After a Swiss court reportedly ordered an Israeli oil firm to compensate Iran over a scrapped joint venture, Israel said Thursday that its laws prohibited any payment to "the enemy."
Iranian state news agency IRNA said Wednesday that the court had found Israel's Trans-Asian Oil (TAO) liable for payment of $1.1 billion to the National Iranian Oil Company (NIOC).
It said that NIOC and an Israeli company had signed an agreement in 1968 to transport Iranian oil to the Jewish state across the Red Sea.
But after the 1979 Islamic revolution which overthrew Iran's pro-Western shah, the new regime cancelled the contract because it did not recognise the Jewish state.
Tehran says it was owed $450 million when the partnership ended.
The Israeli finance ministry on Thursday issued a carefully-worded statement which neither confirmed nor denied the IRNA report.
"Without commenting on the substance of the matter, we should remember that in accordance with the laws on trading with the enemy, it is prohibited to transfer funds to the enemy, which includes the National Iranian Oil Company," it said.
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"It is highly doubtful that Israel will actually pay the debt," said an expert quoted by Israeli defence analyst Yossi Melman in Maariv newspaper on Thursday.
Israel considers Iran its deadly foe and accuses it of seeking to develop nuclear arms and of financing attacks by Gaza-based Hamas and by Lebanon's Hezbollah.
Israeli Prime Minister Benjamin Netanyahu has repeatedly compared the Islamic republic to Hitler's Nazis, while Tehran regards the Jewish state as "Little Satan".
The premier is an implacable foe of any easing of international sanctions on Tehran as part of a nascent deal meant to prevent it acquiring nuclear arms.
In a January editorial, the left-leaning Haaretz daily wondered if Netanyahu's campaign to isolate Iran could be to some extent influenced by the festering financial dispute, which has been the subject of arbitration for two decades.
"The legal battle has kept the highest people in government very busy, but Israelis have been left in the dark," it wrote.
"All this raises troubling questions. Do Israel’s efforts to impose international sanctions on Iran also stem from financial considerations, not just security ones?
"Are Israel and Iran conducting a dialogue through their lawyers and arbitrators behind the public threats that have led Israel to the brink of war with Iran?"