing its teeth and revealing a reality where the Europe and Russia's interdependence becomes clear and each can change the rules to shut the other out. The newsworthy events in Ukraine were merely a catalyst.