Washington, leading efforts to isolate the Islamic Republic over its atomic program, has slapped sanctions on two Iranian banks.

United Nations sanctions have targeted one.

But US arm-twisting may be having a stronger impact, with one bank withdrawing finance for a major gas deal and oil majors rethinking investment. A US official warned multinationals in March to steer clear of OPEC's second biggest producer.

"The world's top financial institutions and corporations are re-evaluating their business with Iran because they are worried about the risk and their reputations," said Stuart Levey, the US Treasury's top anti-terrorism official.

"You should worry too and be especially cautious when it comes to doing business with Iran."

French bank Societe General got the message and has pulled the plug on financing for a $5 bln project to develop part of Iran's massive South Pars gas field.

"SocGen has stopped their financial support because of pressure from the US," Akbar Torkan, head of Iran's Pars Oil and Gas Company, said.

"No European bank is ready to prepare new financing for us. The US is putting pressure on all European banks."

Iran is fighting back with plans to set up an overseas investment fund in Bahrain or Dubai to help finance South Pars.

Washington is working hard behind the scenes to ensure that Iran cannot raise the cash it needs.

"The US government is sending out letters to banks on plain white paper with a clear message -- side with us or we'll make it difficult for you to operate," said an Iranian executive who wished to remain anonymous.

Iranian officials have brushed off the impact, but Torkan -- a former defense minister -- said major oil companies such as Statoil and Total were also being leaned on.

"They have to follow American policy, otherwise the US will find tools to pressure them," he said.

"It's punishment for their activities in Iran."

Industry sources said Statoil may have second thoughts about developing the Azar oilfield because it is keen to protect its US interests. Norsk Hydro was planning the Azar development, but Statoil bought Norsk's oil and gas assets in December and will own the concession when that takeover is complete.

Royal Dutch Shell, Eni and Total have all invested blns of dollars in Iran and also own US assets. Top brass have indicated that political concerns could impact new investment plans.

IRAN SAYS FOREIGNERS KEEN

Despite sanctions, Iran says foreigners are keen to invest in its oil and gas reserves, the world's second biggest. At least $100 bln of foreign cash will be needed over the next decade to boost output by 1 mln barrels per day (bpd) to 5 mln.

On paper, the National Iranian Oil Company has lined up contracts worth nearly $40 bln. Whether they are finalized is another matter. Big energy deals in Iran typically take many months or even years to reach final contract.

"Of all of the deals on the table, those involving companies with less of an exposure to the United States -- they're the ones that are likely to progress, but even those are likely to be delayed," said Colin Lothian of Wood Mackenzie.

In the end, however, the lure of Iran's lucrative oil and gas fields will keep multinationals in the game, analysts said.

The world's fourth biggest oil exporter is one of the only Middle East reserve owners to let foreigners into its oilfields. Saudi Arabia and Kuwait are off-limits and Iraq's oil law setting the investment rules has yet to be passed by parliament.

"They'll keep a low-profile, but they're in for the long haul," said an oil analyst.

For now, companies from energy-hungry Asia are moving in and taking advantage of the lack of competition.

"The one thing that sanctions don't seem to be doing is deterring national oil companies from countries in Asia," said Stuart Lewis, Middle East director at energy consultancy IHS.

"Some of the Asian newcomers really view investment from a different perspective, looking at long-term supply rather than commercial terms."

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