The European Commission (EC) on Friday began work on a series of measures to shield European companies investing in Iran and support Tehran's economy, in the hope of salvaging the Iran nuclear deal following the US decision to withdraw.

The European Union, once Iran's biggest oil importer, is determined to save the nuclear accord, which US President Donald Trump abandoned on May 8, by keeping money flowing to Tehran as long as the Islamic Republic complies with the 2015 deal to prevent it from developing an atomic weapon.

To counter the impact of US sanctions, Brussels started to update the so-called blocking statute — legislation that prohibits EU companies from complying with the sanctions and allows them to recover any damages suffered.

"We have the duty, the Commission and the European Union, to do what we can to protect our European businesses, especially SMEs," the head of the bloc's executive, Jean-Claude Juncker, said at a news conference.

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The aim is to have the measure in effect before the first batch of US sanctions kicks in on August 6, the EU's executive said in a statement. The bloc, once Iran's top trading partner, hopes Tehran will continue to comply with the deal as long as it manages to preserve enough of the economic benefits promised in return, which is considered critical to keeping the deal alive.

"As long as the Iranians respect their commitments, the EU will of course stick to the agreement of which it was an architect," Juncker said, while warning that the US decision to reimpose sanctions "will not be without effect."

On Wednesday, European Union leaders had gathered in the Bulgarian capital Sofia to discuss their strained ties with US President Donald Trump, including on trade, saving the Iran nuclear agreement and bringing Western Balkans closer to the bloc.

Under the 2015 nuclear accord between Iran and the US, the EU, Germany, China, France, the UK and Russia, Tehran agreed to freeze its nuclear program in exchange for getting some international sanctions against it lifted. Subsequently, the Islamic Republic more than doubled its oil exports, which helped lift the country out of a deep recession.

Can the blocking statute protect EU companies?

A blocking statute is a law that attempts to hinder application of a law made by a foreign jurisdiction. Originally developed in 1996 to get around a US trade embargo on Cuba and sanctions related to Iran and Libya, it was never enacted because disagreements were settled politically.

In the current proposed application, the law would attempt to shield European companies that do business with Iran from future US sanctions by prohibiting the companies from complying with them. It also would not recognize any court rulings that enforce the American-issued penalties.

With a population of about 82 million and substantial oil reserves, Iran represents a largely untouched market with the potential for fast growth, a rare opportunity for Western companies with global ambitions.

While many US companies were sidelined by the sanctions imposed by the United States even with the Iran deal in place, European businesses lined up for orders, selling factory machinery, power grid infrastructure and construction equipment after the sanctions were lifted in 2015.

Airbus of France, for instance, scored a "historic order" in 2016 to remake Iran Air's aging fleet with more than 100 aircraft, including a dozen super jumbo A380s. In 2017, the French energy giant Total signed a $- billion (€847-million) deal to open up the world's largest gas reservoir, the biggest international energy deal since the Iran nuclear deal in 2015. And last year, the Austria's Oberbank became the first European bank to sign a framework credit agreement with Iran.

Still, German-Iranian economic relations could have been stronger: Although exports from the European Union to Iran increased by about one-third last year to €10.8 billion, the country still ranked only 33rd among the bloc's trading partners, behind the likes of Kazakhstan and Serbia.

Trump's fulfillment of his election campaign promise to pull out of the deal and reimpose sanctions on Iran has already led to a number of big-name victims, including the world's largest container shipping firm A.P. Moller-Maersk.

"With the sanctions the Americans are to impose, you can't do business in Iran if you also have business in the US, and we have that on a large scale," a firm's spokesperson said.

French energy giant Total, which became the largest foreign investor in Iran's energy sector after nuclear sanctions were eased, said this week it would pull out of its contract to develop the Islamic republic's South Pars gas field unless it can be protected from US penalties. Total's exit could send a negative signal to smaller European firms.

Large European multinationals with branches in the US are especially at risk; but even those firms that do not export goods to the US usually process international transactions in US dollar. As a result, those companies are subject to the US judiciary, and only small and medium-sized enterprises (SMEs) without any ties to the US might not be affected. The crucial question, therefore, is how strict the US sanctions will be.

Can central bank transfers beat US sanctions?

Big German banks could prove to be the biggest obstacle for German and European companies to uphold their business activities with Iran. Deutsche Bank and Commerzbank did not change their cautious business policy, not even after the signing of the Iran deal in 2015. Once the first of US sanctions come into effect in early August, they might be even less willing to finance business with Iran.

Other German banks have also been careful, which is no surprise given the hefty fines for disregarding US sanctions: In 2015, for instance, Commerzbank was hit with a $1.5 billion penalty. A year earlier, French big bank BNP Paribas even had to shell out $9 billion.

Also read: Heiko Maas: Germany can't protect businesses from US sanctions in Iran

Specialist banks focusing on trade financing with Iran like the Hamburg-based European-Iranian Merchant Bank (EIHB) might help German companies continue their business activities with the Islamic republic, at least to a degree. Thus far, EIHB hasn't experienced any restrictions, according to a spokesperson. Nor has it been concerned about being fined by the US.

"We strictly observe their [the American] compliance and carefully examine every transaction since the beginning of EU sanction regulations," a EIHB spokesperson told DW in an email, adding that EIHB neither trades in dollars nor accompanies US business.

A statement on the EIHB website, however, reads: "Business policy decisions by European banks may result in short term or medium term restrictions on payments."

Other banks that specialize on German-Iranian trade financing are mainly branches of Iranian banks, such as the national Bank Melli Iran, the largest bank in the Islamic world. Even if these banks can continue to finance business with Iran without sanctions, their small size compared to the cautious German big banks appears to be a drop in the bucket.

That's one reason why the European Commission wants to allow the European Investment Bank (EIB) to finance activities European companies' investment in Iran, which would be particularly useful for smaller firms.

Another mechanism it proposed was EU governments making direct money transfers to Iran's central bank in order to avoid US penalties. This would be the most forthright challenge to Washington's newly reimposed sanctions. Although the details were still to be worked out, according to a senior EU official, the step would allow European companies to repay Iran for oil exports and repatriate Iranian funds in Europe, thereby bypassing the US financial system.

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German chancellor Angela Merkel was cautious about the ability to offer wide-ranging compensation to all European companies that do business with Iran.

"We'll see whether we can give small and medium-sized companies certain relief. That is being examined," she said on Thursday. However, "compensating all businesses in a comprehensive way" was not feasible, she said, adding that we "must not create illusions."

Matthieu Etourneau, managing director of the French Center for Business in Tehran said Friday he feared a mass exodus of European firms from Iran. "The political proactiveness of governments is good," he said, "but we have the feeling that it will not be enough to ensure companies maintain their activities in Iran."