TheChek News Flow

UK Labour’s tax pledge will test plan to cut North Sea emissions, warns Equinor boss

Electrification of Rosebank field will be more ‘challenging’ under new government’s fiscal regime, says oil and gas chief

Europe’s largest oil and gas supplier has said its plan to electrify extraction operations at the Rosebank oil and gasfield in the North Sea will be more “challenging” under UK Labour’s tax proposals.

Anders Opedal, chief executive of Equinor, which owns an 80 per cent stake in Rosebank, insisted the company was not considering changing its “ambition” to power operations with renewable electricity, which it expects to reduce emissions by more than 70 per cent.

The comments are the latest by oil and gas executives highlighting the risks to projects due to the windfall tax on the sector introduced by the previous Conservative government, which Labour has vowed to increase.

“The plan is to continue with electrification . . . but it has been more challenging now than it was before due to changes in the fiscal regime over time,” Opedal told the Financial Times.

“All large energy projects are big and long-term investments and predictability and stable fiscal regimes are important,” he added.

Since Russia launched its full-scale invasion of Ukraine in 2022, the Norwegian energy giant has become Europe’s biggest supplier of natural gas by volume.

Speaking on Wednesday, Opedal said it was important that “decision makers understand that changes introduce some new risk and we need to fully understand the risk before we’re able to say how we are progressing”.

The development of the Rosebank oilfield about 80 miles off the coast of Shetland is one of the biggest projects in the UK North Sea and is projected to account for about 8 per cent of UK oil production through 2030.

Equinor estimates the project will inject about £25bn into the UK economy over its approximately 25-year lifetime. It would also support 2,000 “full-time equivalent” jobs at its peak during the second quarter of 2025, it said.

But the development plans have faced opposition from environmental groups, with Uplift and Greenpeace late last year launching separate judicial reviews to challenge the North Sea Transition Authority’s decision to approve the project.

Equinor, which is partnered in the project by Ithaca Energy, has defended Rosebank as being crucial to ensuring the UK’s energy security, while pointing to its “long-term” ambition to fully electrify extraction operations.

Tessa Khan, executive director of Uplift, said any backtracking on the companies’ commitment to electrification would raise questions over the decision to approve the project.

“The emissions that would be created by extracting Rosebank’s reserves would be enormous . . . without electrification, they would bust the industry’s already weak climate targets,” she said.

Opedal added to industry calls for Labour to clarify its tax policy after the party pledged in the general election campaign to increase the windfall tax to 78 per cent from 75 per cent.

The party, which secured a landslide election win earlier this month, also vowed to stop issuing new licences for drilling in North Sea gas and oilfields.

Industry bosses have complained that the plan to remove the investment allowances that enable companies to offset investment spending against their tax bill would deter activity.

David Latin, chair of London-listed energy company Serica, last month likened navigating the North Sea to operating in a “war zone” and said his company would actively look for investment opportunities abroad.

“We have, of course, read the manifesto and we are now looking forward to clarification of the future fiscal regime,” Opedal said.

The government said: “We have set out our plans for tax in the manifesto, which includes extending, tightening and increasing the energy profits levy to ensure oil and gas companies contribute more to help fund vital public services.”

Dealmaking revival hands bumper profits to UK ‘magic circle’ law firms

London’s legal elite post surge in profits despite growing threat from US rivals in the capital

A revival in dealmaking has boosted the coffers of the UK’s “magic circle” law firms with combined profits at three of the largest elite groups reaching £2.8bn last year.

A pick-up in M&A this year and the fruits of heavy investment in US expansion enabled equity partners at Clifford Chance, Linklaters and Allen & Overy to pocket about £2mn on average.

After entering the financial year with a dearth of corporate work, a rebound in deals, along with a number of litigation and restructuring mandates, helped each firm notch up double-digit increases in profits, resulting in a bumper pool for the partners who share in them. Combined, the three firms’ profits rose by 12 per cent year on year, from £2.5bn.

