Reuters - French state-owned bank Bpifrance has abandoned its plan to set up a mechanism to aid French companies trading with Iran, in the face of U.S. sanctions against Tehran.

Earlier this year, the bank had said it was working on a project to finance French companies that wished to export goods to Iran despite U.S. sanctions.

�It�s put on hold,� said Nicolas Dufourcq, Bpifrance�s chief executive. �Conditions are not met (...) Sanctions are punitive for companies.�

Bpifrance was working on establishing euro-denominated export guarantees to Iranian buyers of French goods and services. By structuring the financing through vehicles without any U.S. link, Bpifrance thought it was possible to avoid the extraterritorial reach of U.S. legislation.

Dufourcq�s latest comments show how the scope of the sanctions is making trade with Iran increasingly difficult for European companies.

The United States is renewing sanctions on Iran after withdrawing from a nuclear deal forged in 2015 between Tehran and world powers. Washington reimposed some of the financial sanctions from Aug. 6, while those affecting Iran�s petroleum sector will come into force from Nov. 4.

Even though several European countries have said they are seeking to protect their companies from the sanctions, several major companies including oil company Total (TOTF.PA), Air France-KLM (AIRF.PA) and British Airways (ICAG.L) have announced they would suspend activities in Iran.

German officials have in recent weeks advocated for the creation of an independent system for cross-border payments to make trade with Iran possible even with the U.S. sanctions.

European Union diplomats have said U.S. President Donald Trump�s positions on trade and on Iran were fuelling a rethink about the EU�s dependency on the U.S. financial system.

However, European countries appear to be struggling to find or agree on effective options to tackle the issue.

Reporting by Matthieu Protard and Inti Landauro; Editing by Sudip Kar-Gupta, Luke Baker and Toby Chopra