Mohamed Aly El-Erian. Photo: MSC / Preiss via Wikimedia Commons
The financial market's major U-turn early Monday after President Donald Trump's Iran war de-escalation signal was important, Mohamed El-Erian, Wharton School professor and Allianz chief economic advisor, said, calling the next five days critical in seeing the conflict's path.
El-Erian noted on X that a broad decline in asset prices in pre-market trading quickly reversed after Trump announced on social media that the U.S. had held "very productive and constructive conversations" with Iran, leading to a five-day postponement of military strikes against Iranian power plants and energy infrastructure.
Appearing on CNBC's "Squawk Box," he said, "It's an important turnaround because we were seeing flights to cash as the only safe haven and that was contracting markets in a significant manner. The big question for me right now is not only do these talks continue constructively but can you get Israel to buy in as well because there are three warring parties in this war. So there's a lot of uncertainty still but it's much better for markets than it looked like just 10 minutes ago.
"People were short, they were positioned for a further escalation because of the 48-hour ultimatum that was given to Iran … and the fact that Israel started attacking electricity infrastructure," El-Erian said. "They were positioned for an escalation and suddenly you have the possibility of a de-escalation and the market is reacting violently to that change."
The economist cited many unknowns, including who exactly the U.S. is negotiating with in Iran.
"We have crossed some important economic and financial lines. There has been long-term damage," he said, noting Qatar announced last week 17% of its liquefied natural gas production "is taken out for a number of years." In addition, farmers may miss a whole planting season due to a fertilizer shortage, he noted.
"We are going to see quite a tail in terms of the economic and financial implications that the market is yet to fully price in," he said.
A lot can happen in the next five days. … It's going to be really an uncertain period," El-Erian added. "The next five days are going to be critical in seeing whether you could hold the thing together pending these behind-closed door negotiations that we just learned about."
Photo: MSC / Preiss via Wikimedia Commons
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