“Large law firms have performed strongly over the past year, achieving average growth of around 8 per cent,” said Jeremy Black, a partner at Deloitte. “While the initial public offering [IPO] markets have been quiet, law firms have shown their resilience with litigation, restructuring, and transaction activity in certain sectors.”

Work on the failed £39bn merger of miners Anglo American and BHP, and Barratt’s £2.5bn deal with Redrow helped Linklaters post record annual pre-tax profits of £942mn.

Meanwhile Clifford Chance and Allen & Overy, now A&O Shearman following its transatlantic tie-up in May, were boosted by mandates including roles on the £2.9bn takeover of Virgin Money by Nationwide. Profits at Allen & Overy and Clifford Chance hit £1bn and £856mn respectively.

High-profile litigation work also helped Clifford Chance ride out a slower period for deals last year, including its successful defence of former Autonomy chief executive Mike Lynch, which culminated in his 12-week trial in San Francisco.

The magic circle’s earnings are a sharp improvement on the previous 12 months, when profits stalled at the group of international law firms amid the dealmaking slump and high spending on lawyer salaries to fend off competition from US rivals.

An improvement in the economic outlook this year and a rebound in capital markets activity has stoked a renewed war for legal talent in the City, with all three firms, along with “magic circle” peer Freshfields Bruckhaus Deringer, raising pay for newly qualified lawyers to £150,000 this year.

UK-founded law firms have been fighting to retain market share in London as a group of top US law firms such as Paul, Weiss, Rifkind, Wharton & Garrison have invested heavily in the UK capital over the past few years, forcing the incumbents to increase pay at both the junior and senior ends.

While much of the growth has been driven by US firms looking to capitalise on their American private equity clients investing in Europe, a number of firms, such as Los Angeles-founded Latham & Watkins, have been expanding into more traditional corporate work historically dominated by the “magic circle”

Rankings released by trade magazine The Lawyer this week place Kirkland & Ellis and Latham & Watkins in the two top slots for revenues from UK corporate work, which includes private equity, ahead of the group of elite UK-founded firms.

“As the American firms continue to invest in London it will add pressure on the magic circle revenue as they compete for market share,” said Chris Clark, a director at London-based legal recruiter Definitum Search.

However, the magic circle has been mounting a fightback, including by expanding across the Atlantic. Clifford Chance and Linklaters both posted record revenue growth from their US offices in the year to the end of April, with a 28 per cent and 24 per cent increase respectively.

Revenues in Clifford Chance’s US arm, which added a Houston office last year, reached $418mn, with the firm adding 19 partners stateside in its financial year.

In an interview with the Financial Times this week, global managing partner Charles Adams said the firm would invest further in America in areas like commercial litigation, while Linklaters has also been growing its footprint, hiring veteran dealmaker George Casey from legacy Shearman & Sterling earlier this year.

Allen & Overy sealed its $3.5bn transatlantic merger with New York’s Shearman & Sterling after the end of its financial year. However, legacy Allen & Overy partners benefited from the sale of a legal technology unit to private equity that valued the business at £200mn, boosting its profits.

Other UK-founded firms outside of the magic circle have also had a good year. Herbert Smith Freehills saw profit per equity partner increase 12 per cent to £1.3mn, while Macfarlanes equity partners took home £2.6mn on average, an increase of nearly 24 per cent.

Freshfields, which has recently made major inroads into the US market, said last year that it would no longer release its financial results in the summer. Global managing partner Rick van Aerssen stated at the time that the firm’s progress should “be based on the quality of business we’ve built and the client mandates we’re winning around the globe”. The firm’s audited results will be published on Companies House early next year.

Slaughter and May, which has a much more domestic footprint than its magic circle peers, is not compelled to file financial results with Companies House as it is not structured as a limited liability partnership.

As listings look poised to pick up in London, the group of elite law firms stand to benefit, according to Deloitte’s Black.

“Increases in IPO activity suggest significant opportunities for firms, however the geopolitical uncertainty and increases in fee earner costs clearly present risks,” he said. “It may be that firms are able to achieve performance improvements ahead of those achieved in the overall economy.”

