Investors Should Use Oil Price Increase Wisely: El-Erian

Higher oil prices are presenting investment opportunities for in oil-producing countries not affected by the turmoil in the Middle East, Pimco's Mohamed El-Erian told CNBC.

mohamed el-erian
mohamed el-erian

Russia, Canada and Indonesia are primary places investors should look to get protection from the various problems posed by uprisings in Libya and elsewhere, the co-CEO of the global bonds leader said.

"First of all you look for the new sets of risks and the new set of opportunities," El-Erian said as violence spread through Libya and drove crude oil prices above $100 a barrel. "In terms of opportunities, there are many oil exporters out there who do not have geopolitical issues who are benefiting from higher oil prices. There are many countries out there. For them, all these geopolitical issues are good things. They are better off."

Crude prices have surged this week as worries took hold that protests in Libya, Egypt and Tunisia may spread through the region and disrupt supplies. The momentary breach of the psychologically important $100 a barrel markstoked concern that rising prices at the pump could trigger a bout of global inflation.

Yet El-Erian said the move in oil probably is temporary, and he encouraged investors to "maintain your position based on good fundamentals."

At the same time, further inflation is likely to cause concern among policy makers, including Federal Reserve Chairman Ben Bernanke.

"What Bernanke and the rest of us are looking at is a new wind, a wind of stagflation," El-Erian said. "Higher oil prices take purchasing power away from the consumer. They transfer income to the rest of the world and they increase input prices. Put all that together and it means slow growth and higher inflation."

In the wake of those pressures, it's unlikely the central bank will embark on another round of monetary easing, he said.

"The reason I doubt it is because Bernanke is very clear: When you go unconventional—QE 1, QE 2—you have benefits, costs and risks, and what we're seeing is over time the benefits are starting to go down and the costs and the risks are starting to go up," El-Erian said. "That's true not only from an economic perspective but also from a political perspective. So I doubt that we're going to see QE 3."