And our elected leaders should have that power so that bad laws can be fixed.
Imagine if, in pre-civil-war America a lot of British investors had invested in cotton plantations whose profitability depended on slavery. Should Lincoln have said "gee, I guess my hands are tied, banning slavery would be bad for our foreign investors" and done nothing?
You might argue that in the past we had bad laws, but we don't have bad laws any more and all our laws are perfect. But the fact we still employ legislators rather implies we think we might need some legislating done.
Whether your infringement upon the foreigners' interest is good or bad is an entirely separate question, all I'm saying is that sovereignty does not grant you the ability to automatically get away with it and I don't understand why this word became so fashionable in this context recently (a similar example is defaulting on sovereign debt.)
And I guess if the other country can seriously threaten force without bluffing then we never really had sovereignty all along...
To take your example, if my country nationalizes an oil field found and owned by your country's citizens (assuming that my country originally tricked them into searching for oil by promising it'd be theirs to some extent or other when they find it - otherwise why would they search for it in the first place?), why would your country stop at "tarnishing my country's reputation" when it could apply force, ranging from economic sanctions to an actual war?