Europe must boost financial backing for defence massively, says Saab chief

Micael Johansson says region’s industrial strategy needs a figure in region of €100bn rather than the €1.5bn envisaged

Europe must increase its financial backing for the defence industry massively if it wants to spur collaboration and improve the competitiveness of the continent’s companies, according to the boss of Saab.

Micael Johansson, chief executive of the Swedish defence group, told the Financial Times that the European defence industrial strategy needed to be backed by a figure in the region of €100bn rather than the €1.5bn currently envisaged by the European Commission.

“What defines [consolidation] going forward is if the EU will be successful in negotiating a substantial European defence industrial strategy. If there is substantial money in that, that will drive collaborations such as joint ventures. It needs to be incentivised somehow,” he said.

European countries have greatly increased their military spending since Russia’s 2022 full-scale invasion of Ukraine.

Nato estimates that the European members of the defence alliance, which include non-EU countries such as Turkey, the UK and Norway, will spend $476bn this year, up 22 per cent on 2023.

Almost four-fifths of publicly announced defence purchases from EU countries in the year after the Russian invasion went to companies outside the bloc, with those in the US accounting for two-thirds of the total, according to research by Iris, the French institute for international and strategic affairs.

The European Defence Industrial Strategy, announced by commission president Ursula von der Leyen in March, is an attempt to correct this by encouraging countries to invest together with more local companies.

But after some commission officials floated figures of up to €100bn initially for the strategy, it was launched with just €1.5bn of backing.

Johansson said that consolidation in a sector renowned for its national champions and accusations of protectionism was “not top of my mind”.

But he added: “If countries come together and say we have the same requirements, we want to procure together, then the volumes would be so substantial that one company won’t be able to do it alone.”

Some European countries have co-operated on some high-profile defence projects such as the Eurofighter and a future advanced jet planned between the UK, Italy and Japan while Nordic nations are aiming to pool their F-35 and Saab Gripen fighters as part of a joint fleet.

Johansson called such integration of different systems from different companies “essential”.

Some European leaders have called on the continent to up its defence spending even more in anticipation of a possible return of Donald Trump to the US presidency.

But Saab’s chief executive said that Europe had “to step up, independently of the US administration” and understand the “paradigm shift” that had occurred.

Saab itself revealed this month that its orders almost tripled in the second quarter compared with a year earlier from its portfolio of fighter jets, surveillance aircraft, submarines and more.

Johansson said: “We are on a journey of many years to establish defence capacity, in Europe specifically. There is more coming. There is extremely high activity.”

US home insurers suffer worst loss this century

Natural disasters, inflation and population growth prove toxic mix for industry

US home insurers last year suffered their worst underwriting loss this century as a toxic mix of natural disasters, inflation and population growth in at-risk areas put a vital financial market under acute pressure.

Insurers providing policies to homeowners suffered a $15.2bn net underwriting loss last year, according to figures from rating agency AM Best, a figure it said was the worst since at least 2000 and more than double the previous year’s losses.

The figures lay bare the underwriting conditions that have sparked a pullback by US insurers from disaster-hit areas, either exiting markets or driving up prices, creating an affordability crisis for many homeowners.

The report identified rising populations in those regions most susceptible to natural disasters as a significant factor — citing census figures showing that six states prone to severe weather, including California and Texas, accounted for half of the country’s population growth in the 2010s.

“The industry is facing rapidly escalating coverage demands while insured losses are skyrocketing,” said Robert Gordon, senior vice-president of policy, research and international at the American Property Casualty Insurance Association, a trade body.

“Not only are more homes being built in areas that are at high risk for natural disasters, but these homes are increasingly more expensive to repair and rebuild as inflation has driven up the cost of construction labour and materials.”

Last year was relatively quiet for hurricanes, but a particularly bad year for severe rainfall and other extreme weather events judged by the insurance sector as “secondary”, with a record 37 separate events globally that left more than $1bn in insured losses, and most of those in the US. Most insurance experts argue that global warming is making storms, floods and wildfires more extreme.

