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The European Commission announced on September 4 that it has launched proceedings against Russian gas giant Gazprom to investigate potential hindrance of competition in Central and Eastern European gas markets. The move is the latest in the ongoing fight over the EU's dependence on Russian supply.

In its statement, the Commission said it suspected Gazprom of constraining competition in three ways: hindering the free flow of gas across EU member states, preventing countries from diversifying their gas supplies, and imposing unfair prices on its customers by insisting in contracts that the price of its gas be linked to oil prices.

Following up a series of raids on regional gas companies in September 2011, the case will test whether the Russian company is in breach of EU antitrust rules, the EC said. "An opening of proceedings does not prejudge the outcome of the investigation," the statement reads. "It only means that the Commission will treat the case as a matter of priority."

"Such behavior, if established, may constitute a restriction of competition and lead to higher prices and deterioration of security of supply. Ultimately, such behavior would harm EU consumers," the statement continues.

The investigation currently involves Gazprom's customers in Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia, all of which have thus far failed in ongoing bids to re-negotiate pricing under long term contracts with Moscow. Although select major consumers in Western Europe did manage to secure price cuts over the last year, the Commission said that it may be extend the investigation to other countries.

The move is the latest broadside in the EU's ongoing fight to reduce dependence on Russian gas. Brussels' Third Energy Package is the leading edge of that campaign, with unbundling of supply and distribution its main thrust.

Russia is struggling to resist the directive that it must open its infrastructure to third party suppliers, claiming that such a move essentially constitutes investment theft, and that it threatens its two massive infrastructure projects - Nord Stream and South Stream - to ship gas directly into Europe. However, Brussels has so far denied Moscow's application to have the twin projects exempted.

Meanwhile, Gazprom is also fighting bitterly against moves in Lithuania and Estonia to unbundle their distribution pipelines from the local gas monopolies - in which it holds significant stakes. The Baltic states, currently 100% reliant on Russian gas, are both planning to establish LNG platforms in the near future in order to diversify supply, but without wrestling control of the pipelines will have no way of shipping the fuel to consumers.

Meanwhile, analysts in Moscow suggest the action could have significant implications for Gazprom investors. If violations are found and proved in court, the company may face material fines of up to 10% of revenue - or $4-$5bn. Alfa Bank analysts suggest that could knock off up to 15% of its forecast for operational profit in 2012 and up to 10% off its target price for the stock. "If the actions are proven to have taken place for several years, fines may reach up to 30% of revenues," they add.

Yet there is a lot more at stake. Uralsib analysts suggest Gazprom could settle out of court and offer some concessions on prices, but it's unlikely to compromise on oil price linkage. However, the third charge, they point out, puts its whole pricing formula at risk. "[It] means that Gazprom's core long-term contracts, based on high oil-linked prices, may be eventually cancelled," they worry.