'Oil is just one factor': why has an economist raised the risk of a US recession?

The probability of recession in the United States is growing amid a jump in oil prices, which could trigger an inflationary spiral, says economist and former chief investment officer of PIMCO Mohammed El-Erian. His opinion is published by BusinessInsider.

Mohamed El-Erian estimates that the probability that the US economy will enter recession has increased from about 25% to 35%. However, this is due not only to the consequences of the conflict in the Middle East, but also to a number of other factors. Among them, El-Erian named, in particular:

- That rising oil prices accelerate inflation and create a "demand shock". The war has already led to a sharp rise in the price of oil, with Brent hovering around $100 a barrel for more than a week. Such appreciation could make inflation a structural problem for the US economy, the economist warned, pointing to the widespread use of oil in various sectors and supply chain disruptions amid the conflict.

"The first phase is accelerating inflation, which reduces purchasing power and raises business costs. The second phase is slower economic growth and higher unemployment," he described his pessimistic scenario, adding that he sees it as the main risk to the US economy.

- In addition, higher inflation could exacerbate already existing vulnerabilities in financial markets, El-Erian warned - notably rising withdrawal requests from private credit funds, weak global demand for government bonds and inflated equity valuations.

"If there is a major financial collapse, it leads to tighter financial conditions and access to credit is reduced. The result is a demand shock," he said. - The longer the conflict continues, the higher this probability can become," El-Erian added.

At the same time, all these factors, the economist pointed out, may manifest themselves at a time when economic growth and hiring in the U.S. are already showing signs of weakening. In terms of economic growth - on March 13, the US GDP estimate for the fourth quarter of 2025 was revised downward to 0.7% in annualized terms against the initial 1.4%. In the labor market, the situation is also deteriorating: in February, the U.S. economy lost 92 thousand jobs, while it was expected to increase by more than 50 thousand. At the same time, the rate of hiring has been declining over the past five years, notes BusinessInsider.

Moody's chief economist Mark Zandi also speaks about the risk of recession in the US. On March 17, he said that if oil prices remain high over the next few weeks, an economic downturn in the U.S. will be "a matter of time". According to his data, the probability of recession in the U.S. is already close to 50% against the background of a jump in energy prices, slowdown in GDP growth and cooling of the labor market.

In addition, on March 17, Bank of America Securities (BoFA) economist Antonio Gabriel said that the main risk due to the conflict in the Middle East is not so much inflation, on which the markets are now focused, but rather the ability of the world economy to withstand an energy shock. He also pointed to possible irreversible "losses in energy production" in Gulf countries due to Iranian strikes.

Head of commodity markets strategy at RBC Capital Markets Helima Croft on March 16 raised her estimate of the duration of the conflict in the Middle East and its impact on oil prices. In her view, the conflict will go well beyond spring, and oil prices could exceed the high of $128 per barrel reached when the conflict between Russia and Ukraine begins in 2022.

March 18 Brent crude futures jump 5% to $108.6 a barrel amid escalating conflict in the Middle East, while April West Texas Intermediate U.S. crude futures rise more than 2% to $98.28.

This article was AI-translated and verified by a human editor