Sridhar Manyem, senior director of industry research and analytics at AM Best, said the “increasing frequency and severity of weather-driven losses is a major uncertainty that is influencing both insurance and reinsurance markets”. 

AM Best’s net underwriting profit measure shows premiums less claims and costs and net of reinsurance. Such performance is a big contributor to insurers’ profits alongside investment returns.

Another significant constraint for US insurers is the requirement in some states such as California to have their pricing approved, and the delays in getting those approvals. In the UK, where weather damage-related claims were the highest on record last year, insurers are free to reprice at speed to keep up with inflation.

“If insurers cannot appropriately price business in a timely manner, markets rapidly deteriorate,” said the APCIA’s Gordon. He called on all stakeholders to “work together” to put the sector on a sustainable footing.

AM Best’s Manyem said US state regulators were “caught between a rock and a hard place”, as they try to be more permissive of insurer prices to stop an exodus from the local market, but at the cost of pilling more pressure on households.

“They want to attract more insurers or, at the least, retain the current market and create a healthy marketplace, yet at the same time have to balance the affordability issue for consumers.”

Ocado chief plans to retain group’s stake in M&S joint venture

Future of online retail tie-up has come under the spotlight ahead of deal’s five-year anniversary

The boss of Ocado intends to retain the group’s stake in its online joint venture with Marks and Spencer after the deal’s five-year anniversary, which would allow either side to sell their shares to the other.  

“I don’t want to sell the other half right now, so whether [M&S] want it or not is not massively relevant,” said chief executive Tim Steiner in an interview with the Financial Times.

In 2019, M&S struck a £750mn deal for 50 per cent of Ocado Retail, which owns Ocado.com, as it sought to sell more food online. 

Steiner’s comments come ahead of August, five years after the completion of the deal when both businesses will have the option to sell their shares in Ocado Retail to the other, subject to certain conditions. However, there is no automatic requirement for either company to sell, said a person familiar with the transaction.

Analysts and investors have been closely watching the tie-up between the two companies, especially after M&S repeatedly expressed dissatisfaction about Ocado Retail’s performance.

At its annual meeting this month, M&S said that Ocado Retail’s profitability “was clearly not where we want it to be” but said it was committed to the turnaround strategy implemented by the joint venture’s chief executive.

“It’s all symmetrical in terms of rights and obligations on each side, but right now we’re super happy owning half of it,” Steiner told the FT. “It’s performing well at the moment, it’s really coming back . . . We’re really excited about its future and expect it to increase profitability over time.”

In recent years, Ocado Group has focused on selling the software and automated warehouses that power Ocado.com to other leading grocers around the world to help them bolster their ecommerce operations.

Ocado Group raised its profit forecasts for its key technology division this month having suffered a series of blows, including a decision by US supermarket chain Kroger to close three sites powered by its technology.

Ocado.com, which accounts for 1.8 per cent of the total UK grocery market, was the fastest growing among its rivals for the fifth consecutive month, with sales up 10.7 per cent over the 12 weeks to July 7, according to data firm Kantar.

He added that the right ownership structure of the joint venture for Ocado Group was unclear. “Is the right model that [Ocado Group] continues to own part of it, M&S owns part of it, maybe some part of it is listed or something like that in the future?”  

M&S declined to comment.

Ocado and M&S remain locked in negotiations over a final payment tied to their online joint venture, with the former in February raising the prospect of taking legal action for the first time.

Both companies have since said that they are hopeful they will resolve the disagreement amicably and insist the discussions are not affecting the day-to-day running of the business.

Steiner said: “At some point in the future, when we’ve got multiple cases of [others] using our technology, it may be less important for it to be owned by the same entity. Speaking as a shareholder, I would still like to own a piece of it.”

Lift comes amid Prime Minister Keir Starmer’s bid to improve relationship with EU

Trade between the UK and Germany, Europe’s largest economy, is beginning to recover from the decline that set in after Brexit, providing welcome news to Britain’s government as it seeks to reset relations with Europe.

