The so-called “blocking statute” was introduced in 1996 to circumvent US sanctions on Cuba but was never used.
On Friday, the EU will begin redrafting and preparing the legislation so it applies to the latest Iran sanctions.
It will prohibit European companies from complying with the penalties and permit compensation for affected firms.
Washington is re-imposing strict sanctions on Iran, which were lifted under a 2015 international deal to control the country’s nuclear ambitions.
Jean-Claude Juncker, the president of the European Commission, said the statute was being introduced to protect European firms.
“It’s the duty of the EU to protect European business and that applies in particular to small and medium-sized enterprises,” he told a news conference following a summit of EU leaders in Bulgaria on Thursday.
He added that the legislation was designed to deal with “extra-territorial” sanctions when they have an impact on the EU.
Why is the US imposing sanctions on Iran?
President Donald Trump pulled the US out of the Iran nuclear deal earlier this month and pledged to ramp up pressure on the country.
The agreement was signed by six world powers, alongside Iran, to curbed Iranian nuclear activities in return for the lifting of UN, US and EU sanctions.
But Mr Trump has denounced the “horrible” deal, and now Washington is re-imposing the strict sanctions.
Last week, the US sanctioned six people and three companies it said had ties to Iran’s elite military force.
US individuals and entities are barred from doing business with them following the move.
The US position is at odds with that of France, Germany and the UK, which say they are committed to the agreement and to expanding trade with Iran.
What do the sanctions mean for Europe?
European businesses are worried that their ties with the US could be damaged if they continue doing Iranian deals.
Some of Europe’s biggest firms had rushed to do business with Iran after the nuclear deal took effect.
In 2017, EU exports to Iran (goods and services) totalled €10.8bn (£9.5bn; $12.9bn), and imports from Iran to the bloc were worth €10.1bn. The value of imports was nearly double the 2016 figure.
Now, there are fears that billions of dollars’ worth of trade and thousands of jobs could be jeopardised.
Some of the biggest deals that are at risk include:
- French energy giant Total‘s deal, worth up to $5bn, signed to help Iran develop the world’s largest gas field. Total now plans to unwind those operations by November unless the US grants it a waiver
- Norwegian firm Saga Energy‘s$3bn deal to build solar power plants
- An Airbus deal to sell 100 jets to IranAir