European efforts to protect businesses investing in Iran from US sanctions risk leaving executives with the tough choice of whether to obey EU or American rules. The EU is finalising its plans to mitigate the punitive measures as the Trump administration prepares to impose a new wave of sanctions next month and in November.

The first batch will target trading in cars, gold and other metals; the second Iran’s oil exports and transactions with the central bank. The main weapon the EU has developed is an updated version of a “blocking statute” originally drawn up in the 1990s to counter US sanctions on Iran, Libya and Cuba. The law forbids European companies from complying with the US measures and allows them to recover damages arising from the sanctions “from the person causing them”.  But lawyers and diplomats said there are doubts over the effectiveness of a tool that has never been properly tested.

“It’s a European policy that’s totally in contradiction to the American policy: that doesn’t happen very often,” said Jean De Ruyt, a senior adviser at Covington & Burling, the international law firm, and a former Belgian ambassador to the EU. The dilemma was created after Donald Trump in May withdrew the US from the 2015 nuclear agreement Iran signed with world powers, including the EU, the UK, France and Germany.

The European signatories are desperate to save the deal, and believe it is critical that the republic is still able to reap an economic dividend from the accord. But Mr Trump has suggested his administration will offer few waivers to companies. The US president used his toughest language yet against the Islamic regime this week, warning Iran it would face severe “consequences” if it threatened America. Hassan Rouhani, Iran’s president, this weekend said that reimposing new sanctions would equate to a “declaration of war against” the nation.