Official figures seen by the Financial Times show that the UK was Germany’s ninth-biggest trading partner over most of the first half of this year. It fell to 11th in 2022 — its lowest level since records began — amid frictions caused by Brexit, which was finalised in January 2020, and ranked tenth in 2023.

Imports and exports between the UK and Germany totalled €49.5bn between January and May this year, figures provided to the FT by the federal statistics agency show. The US was in first place with €106.9bn, followed by China with €102.3bn.

Ulrich Hoppe, director-general at the German-British Chamber of Industry & Commerce, said trade was “back on an upward trajectory”, largely thanks to “a bit of a post-Brexit adjustment”. He noted an increase in exports of German-made cars into the UK market.

But he cautioned that “there is still some catching up to do”, adding that it was “too early to judge the longer-term trend”.

In 2015, the year before the Brexit vote, the UK ranked fifth in the list of Germany’s trading partners, which adds up total imports and exports. In 2019, before the Brexit deal was applied and trade restrictions entered into force, the UK was Germany’s seventh biggest.

The latest trade numbers will be welcome news for Sir Keir Starmer, UK prime minister, as he tries to rebuild Britain’s strained relationship with Europe.

Starmer has ruled out a return to the EU’s single market or customs union, as well as to the bloc’s freedom of movement regime. But he and his ministers “see scope for much greater co-operation with the EU without technically breaching these red lines”, said Mujtaba Rahman, managing director at Eurasia.

This month’s meeting of the European Political Community, which Starmer hosted at Blenheim Palace, “proved a perfect platform” for him to begin this reset in relations, Rahman said.

On Wednesday, during a trip to Berlin by John Healey, UK defence minister, Britain and Germany signed what they said was their most comprehensive defence co-operation agreement in decades, pledging to urgently reintegrate the UK’s defence industry into European supply chains. 

Officials in Berlin attribute some of the pick-up in trade to the beneficial effects of the Windsor framework, an agreement Starmer’s predecessor Rishi Sunak negotiated with the EU last year, which ironed out some of the trade frictions created by Brexit. “Windsor has changed the mood music and enabled better communication,” said Hoppe.

Others questioned that assessment. “I’m not convinced there’s really been a turnaround,” said Nicolai von Ondarza of the German Institute for International and Security Affairs. “The Windsor framework eased the situation politically but I’m not sure it really affected corporate investment and trade decisions to a significant extent.”

Experts blamed the gradual decoupling of the UK manufacturing sector from the single market, following Britain’s withdrawal from the EU, for the trading relationship reaching its nadir in 2022. Bilateral trade suffered as companies struggled with the additional red tape triggered by Brexit.  

But in recent months, German officials say, relations seem to be improving, a trend exemplified by the UK’s readmission into the Horizon Europe research collaboration programme last year, and recent UK-German partnerships on hydrogen and on energy and climate.

They say German companies have also been encouraged by the UK government’s interest in concluding a veterinary agreement with the EU, which would ease checks on agrifood products at the border, and in a deal on the mutual recognition of professional qualifications.

CEO says it has a war chest for a deal to broaden the company’s product range and customer base

Jupiter Asset Management is preparing to make acquisitions to expand its investment offering, as the fund industry grapples with customers withdrawing their money, lower revenues, and pressure on costs.

Matthew Beesley, chief executive, said Jupiter had built up a war chest which would fund a “bolt on” acquisition to broaden the company’s product range and customer base.

“We are very much on the look out for opportunities to supplement our existing investment management capabilities,” Beesley told the Financial Times. “I’m constantly on the lookout for new talent to join the business and whether it’s by a team lift-out or small, boutique acquisitions, we are very much open for business.”

His comments come as midsized companies, such as Jupiter, Abrdn, Artemis, and Liontrust, battle against outflows from funds run by managers, as investors continue to turn towards cheaper passive products. According to the Investment Association, retail investors withdrew £136mn from active funds in May, while passive funds attracted £2.1bn.

