WASHINGTON, March 7: A proposed US law, aimed at punishing oil companies that deal with Iran, will make it even more difficult to construct the Iran-Pakistan-India gas pipeline.

The chairman of the US House Foreign Affairs Committee said on Tuesday he was introducing legislation that would strengthen the Iran Sanctions Act and would require the Bush administration to sanction any company with deals worth more than $20 million with Iran.

If passed, the bill would prevent international investors from financing the pipeline and could also lead to punitive action against Pakistan and India if they go ahead with the proposed, multi-billion dollar project for bringing Iranian gas to South Asia.

The Bush administration has used its authority to waive implementation of the sanctions act for 20 years, allowing America’s European allies to invest in the Iranian oil industry. The proposed law would force the administration to sanction those European firms that do business with Tehran.

While the US has imposed various sanctions against US companies doing business with Iran since the 1979 Iranian revolution, the 1996 Iran-Libya Sanctions Act was the first attempt to penalize foreign companies.

The law was renamed the Iran Sanctions Act after the US restored diplomatic relations with Libya.

Although the Bush administration says it is using all possible means to pressure Iran into halting its alleged nuclear weapons programme, the new Democrat-controlled Congress feels that it is not doing enough and is seeking to hit Tehran where it hurts most, its oil revenues.

As the Organisation of Petroleum Exporting Countries’ second-largest producer, almost 60 per cent of Iran’s revenues are derived from oil.

If passed, the new legislation would sanction companies such as Royal Dutch Shell, Repsol, Statoil, Norsk Hydro ASA, Australia LNG, and China's National Offshore Oil Corporation that are preparing to sign several major oil and gas deals.

Shell and Spain's Repsol signed in January a preliminary $10 billion agreement with the Iranian government to develop two phases of the huge South Pars gas field. Many other companies are mulling Iran's offers of onshore and offshore blocks for development of hydrocarbons.

US Undersecretary of State for Political Affairs Nicholas Burns told the House committee that the administration wasn't in favour of using the Iran Sanctions act because it might erode the international consensus developing at the Security Council and because it would create difficult trade relationships with allies. Russia and China -- both of which have national companies examining multi-billion dollar oil and gas projects in Iran -- are two key votes that are needed in the council for tougher UN sanctions against Iran.

Mr Burns said: "All of our allies are trading with Iran. What we are trying to do is to convince them that they need to act in their national interest to stop that business-as-usual approach."

Instead of energy, the Bush administration has been focusing its economic-sanction efforts against the financial sector.

The US Treasury recently created the terrorism financial intelligence team, which has been able to persuade major banks such as Credit Suisse and HSBC to stop their financial interactions with Iranian banks. The Treasury also has prohibited US dollar interactions with two Iranian banks it linked to terrorism and supporting the regime attempting to build a nuclear bomb.

In February, the Foreign Affairs Committee passed an amendment to the Iran Sanctions Act that would include petrochemical and liquefied natural gas companies, and cover subsidiaries of US companies.