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A simmering border feud between Thailand and Cambodia has exploded into the deadliest fighting in over a decade, with rockets, artillery and airstrikes pounding contested frontier zones for a second day.

Thailand blamed Cambodia for “sustained bombardment” and retaliated with F-16 fighter jets, while Phnom Penh claimed control of disputed temples and lobbed rockets that hit Thai civilians.

The death toll has climbed to at least 14 on the Thai side. Cambodia has yet to release its numbers. The US and others have urged both sides to halt the fighting, but neither appears ready to blink.

Thailand is the only treaty ally of the US on the Southeast Asia mainland, while Cambodia depends heavily on Chinese investment for ambitious infrastructure projects.

The neighbors share a long history of border frictions, although relations had remained largely stable since a 2011 conflict. The dispute is rooted in conflicting interpretations of early 20th-century Franco-Siamese treaties and unresolved claims continue to fuel tensions.

The trigger for this week’s violence came when a Thai soldier lost his leg to a landmine, prompting Thailand to accuse Cambodia of laying new explosives; Cambodia said Thai troops strayed into its territory.

What followed was a tit-for-tat military barrage that sent Thai markets sliding and plunged its fragile political coalition deeper into crisis. It adds further turmoil to a world already rocked by the Israel-Hamas war, Russia’s invasion of Ukraine and the conflict in Sudan.

The conflict couldn’t come at a worse time for suspended Thai Prime Minister Paetongtarn Shinawatra. A leaked call with Cambodian ex-leader Hun Sen last month, in which she blamed the Thai army, sparked protests and a key party defection.

Acting Thai Prime Minister Phumtham Wechayachai warned today that the situation could grow more dire and “potentially develop into a war.”

The economic fallout is mounting. Cambodian workers are fleeing, trade is disrupted, and Thailand’s tourism-heavy economy could take a hit.

As the United Nations pushes for calm, both sides appear to be digging in. — Jon Herskovitz

A Thai soldier stands guard at the disputed ancient Khmer temple Prasat Ta Muen Thom. Photographer: Tang Chhin Sothy/AFP/Getty Images

Global Must Reads

Donald Trump downplayed his clash with US Federal Reserve Chairman Jerome Powell over cost overruns during a tour of the central bank’s renovation project yesterday, making it clear that he saw the issue of lower interest rates as a more pressing concern. After a visit in which the US president and Powell publicly trade barbs over the cost of the project, Trump maintained there was “no tension” with the Fed chief.

Trump and Powell tour the Federal Reserve’s headquarters renovation project in Washington yesterday. Photographer: Andrew Caballero-Reynolds/AFP/Getty Images

Trump praised Australia’s decision to lift import curbs on US beef amid trade negotiations after he’d highlighted Canberra’s biosecurity measures as an unfair impediment to trade. Australia and India are likely to expand their free-trade agreement in the “very near future,” Trade Minister Don Farrell said. Meanwhile, Australia and the UK will sign a landmark 50-year defense treaty to underpin the construction of nuclear-powered submarines.

Gaza ceasefire talks were dealt a new blow when the US and Israel withdrew their negotiating teams from Qatar, with the Trump administration saying Hamas is not acting in good faith. Emmanuel Macron said France would recognize Palestinian statehood in September amid growing pressure on Israel over the humanitarian situation in the strip, while UK Prime Minister Keir Starmer is facing calls to match the French president’s pledge.

WATCH: Paul Wallace breaks down the situation in Gaza on Bloomberg TV.

The US restored Chevron’s ability to pump oil in Venezuela, reversing a decision just two months earlier when the Trump administration was seeking to exert more pressure on President Nicolás Maduro’s regime. The move came around the same time Washington and Caracas brokered an agreement that saw the release of 10 Americans detained in Venezuela, while 250 Venezuelans imprisoned in El Salvador were returned to their country.

Trump’s antagonism toward Brazil, crossing from trade into political interference, has been a boon to President Luiz Inácio Lula da Silva. Read Simone Iglesias’ inside account of how the turmoil has rejuvenated the veteran Brazilian leader, allowing him to seize back the patriotic mantle from the country’s right and put him on the front foot ahead of next year’s election.

India and the UK sealed a free-trade agreement eliminating tariffs on products ranging from cars to alcohol. The pact comes after three years of intense negotiations and is Britain’s biggest trade deal since Brexit.

Ukraine plans to ask European allies to help finance improved salaries for troops resisting Russia’s invasion in a bid to ease growing shortages of recruits, President Volodymyr Zelenskiy said.

Trump denied he was seeking to ruin the business empire of his onetime ally Elon Musk as retribution for their dispute over the president’s signature tax law. 

Lawmakers rejected all seven of the government’s nominees for Taiwan’s highest court in the opposition’s latest effort to derail President Lai Ching-te’s administration.

Don’t miss from Bloomberg Weekend: Lisa Du looks at how Japan’s newest tourist attraction is at the heart of US-China rivalry, while Kari Lundgren and Ott Ummelas explore how Norway is finding out whether a country can be too rich. Subscribe to the Bloomberg Weekend newsletter here.

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Chart of the Day

Since World War II, Japan has built a reputation for solidity with its consensus-driven political system helmed by one of the world’s most successful big-tent parties. Yet an upper-house election this week compounded the ruling Liberal Democratic Party’s recent woes as it lost ground to a range of opposition parties including Sanseito, a right-wing populist force pushing a “Japanese-First” agenda. The upshot is a nation often hailed as a refuge in global economic storms is facing a period of rare political turbulence that is only set to get bumpier in the months ahead.

And Finally

Star founders, Beijing officials and deep-pocketed financiers converge on Shanghai by the thousands this weekend to attend China’s most important AI summit. At the top of the agenda: how to propel Beijing’s ambitions to leapfrog the US in artificial intelligence — and profit off that drive. Attendance at this year’s World Artificial Intelligence Conference, which has featured Musk and Jack Ma previously, may hit a record as it’s taking place at a critical juncture in the US-Chinese tech rivalry.

Tesla’s Optimus robot in Hangzhou, China. Photographer: NurPhoto

Pop quiz (no cheating!). The image of which communist-era dictator is being rehabilitated to portray him as a victorious leader rather than someone responsible for the deaths of millions of citizens? Send your answers to balancepower@bloomberg.net

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