Vincent Bounie, a senior managing director at Fenchurch Advisory, said the industry’s challenges “will continue to be drivers of M&A”, as asset managers attempt to broaden their revenues to help offset pressure from costs. He said “the next phase” of mergers and acquisitions “will increasingly feature the maturing private markets sector.”

A number of asset managers have merged or been snapped up by rivals in recent years. Jupiter acquired Merian Global Investors in 2020 for £370mn, while Abrdn was the product of a merger between Standard Life and Aberdeen in 2017. Earlier this year, Liontrust approached its smaller London-based rival Artemis about a potential takeover, although early-stage talks did not progress.

Jupiter’s surplus capital has increased to £198.5mn — nearly four times the amount required by regulators.

The company manages just over £50bn, of which about £42bn belongs to individuals. But Beesley is seeking to expand the amount it manages on behalf of institutions.

“Absolutely we are looking for ongoing opportunities to bolster our institutional client base, so you should expect that everything we do will . . . appeal to both the institutional marketplace and also that retail marketplace,” he added.

However, Beesley ruled out a larger-scale acquisition with a rival. “Many investors in the asset management industry are sceptical about large defensive mergers.

“The ability for us to deploy . . . capital we’ve accumulated into acquisitions that bring new investment talent and don’t impact the cost base of this business — so really leveraging what we’ve already got — is really quite meaningful.”

The fund manager has also reduced costs under Beesley, who has shrunk staff numbers and merged funds. The company said in its half-year results on Friday that its costs had decreased by 2 per cent compared with the same period a year ago to £129mn.

While analysts applauded Jupiter’s cost cutting efforts, the departure of some of its key managers — including its long-standing UK equity fund manager Ben Whitmore — has fuelled most of the withdrawals from its funds over the first half, which suffered a net £3.4bn of outflows.

Wayne Mepham, chief financial and operating officer at Jupiter, warned that the company’s value funds managed by Whitmore could experience further outflows over the coming months until his departure near the end of the year.

Religious figures and rightwing politicians complain about portrayal of Christianity

Organisers of the Paris Olympics’ opening ceremony are facing a backlash from conservative politicians and religious figures who say that it denigrated Christians.

Friday’s celebration along the river Seine included a scene depicting a bacchanalian Last Supper that included drag queens and a man clad only in blue body paint, as well as a cheeky tribute to sexual liberation.

The three-hour outdoor ceremony on Friday night featured an armada of about 100 boats carrying more than 10,000 athletes down the river. The event also contained scantily clad dancers and portrayals of diverse sexual orientations and racial minorities.

French Catholic bishops said in a statement that the ceremony “unfortunately included scenes that mocked and derided Christianity”. The Archbishop of Malta said he had written to the French ambassador to complain.

Donald Trump Jr criticised the event in a post on social media site X, while Dutch far-right politician Geert Wilders claimed that the ceremony’s bearded drag queens, a rapper and a pre-teen break dancer were “mocking Christianity”.

Speaking before the ceremony, its creative director Thomas Joly, who is know in France for genre-bending theatre and the musical Starmania, said that he wanted to symbolise French history, culture and literature while creating an inclusive performance that showcased the country’s different communities.

Joly told reporters on Saturday that his aim was “not to be subversive” but rather to represent “diversity and being together”.

The Last Supper scene was in keeping with France’s long tradition of secularism, he said.

“In France we have freedom of creation, artistic freedom . . . [and are] lucky to live in a free country,” Joly said. “We are a republic. We have the right to love who we want, we have the right not to be worshippers.”

Olympics officials have long promoted the games as a unifying force that transcends politics; the opening ceremony has traditionally touted the host nation’s values and cultural pride.

Joly’s Paris ceremony included typical French touchstones from cabaret to fashion, but also set out to challenge authority and represent Gallic values such as secularism.

At one point an actor playing the beheaded Marie-Antoinette sang a song from the French Revolution, segueing into heavy metal with flames shooting up in the background.

