This is all well within the realm of what governments can and do regulate. Want to do business in a country with their laws or not is the choice.
The EU (nay, perhaps every country) should be prepared to deal with Microsoft or AWS completely cutting them off from access to all their systems - what would be the cost and impact?
We are rapidly heading to not one Internet, but country-specific internets that may or may not bridge to other ones in some cases.
Realistically a US executive could be legally required to give an EU engineer a command that they legally couldn’t follow. At that point I guess we find out if the engineers’ national or corporate identities are dominant. I suspect the former in most cases, but who knows?
Google, AWS & Microsoft all nullroute the countries of Cuba, Iran and North Korea. Google also nullroutes Crimea.
So by using a cloud provider, you are participating in the embargo of Cuba.