By Mark Gregory
BBC News, Washington

The US is threatening to get much tougher with international energy companies that do business with Iran.

Oil firms may face fines and other penalties if they sign deals to develop Iranian reserves of oil and gas, a State Department source told the BBC.

The statement marks an escalation of US financial pressure aimed at persuading Tehran to abandon alleged plans to develop nuclear weapons.

Iran insists its nuclear program has no military application.

A law already on the statute book gives the US government wide ranging authority to penalize companies doing business with Iran.

Blunt message

Under the Iran Sanctions Act Washington can fine not just American firms, but any company anywhere that does more than $20m business with Iran.

But so far the US government has generally chosen not to use these powers.

However, this stance may be about to change.

Nicholas Burns, one of the most senior officials at the State Department, has a blunt message for energy companies considering Iranian deals.

“We have been going round to the major oil and gas firms to let them know that this law exists and that we implement it if they cross the line,” he said.

The Bush administration has come under pressure from Congress, now Democrat controlled, to take a stronger line with companies trading with Iran.