Don't Just Focus on Iran! Renowned Economist Warns: These Three Major Risks Are Quietly Escalating

News Agency (North America) – The ongoing Middle East war continues to dominate the global market narrative, with oil prices surging and U.S. stocks slumping, intensifying investors’ concerns over a rebound in inflation and an economic slowdown. However, former PIMCO Chief Investment Officer and renowned economist Mohamed El-Erian warns that in addition to the Iranian war and its resulting energy shock, mounting pressure in the private credit market, risks of an AI bubble, and the bond market’s capacity to absorb new debt are all amplifying the downside risks facing global markets.

The Middle East war remains the top story across global markets, with investors watching rising oil prices closely while also feeling the pressure from weakening U.S. equities; as a result, concerns over inflation and economic slowdowns are intensifying.

El-Erian warns that although the situation in Iran and the resulting inflation risk are currently the top concerns for investors, there are three other risks simultaneously mounting, further magnifying market vulnerability.

In the nearly two weeks since the United States and Israel launched attacks on Iran, international oil prices have experienced violent fluctuations. On Monday, oil prices approached $120 before retracing after Trump stated the war was “basically over,” reigniting market expectations for a “TACO trade” comeback.

Writing in the Financial Times, El-Erian notes that as oil prices remain high, together with unexpectedly weak employment reports and the latest inflation data reigniting concerns over the economic outlook, “even stronger stagflationary headwinds are blowing toward the global economy.”

He wrote: “Despite accumulating risks, many areas of the market have so far treated the risk of the Middle East war spreading as a ‘flesh wound’—that is, a brief and rapidly reversible disruption to what was still a resilient global economy.” He adds: “After all, this was the kind of trade that could still provide returns in 2025 despite repeated shocks.”

El-Erian pointed out that the performance of U.S. Treasury yields has not changed as the market typically expects. The 10-year Treasury yield remains about where it was a month ago. Although some may consider this insignificant, he believes this phenomenon itself deserves caution.

He wrote: “This simplistic view of mutual offsetting lightly ignores the historical lessons of ‘tipping points’ and underestimates the accumulating risks that require the full attention of policymakers and long-term investors.”

El-Erian particularly emphasized: “Negative factors in the real economy and the financial system do not offset one another; they only stack up.”

In his opinion, besides the Iranian war, there are three significant risks weighing on market prospects, and investors may deeply underestimate the potential cascading effects of these risks working together.

He said: “Individually, each risk may not be enough to trigger a systemic crisis; but combined, they could form a self-reinforcing and destabilizing force.”

Mounting Pressure in the Private Credit Market

The first risk El-Erian mentions is that pressures are mounting within the private credit market.

He specifically notes that recent remarks by Apollo Global CEO Marc Rowan, who suggested the private credit sector is due for a “shakeout,” are a classic signal of overexpansion in the industry.

Although some compare the current strains in private credit to those in the run-up to the 2008 financial crisis, El-Erian himself believes the current level of risk is far from the magnitude of that time.

Risks of an AI Bubble Cannot Be Ignored

The second risk relates to a potential bubble fueled by the AI boom.

El-Erian points out that massive capital is continuously flowing into the technology sector, and the market’s optimism about artificial intelligence (AI) may be building up a new bubble risk. He also mentioned that Block’s recent round of layoffs serves as a reminder to the market that the potential impact of AI on the job market should not be underestimated.

Previously, concerns that AI would replace human labor and cause disruptive changes to the global economic structure disturbed the stock market earlier this year. A widely circulated hypothetical “doomsday scenario” analysis on Substack once sparked market panic.

Rising Inflation Tests the Bond Market’s Capacity to Absorb New Debt

The third risk El-Erian mentions is whether the global bond market has enough capacity to absorb the ever-increasing new debt supply after the return of inflation.

He believes that if inflation continues to rise, the bond market’s ability to absorb additional government debt issuance will face a more severe test, which could further drive up government financing costs.

Against the current backdrop of ongoing Middle East tensions, volatile oil prices, and newly complex employment and inflation signals, El-Erian’s warning undoubtedly casts a deeper shadow over the market outlook. For investors, the real danger may not lie in any single risk event itself, but rather in the chain reaction produced when these risks overlap, interplay, and reinforce each other within the same timeframe.