The U.S. government is reportedly blocking Iranian moves to siphon oil from disputed oil fields on the border with Iraq to get around tightening international sanctions that threaten its energy industry, Iran's economic backbone.

Tehran's strategy appears to have been to extract oil from the border fields that would fall outside sanctions imposed by the United Nations, the United States and the European Union over Iran's contentious nuclear program.

These are expected to become even more restricting when an EU ban on buying oil from Iran takes effect in July.

The Wall Street Journal reported that Tehran proposed establishing a joint operating company with Iraq that would registered in the British Virgin Islands.

The Journal said under U.S. pressure, "Baghdad offered to bring in a private Iraqi contractor rather than a state concern, fearing the latter could breach U.S. sanctions.

"Iran maintained that no existing private Iraqi contractor was large enough to handle such a project, making the proposal unviable."

Iran approached the French energy giant Total in 2011 to operate some fields on behalf of both countries and sell the oil as "stateless," thus sidestepping the sanctions. Total confirmed the approach but said it didn't want to get entangled with sanctions and "the political situation."

In 2011, Tehran decided to give production priority to the shared fields along the poorly demarcated border with Iraq.

In February, it announced it had begun work on its first well in the Yadavaran field, which contains an estimated 12 billion barrels of oil, in southwestern Iran.

However, Iran reportedly has been systematically plundering large amounts of oil from southern Iraq for years, a theft on a grand scale that's helping the Islamic Republic withstand the sanctions crunch that has been steadily escalating since June 2010.

"Tehran has built a complex oil smuggling network that allows it to bring in significant revenues from southern Iraq's oil production," U.S. global security consultancy Stratfor observed in February.

These funds, worth around $20 million a day, enable Shiite Iran "to maintain its influence in the region while preparing to defend itself from stringent sanctions against its oil exports."

Stratfor said roughly 10 percent of the oil produced in the Basra region of Shiite-dominated southern Iraq "is smuggled, most of which ends up in Iran for export."

Earlier this month Tehran reportedly told Kuwait it would develop its sector of the shared offshore Arash/Dorra field in the northern Persian Gulf alone if the emirate didn't respond favorably to Iran's "positive diplomacy."

The field contains an estimated 130 million barrels of oil.

Iran has long been the second largest oil producer in the Organization of Petroleum Exporting Countries after Saudi Arabia.

But in recent weeks its output has slumped to levels last seen during the 1980-88 war with Iraq, during which the gulf shipping lanes became a battleground in the so-called "Tanker War."

The International Energy Agency, the West's energy watchdog, reports Iranian production fell by 50,000 barrels per day in February to 3.38 million bpd.

The IEA predicted in 2010 that Iranian production capacity would decline by 890,000 bpd by 2016 because of tighter sanctions, increasing economic pressures on Tehran amid its confrontation with the United States and its allies in the gulf.

Oil exports produce the lion's share of state revenues and account for 80 percent of Iran's exports.

Iran has long coveted Iraq's oilfields, which hold known reserves of 143.2 billion barrels. Industry officials say untapped fields could contain as much again.

During the 1980-88 war, Iranian forces seized the big Majnoon fields along Iraq's eastern border. Iranians periodically occupy disputed fields inside Iraq.

The last serious incident, in December 2009, involved the Fakka field in southeastern Maysan province with Iranian troops holding a well for several days. Fakka contains an estimated 1.5 billion barrels of oil.

"Through a web of alliances, including Iraqi politicians, unions, oil syndicates and militias, Iran is already well positioned to extract oil revenues from southern Iraq via informal channels," Stratfor said.

"Iran's geopolitical ambition is to make southern Iraq an extension of itself, thereby allowing Iran to vastly, albeit indirectly, increase its share in the global energy market."