The Treasury Department sent a report to U.S. lawmakers that describes the National Iranian Oil Co. as "an agent or affiliate" of the country's Revolutionary Guard Corps.
Iranian Oil Minister Rostam Qasemi was a brigadier general in the Iranian military.
Washington policy center Foundation for Defense of Democracies, a frequent critic of Tehran, said it applauded the department's findings.
FDD Executive Director Mark Dubowitz said the findings are proof that the military in Iran is strongly linked to the oil sector.
"NIOC is the lynchpin of the Iranian energy sector and has operated as the ultimate front company in trying to obscure the role of the IRGC in Iran's petroleum sector," he said in a statement.
The Treasury Department said the IRGC was suspected of trying to sell Iranian oil in a way that evaded international sanctions.
"This will accelerate the decline of Iranian petroleum exports and production," said Dubowitz.
The designation extends the reach of U.S. sanctions targeting Iran.