Investors are focused on Iran, but there are 3 other mounting risks to markets, Mohamed El-Erian says

• Investors are watching the war in Iran for its impact on inflation and economic growth.
• Former PIMCO investment chief Mohamed El-Erian said investors may be underestimating other risks.
• He flagged private credit stress and heavy AI spending as key risks to watch.

The war in the Middle East has dominated headlines, with investors watching oil prices climb and US stocks fall, fueling worries about inflation and an economic slowdown.

Mohamed El-Erian, the former PIMCO chief investment officer, warned that while Iran and the associated inflation risks are top of mind for investors, three other factors are compounding market risks.

Oil prices have been extremely volatile in the nearly two weeks since the US and Israel attacked Iran. Prices hit $100 on Monday before pulling back as Trump said the war is "very complete," reigniting potential TACO trade hopes.

El-Erian wrote for the Financial Times that there's a "stronger stagflationary wind is blowing through the global economy" with oil prices trading higher, combined with a surprisingly weak jobs report and recent inflation data stoking fears about the state of the economy.

"Despite this set of mounting risks, many market segments had been treating the spread of war in the Middle East as a 'flesh wound' — a temporary and quickly reversible disruption to an otherwise resilient global economy," El-Erian wrote, adding, "After all, this was the profitable approach for a 2025 that involved one shock after the other."

The famed economist said that US Treasury yields haven't behaved as expected, with the 10-year yield about where it was a month ago. While some might view this as insignificant, El-Erian explained why it's noteworthy.

"This netting approach dismisses too readily the history of 'tipping points,' underappreciating the mounting risks that demand the attention of policymakers and long-term investors," he wrote.

"In the real economy and finance, the negative factors do not net out; they compound," El-Erian underlined.

Beyond the war in Iran, the top strategist highlighted three risks weighing on the outlook that investors may be underestimating.

"Each does not appear large enough to cause systemic risk. Together, however, they can form a self-reinforcing, destabilising force," he wrote.

The first risk is stress in private credit markets. He flagged recent comments from Apollo Global CEO Marc Rowan about a private credit "shakeout," calling it a textbook sign of an overextended industry.

Others have compared recent stress in the private credit space to that before the 2008 recession, but El-Erian himself has said it's nowhere near that magnitude."

The second risk he highlighted is tied to the potential for an AI bubble driven by trillions of dollars invested into the tech.

El-Erian pointed to Block's recent layoffs as a reminder of the potential dangers AI poses to the labor market. Fears that AI will replace human workers and flip the global economy on its head spooked the stock market earlier this year after a hypothetical doomsday scenario on Substack went viral.

The third risk El-Erian named is that as inflation rises, it will test the global bond market's ability to absorb the supply of new debt, which could drive up borrowing costs for governments.