The European Commission has begun work to implement a law which prohibits European companies from adhering to U.S. sanctions against Iran, a move to help keep the Iran nuclear agreement intact and to defend European corporate interests.

"We have the duty to protect European companies," Commission President Jean-Claude Juncker said following a meeting of European Union leaders Thursday, May 17 in Sofia, Bulgaria, "We now need to act and this is why we are launching the process."

Juncker said the commission will begin the process of activating a so-called blocking statute, which bans EU companies from observing the sanctions and any court rulings that enforce U.S. penalties.

Juncker's announcement comes after U.S. President Donald Trump withdrew Washington from the international deal with Iran, which placed limits on Tehran's nuclear programme in exchange for sanctions relief. While walking out of the deal, Trump also reinstated sanctions on Iran as well as anyone dealing with Iran.

The UK, France, Germany, China and Russia were signatories of the 2015 pact and have opposed the U.S. decision to pull-out of the deal.

But companies around the world which invested in Iran after sanctions were lifted are now faced with a difficult choice as Washington has threatened to punish firms that violate U.S. sanctions by dealing with Tehran.

The European Commission will initiate a blocking statute – a regulation which was created in 1996 to get around Washington's trade embargo on Cuba.

But the action is estimated to have limited powers to avert the collateral damage as Valdis Dombrovskis, financial services commissioner, told European parliament that using the blocking statute to ban banks from following the U.S. sanctions would be of limited use, given the global reach of finance.

"The EU blocking regulation could be of limited effectiveness there, given the international nature of banking system and especially the exposure of large systemic banks to U.S. financial system and U.S. dollar transactions," he said.

The Aljazeera reports several European companies have already quit business with Iran following the U.S. exit from the Iran P5+1 nuclear deal.

  • Danish shipping giant Maersk Tankers also said Thursday it would cease its activities in Iran, while German insurer Allianz announced plans to wind down its business deals there.

  • Italian steel manufacturer Danieli announced it has halted work on finding financial coverage for orders it won in Iran worth 1.5 billion euros ($1.8bn).

  • French energy giant, Total, warned on Wednesday it would pull out of a multibillion-dollar project to develop the vast South Pars gas field, which started in July 2017, unless it is granted a waiver by US authorities.

(The above story first appeared on LatestLY on May 18, 2018 09:59 AM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).