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European banks that deny companies access to dollar-based bank accounts because of US sanctions against Iran could find themselves being sued by their own customers.

This potentially puts international banks between a big rock and a very hard place.

Fearful on the one hand of the heavy fines and restricted access to the US that flouting Donald Trump's sanctions could incur. Vulnerable to lawsuits from its own customers for flouting EU law if it abides by the President's new rules.

The US announced in May it would re-impose sanctions against Iran that were previously lifted under an international deal brokered by Barak Obama in 2015.

Not only do the sanctions bar any company which does business in Iran from doing business in the US - under far reaching secondary sanctions - it also forbids any company that does business in the US from doing business with any company that does any business with Iran.

New EU laws that come into effect today are designed to limit the potential damage to European companies conducting legitimate business with Iran directly or indirectly.

Firms shelving investment

The so-called "blocking" laws would make it illegal for banks to withdraw services to companies doing business with Iran or even with other companies that do business with Iran.

The evidence so far seems to suggest the blocking legislation has not provided sufficient reassurance for most European companies with interests in Iran.

French oil and gas giant Total has already indicated it intends to shelve a multi-billion dollar investment in Iran.

While German carmaker Daimler said within hours of the sanctions coming into force that it was halting its business activities in Iran.

The real force of these extra-territorial powers is to be found in the international banking system.

Most of the world's crucial commodities are priced and traded in US dollars.

Oil and gas companies in particular need access to them for the very basics of business. The US government has been clear that access to the dollar-based financial system will be denied to anyone who flouts their sanctions.

One oil and gas company executive who spoke to the BBC on condition of anonymity said the banking issue was "absolutely crucial".

He added that he was sceptical that the EU's attempts to nullify the force of the sanctions would convince nervous bankers to defy the US.

Not for the first time, the EU and US find themselves in a high stakes stand off.

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