EU heads to focus on China, Iran after agreeing to disagree on gas cap

European Union leaders will discuss reducing their economic dependency on China, aiding Kyiv and punishing Iran for its involvement in the war that Russia is waging on Ukraine, when they meet for a second day of talks in Brussels on Friday.

The previous day, the 27 EU leaders locked horns over a joint response to the acute energy crunch that has engulfed the bloc since Russia invaded Ukraine in February.

Their summit talks started on Thursday afternoon and ran into the wee hours on Friday as Germany stuck to its refusal to cap gas prices and the 27 could only agree to disagree, declaring they will keep on examining options to put a ceiling on costs.

As they turn to foreign policy from 0800 GMT on Friday, they will have a "strategic discussion" on their ties with China after the bloc's executive said earlier this week the EU should see Beijing more as a competitor.

"We have been a bit too complacent as European countries," said Belgian Prime Minister Alexander de Croo. "Over the past months, we've understood that in a lot of pure economic domains, geopolitics also play an important role."

The EU's first full summit with the ASEAN group of Southeast Asian countries is planned for Dec. 14, with Europe hoping to bolster trade and geopolitical relations with a region in the shadow of China.

Smaller countries also appealed for a united EU front vis-a-vis Beijing, pointing to German Chancellor Olaf Scholz's planned visit to China next month.

The Eurointelligence consultancy said Berlin risked flexing its economic muscle at the expense of broader European interests, adding that Scholz was now intent on allowing China to buy into the strategic port of Hamburg.

"Germany's industrial strategy, and its economic model that feeds it, is toxic for the EU," Eurointelligence said in a commentary on Thursday.

Germany, the EU's biggest economy, also leads the small EU camp opposed to capping gas prices, with Scholz defending himself on Thursday against accusations from other EU leaders that Berlin is pursuing selfish and unfair energy policies.

UKRAINE, IRAN

Europe's reliance on Russia was laid bare when Moscow cut gas deliveries following its invasion of Ukraine, leaving the EU grappling not only with a political, security and humanitarian crisis across its border, but also an energy one.

On Thursday, the EU imposed swift but limited sanctions on Iran for supplying drones for Russia's war in Ukraine, a former Soviet republic that this century has sought to integrate with the West against vehement opposition from the Kremlin.

Some EU countries want wider sanctions imposed on Iran, and the summit will also condemn Tehran's use of force against protests.

Poland and the three Baltic states have also proposed slapping more sanctions on Russia, but that is unlikely to be agreed on Friday as any such decision would require a unanimity among the 27 nations that is lacking.

Estonian Prime Minister Kaja Kallas said the EU should find ways of using to Ukraine's benefit more than 300 billion euros' worth of frozen Russian assets in the bloc, and push to form an international tribunal to judge war crimes committed in Ukraine.

"This is pure terrorism," Kallas said of Russia's war. "And it's awful that it's possible to do this in year 2022."

(Writing by Gabriela Baczynska; Editing by John Chalmers and Hugh Lawson)