PERSPECTIVE ON OIL PRICES : Heading Off Panic at the Pump : The embargo can stick if government takes a few prudent measures to reassure consumers and discourage speculators.

On the eve of World War II, Benito Mussolini told Adolf Hitler that if the League of Nations had succeeded in imposing an oil embargo in response to his invasion of Ethiopia, he would have had to withdraw “within a week.” He added, “That would have been an incalculable disaster for me.” Indeed, what it would have meant for the history of that era is incalculable.

Where the League of Nations failed, earlier this week the United Nations succeeded, in imposing an embargo against oil exports from Iraq and Kuwait. But in establishing the ban, governments run a significant danger: In unforeseeable conditions, oil prices could surge again, and to such a level as to cause panic in the face of inflation, recession, disruption and domestic outrage. The embargo would then collapse, which would be a disastrous foreign-policy defeat.

The essential problem is this: Buyers of Iraqi and Kuwaiti oil have had their supplies interrupted. Caught short, they have to rush into the market for replacement supplies, bidding up the price. One oil refiner described such a situation in 1973 as “bidding for our life.” Oil buyers in general, uncertain about the future and wanting to protect against shortages, rush out to buy backup supplies, contributing further to the price pressures. Speculators and traders add to the buying frenzy, hoping to acquire now in order to sell later at a still-higher price.

Before the crisis, Iraq and Kuwait together accounted for about 20% of total OPEC output. Today, the market has to make up for 4 million barrels of Iraqi and Kuwaiti oil, which isn’t all that easy.

While supplies are not as tight as in 1973, the great oil surplus of the mid-1980s has--contrary to popular thought--disappeared. What remains is a rather modest excess of production capacity over world requirements. Half of that excess is in Saudi Arabia and the United Arab Emirates. U.S. production alone has declined in the last five years by 2 million barrels per day--more than Kuwait’s entire output.

But, in other ways, the situation is more manageable if attention is paid to the full dimensions of the problem. .......

Inventories are high. Demand has been weakening in the United States because of slowing economic activity. And other exporters have indicated that they will increase production, which has contributed to the retreat in prices despite the tense military buildup. The United States and other Western countries have built considerable “security stocks.” An emergency energy system for global coordination now exists, centered in the International Enrgy Agency. And the world has had the experience of two oil crises in the 1970s whose lessons need to be recognized now.

One lesson is crucial: Promptly reestablish disrupted logistics links, calming the psychology of shortage. Because panic feeds on itself, no less critical is the lesson of “early response.” Better to take prudent steps now before further events in the gulf or elsewhere push prices out of sight, before motorists are fuming in gas lines and the Administration finds itself pushed onto the defensive.

Ever since the first Senate investigation of high gasoline prices, conducted by “Fighting Bob” LaFollette in 1923, sudden surges in prices at the pump have been an inevitable subject for congressional hearings. The risk here is that a grave international crisis could be transmuted into a rancorous domestic debate about gasoline prices that misses the point.

To head off such difficulties, prudent steps should be taken now to smooth disruptions, moderate demand and alter psychology. Plans should be in place for activating the national emergency program. Modest conservation measures would be very timely. Fuel switching, particularly to natural gas, can take a big and swift bite out of our oil demand. And it would make sense to bring some Strategic Petroleum Reserve oil into the market in the next few weeks, even if only in very modest amounts, to demonstrate that program’s effectiveness.

Such “early response” in the United States should be matched by similar measures in other countries and in a coordinated international response, as emerged from Thursday’s International Energy Agency meeting in Paris.

As the effects of these prudent steps were recognized and felt, buyers would begin to worry that they were acquiring at the peak of the market and would back off. Panic reactions would be preempted. And that is all to the good, for another lesson of the recent past is that democratic governments cannot resist such emotions for all that long.