Franco-Malian musician Aya Nakamura sang a medley of her hip-hop tinged hits, mixed with the 1970s Charles Aznavour ballad “For Me Formidable” and backed by a military band.

Earlier this year the French far-right criticised the prospect of Nakamura performing at the ceremony. Marine Le Pen said in March that it would be “a humiliation for the French” and criticised the star for being “vulgar” and not speaking French properly.

In a social media post after the ceremony, President Emmanuel Macron celebrated Nakamura’s performance, seeking to compare it with his brand of politics that fuses policies from the left and right. “En même temps,” he said, meaning “at the same time”.

Militant group denied responsibility for attack, which left 10 young people dead, many injured

TEL AVIV–A rocket strike on a soccer field full of young people in the Israel-controlled Golan Heights left a scene of carnage Saturday and threatened to escalate the already tense standoff on the Lebanese border.

The strike killed 10 people aged 10- to 20-years old and injured 19, according to emergency services. The rocket carried a heavier than usual warhead, Israel’s military said.

It wasn’t immediately clear who fired the rocket. Israel’s military said it believed Hezbollah was responsible, citing its initial information. Hezbollah said the group had nothing to do with the strike.

The U.S.-designated terrorist group has been exchanging fire with Israel on a near-daily basis since shortly after the Hamas-led Oct. 7 attacks on southern Israel left 1,200 dead and around 250 taken hostage.

The rocket hit Majdal Shams, a Druze minority town close to Lebanon and Syria in the Israeli-annexed Golan Heights. It was part of a barrage of about 40 projectiles that the Israeli military said were fired from Lebanon into Israel on Saturday afternoon. Hezbollah claimed a number of attacks on Israeli military targets Saturday.

The Israeli military said its defense minister and most senior generals were convening Saturday evening to assess the situation. Prime Minister Benjamin Netanyahu’s office said the premier, who is currently in Washington, was also holding a security assessment.

Israel responded to a similar strike injuring civilians on a soccer field in the Druze town of Hurfeish in June by attacking military targets deep in Lebanon.

Despite intermittently ratcheting up the intensity of their strikes, Israel and Hezbollah have kept attacks at a level that will inflict pain on each other without triggering an all-out war, which would be devastating to civilians on both sides of the border. The concern has been that a miscalculation or misfire could spark an escalatory spiral neither side wants.

“This is a reminder that this type of conflict management still entails playing with fire and the sides don’t have complete control over escalation,” said Daniel Sobelman, an Israel-based research fellow with the Middle East Initiative at Harvard Kennedy School.

He said Saturday’s strike was the most serious in Israel in nine months of fighting between the country and militants in Lebanon.

American-led negotiators are working to fend off a broader regional war by seeking a diplomatic solution between the two, but Hezbollah has said it won’t stop its strikes until fighting stops in Gaza. Talks on a cease-fire there have been stalled for months, with Arab negotiators and Israel’s security establishment blaming Netanyahu for impeding progress.

Netanyahu has said the fighting must continue until Hamas is destroyed and that military pressure will bring about a deal. Hamas Gaza leader Yahya Sinwar has also held up the talks at times, calculating that the news of civilian deaths was damaging Israel internationally.

Gaza saw a bloody day of fighting as well Saturday, as Israel said it attacked a Hamas stronghold within a school in central Gaza’s Deir al-Balah. The enclave’s health authorities said the school housed a field hospital and that about 30 people were killed in the strike.

The strike happened shortly after Israel reduced the size of its humanitarian zone on Saturday, telling residents to leave an area it had previously told them to go to, saying Hamas, also a U.S.-designated terrorist group, was firing rockets from inside that area.

Negotiations over a Gaza cease-fire, which have been stalled for months, are set to resume next week in Rome with top officials planning to attend, including CIA Director William Burns, Israel spy chief David Barnea, Egyptian intelligence chief Abbas Kamel and Qatari Prime Minister Mohammed bin Abdul Rahman Al Thani, people familiar with the matter said.

Over 39,000 people have died in Gaza since the fighting started according to local health authorities, whose figures don’t say how many were combatants.