EU firms in Iran caught between US and Europe

The measure is part of a broader European Commission response, known as the 'blocking statute', that also allows the firms to recover damages arising from US extra-territorial sanctions.

"It also forbids EU persons from complying with those [US] sanctions unless exceptionally authorised to do so by the commission," said spokeswoman Mina Andreeva.

She said such exceptions can be made in cases where "non-compliance seriously damages their interests or the interests of the European Union."

The commission says this is designed to protect EU firms in Iran by allowing them to recover any US damages, including legal costs.

The statute, set to enter into force by 6am Tuesday, is a response to the Trump administration decision in May to unilaterally withdraw from the 2015 Iran nuclear deal.

Trump described it as the "worst deal ever" and has since announced Washington would reimpose sanctions on any companies that operate in Iran.

He says the move is needed to prevent Iranian nuclear ambitions. The decision has been condemned by the EU's foreign policy chief Frederica Mogherini.

"Preserving the nuclear deal with Iran is a matter of respecting international agreements and a matter of international security," she said, in a joint statement on Monday along with the foreign ministers of France, Germany, and the United Kingdom.

The commission says such US sanctions are illegal and refuses to abide by them, noting that it intends to maintain trade and economic relations with Iran as part of the hard-won 2015 deal, signed by the so-called 'P5+1' powers - namely the five permanent members of the UN Security Council (the US, UK, China, France and Russia), plus Germany.

That also means that EU firms won't be able to react to the American threat without facing penalties at home.

The European Commission said it will grant exceptions if the company can prove that it is leaving Iran for reasons not linked to the US threat.

"If the authorisation is rejected, then the company shall not comply with US law and if it does it is subject to the penalties foreseen by each member state," said one EU senior official.

Fines vary from EU state to EU state, and must be "effective, proportionate and dissuasive".

The blocking statute applies to anyone, foreign or otherwise, who is a resident in the European Union and also does business in Iran. This includes companies incorprated in the EU and ships registered in an EU state or fly an EU member state flag.