The European Union vowed on Monday to counter US President Donald Trump’s renewal of sanctions on Iran, in a test of the EU’s ability to preserve a deal that saw Iran limit its nuclear ambitions in exchange for removing strict curbs on its economy.

As Washington’s so-called “snapback” sanctions are reinstated on Tuesday, a new EU law to shield European companies will also take effect to try to mitigate what EU officials say is their “unlawful” reach beyond US borders.

Despite protests from European allies, US Secretary of State Mike Pompeo said Washington would fully enforce the sanctions. EU diplomats said they were awaiting details on Monday on how they will be implemented.

The EU and other parties to the 2015 deal, China and Russia, are working to maintain trade with Iran, which has threatened to stop complying with curbs on its nuclear work if it fails to see the economic benefits of relief from sanctions under the deal.

“We deeply regret the re-imposition of sanctions by the US,” the bloc said in a joint statement with the foreign ministers of France, Germany and Britain.

They pledged to work on preserving financial flows and Iran’s oil and gas exports - a lifeline of its economy.

EU officials hope the EU’s so-called blocking statute will mitigate the impact of US sanctions for business, including by deterring US authorities from enforcing some penalties.

But they admit it may not be enough to convince European firms to brave US penalties in order to do business with Iran. Senior US administration officials brushed off questions about the EU measure on Monday, warning the risks were real for companies working in Iran.

The new measure forbids EU persons from complying with US sanctions or related court rulings and allows for firms to sue in court to recover potential damages from parties who withdraw from contracts due to US sanctions.

“For those who have exposure, there is no panacea. What this does is it provides a deterrence. It means that sanctions that are discretionary may never be applied,” one senior EU official said, adding that firms have rarely been fined under US secondary sanctions in the past.

“If they (sanctions) are applied, then that person can go to the court to recover that damage.”

‘Protect not oblige’

Under the new rules, firms should apply for EU authorisation to wind down operations in Iran if it is doing so to comply with US sanctions but not if it is a business decision - a distinction that may be difficult to make.

The threat of EU penalties for European firms who fail to seek such a legal exemption for withdrawing from Iran due to US sanctions has raised alarm among EU businesses that they could be penalized either way.

Seeking to ease concerns, EU officials have stressed the measure seeks to “free not force” firms to remain invested in Iran.

EU officials say they will be strict in reviewing requests for exemptions - wary to undermine its effect by granting too many authorizations.

A number of other countries have asked EU officials for details on the blocking regulations as they also explore ways to bypass sanctions and their effect on oil markets: “There is a clear interest around the world,” one EU official said.

With the US administration taking a hard line on granting waivers from sanctions, many major companies from the oil and gas industry to car manufacturers and consumer goods firms have already announced that they are quitting the country.

German exports to Iran alone fell by four percent in the first five months of 2018 after rising by 16 percent last year, the German Chamber of Commerce and Industry (DIHK) said.

- Reuters