Iran cleared the way on Tuesday for Premier Oil and Bow Valley Energy, of Canada, to begin building offshore platforms and drilling wells in the Balal oil field.
Bow Valley has already been warned by the US government that the company's involvement in the project could make it a target for sanctions under the Iran-Libya Sanctions Act.
The law seeks to punish companies that invest more than pounds 12m annually in the oil and natural gas sectors of either Iran or Libya.
A spokesman for the US State Department, James Foley, said the US sanctions law "will certainly" be applied to Premier Oil and Bow Valley.
The Balal field to be developed by Premier Oil and Bow Valley is estimated to hold more than 105 million barrels of oil and is expected to produce 40,000 barrels a day next year or early in 2001.
Premier Oil has a 75 per cent voting interest in the venture and will conduct all the financing.Reuse content