IT WASN'T supposed to happen this way. Wary investors, traders and financial experts watching the approach of the Jan. 15 United Nations deadline fully expected a surge in oil prices and a plunge in the stock market at the first signs of a shooting war in the Persian Gulf. After all, crude oil prices had reached a record $41.15 a barrel a few weeks after Iraq invaded Kuwait on Aug. 2. War anxieties and recession fears also had caused the stock market, for the first time in six years, to close out the year below where it opened. Instead, with the news of Operation Desert Storm's early successes, the Dow Jones industrial average soared 114.60 on Thursday -- the second largest rally in its history -- and continued to climb on Friday by another 23.27 points, closing at 2646.78. Crude oil prices took off in the opposite direction, plunging a record $10.56 on Thursday, falling $2.19 lower on Friday to close at $19.25 a barrel. Ending the week, the markets clearly were bullish on the prospects for early allied military victory. However, market sensitivity to good and bad news, and President Bush's admonition, "War is never cheap or easy," suggest that prices are likely to be volatile rather than continue on their present favorable course.

Nonetheless, the decline in oil prices is much-welcomed news, especially to the U.S. economy. Speaking to a Washington Post luncheon for area business leaders last Tuesday, Federal Reserve Chairman Alan Greenspan said the economy shows signs of bottoming out after its slide into a recession during the fourth quarter. But he cautioned that the wild card is still the Persian Gulf, which has already disrupted the economy. The length of the war and the safety of the world's oil supply are keys to the fate of the global economy, including ours. "Fortunately, for the moment the evidence seems to confirm {this as} a recession of moderate dimensions and not one of extreme difficulty," said Mr. Greenspan.

Uncertainty remains the watchword, however. The financial and real estate industries are under severe stress, with bank failures now coming on the heels of record savings and loan institution collapses. Many companies are heavily leveraged, owing to the merger and acquisitions mania of the '80s and thus least equipped to cope with a recession of any serious duration. On the plus side, falling energy prices and fewer petroleum imports are causing inflation fears to recede. The payoff for those developments shows up in the form of lower interest rates and a narrowing trade deficit. The worst may not be over, either in the Persian Gulf or with the U.S. economy; only the weeks ahead will tell. But all in all, last week wasn't as bad as initially feared.