Legislation backed by a bipartisan group of US senators aims to tighten the financial stranglehold on Iran by cutting off Iran's access to an estimated $60-$100 billion (£40-58 billion) in foreign exchange reserves currently held in foreign bank accounts.
It comes after the latest round of negotiations over Iran's illegal nuclear program ending without result last month and amid growing concern in the US Congress that Iran is rapidly reaching the point of no return in its race to acquire a nuclear bomb.
Earlier this year senators wrote to the European Union urging it to close a "significant loophole" that was allowing Iran to continued access to euro-denominated reserves, but despite negotiations with the US Treasury, no deal has been reached.
"With the EU having taken no action and talks with Iran continuing to drag on without progress, the time has come for the Senate to take action to close this sanctions loophole," the Senators said in a statement announcing the legislation.
"Closing the foreign currency loophole in our sanctions policy is critical in our efforts to prevent Iran from acquiring a nuclear weapons capability. We urge international financial regulators, including those from the European Union, to issue regulations to comply with this legislation."
The legislation is not expected to be signed into law until mid-July or August, however it will hit European businesses and companies with immediate effect because it will be applied retroactively to avoid giving Iran time to circumvent the new controls.
"We are putting financial institutions around the world on notice that, effective tomorrow, you must halt all foreign currency transactions on behalf of blacklisted Iranian banks and sectors or risk being cut off from the U.S. financial market," the Senators said.
The legislation will affect not just Iran's euro-denominated assets, but also any attempts by Iran to convert its overseas foreign exchange reserves into local currency in foreign banks – a tactic it has used to finance imports and reduce growing monthly budget deficits.
Sanctions have already halved Iran's oil sales, triggering soaring inflation in the country and a precipitous drop in the value of the Iranian currency that has hit middle classes hard. IMF predictions show the economy – a key factor in Iran's presidential elections scheduled for June 14 – shrinking by 1.3pc in 2013.
"This is a clever move by the Senate and will have a significant impact on Iran's finances that could bring forward the economic cripple-date by months, if not more," said Mark Dubowitz, executive director at the Foundation for Defence of Democracies, a Washington think-tank that has advised the Obama administration on Iran sanctions policy.
Companies and banks that ignore the legislation – which is expected to pass with a large bipartisan majority – face being frozen out of US markets and the wider US financial system.