MARCH 17, 2026
Economist Mohamed El-Erian. – Samuel Corum/Bloomberg via Getty Images
- Mohamed El-Erian said the Iran war has led him to raise his odds of a recession to 35%.
- The famed economist sees a risk that oil prices trigger an inflationary spiral that will hurt demand.
- He also sees a higher risk of an “accident” in markets that could harm the economy.
Mohamed El-Erian says the Iran war has raised the odds of a recession, but it’s not the only risk he’s monitoring.
The famed economist and former chief investment officer of PIMCO told Business Insider that a US recession is looking more likely as the surge in oil prices feeds a potential inflation spiral.
El-Erian said he believes the odds of the US tipping into a recession have risen from about 25% to 35%. That increase has largely been driven by the spillover effects of the US-Iran war, he said, though he added that there’s another factor weighing on his outlook as well.
Here’s what he’s eyeing:
-
Higher oil prices cause inflation to spiral, creating a demand shock. The war has already sent oil prices soaring, with Brent crude hovering around $100 a barrel for over a week. That increase threatens to make inflation a structural problem in the US economy, El-Erian said, referring to oil’s many uses across the economy and broader supply chain disruptions from the war.
“Phase one is higher inflation that eats away at people’s purchasing power, that increases costs for businesses. Phase two is lower growth and higher unemployment,” El-Erian said of his bear-case, later adding that he believed such a scenario was the biggest risk facing the economy.
-
Risks are rising for a “financial accident.” El-Erian said hotter inflation could also interact with various “fragilities” in financial markets, such as the recent flood of redemption requests in the private credit sector, sagging global demand for government bonds, and elevated valuations in the stock market.
“You get a big financial accident, then that tightens financial conditions and people can’t get credit. As a result, you end up with having a demand shock,” he said.
“The longer the conflict lasts, the higher that probability could go,” he added of his recession forecast.
Markets have been concerned about the impact of higher oil prices for weeks, with investors now navigating a third straight week of higher crude with no end in sight to the conflict. The fear is that higher oil prices could raise inflation, burdening consumers and causing more Americans to pull back on spending.
The result could be a “demand shock” that could lead to to lower spending and higher unemployment as companies take hit, El-Erian said. The impact could also arrive just as growth and hiring already look to be weakening in the US.
On the growth side, fourth-quarter GDP was recently revised down to an annualized 0.7% pace, about half the 1.4% growth initially estimated for the quarter.
On the labor side, the US lost 92,000 jobs in February, well short of estimates of more than 50,000 new jobs. Hiring has trended lower for the past five years.
Consumer spending has also remained relatively flat in recent months, with personal consumption rising just 0.4% in January, according to the Commerce Department.
The risk of a recession will continue to swell as long as the war drags on, El-Erian said. He pointed to the possibility of even higher oil prices if supply disruptions in the Middle East continue, and the risk of stagflation, a worst-case scenario in financial markets in which growth slows while inflation keeps rising.
El-Erian has been more vocal about the various risks he sees across markets and the economy in recent months. Beyond hotter inflation, he’s also flagged the risk of contagion from the private credit sector, an area of growing scrutiny as investors grow nervous about liquidity in the space and more asset managers face withdrawal requests.
Courtesy/Source: Market Insider / Business Insider
