With limited military forces in the Persian Gulf, the Bush administration rattled economic swords yesterday in its efforts to punish Iraq for its invasion of the oil-rich sheikdom of Kuwait.

In addition to cutting off United States trade with Iraq, President Bush yesterday raised the specterthat the United States might try to shut down Iraq's two major oil pipelines, starting with the one that goes through Turkey, and thus force a wider disruption of Iraq's foreign commerce.

Iraq, which has limited outlets to the open seas, is vulnerable to economic blockade not only because it relies on oil exports for 90 percent of its foreign exchange earnings but also because it relies heavily on Europe and the United States for food imports.

The U.S. response to the Persian Gulf crisis, however, could prove to be a two-edged sword. It comes at a time when the U.S. economy has been sluggish and the administration and Congress already are grappling with a huge budget deficit that will not be helped by possible consequences of the economic steps taken against Iraq.

Prices for gasoline and home heating oil began to rise yesterday in anticipation of higher crude oil prices and the stock market tumbled in anticipation of an economic slowdown, despite the view of a senior Treasury official that the impact would be "negligible."

By taking steps to keep Iraqi and Kuwaiti oil off world markets, the administration may be using the limited non-military leverage readily at hand, but in doing so it runs the risk of exacerbating economic conditions at home and the domestic political consequences that could follow.

Robert Hormats, a Goldman Sachs & Co. investment banker who worked for the State Department during the 1973 Arab oil embargo, said that while many people focus on the inflation risks from higher oil prices, "the real impact and more pervasive effect would be to slow down growth." A higher oil price, he said, "is like a tax. We may not increase taxes on ourselves, but the Iraqis may increase taxes on us."

Former U.S. policy makers warned that a broad economic blockade also would raise a host of diplomatic issues with its allies, and would have to be reinforced by a military presence. They said these risks had to be weighed in considering the U.S. response to the Iraqi invasion.

Nonetheless, most former policy makers and others were urging the Bush administration to extend the economic measures already taken against Iraq.

"I would make a major effort to get the industrial democracies to stop buying Iraqi oil, not just by tut-tutting and saying that we will consider it," said former secretary of state Henry Kissinger. Even if Iraq did not attack Saudi Arabia, Kissinger said, Iraq's invasion of Kuwait was "an assault on the stability of the area and the world economic system."

A former Kuwaiti cabinet minister now living in London urged Western nations not to appease Iraq's leader, Saddam Hussein. "The emir {of Kuwait} made his miscalculation, but we don't want the rest of the world to make equally bad miscalculations," the former minister said.

Winning the cooperation of major allies for an embargo could be difficult. "The whole process is complicated to put together in a world with a variety of interests," said a senior Treasury official. He added, "The extent to which other countries will take similar action is not clear."

By shutting down the Iraqi pipeline through Turkey, Ankara would suffer a significant loss of revenue. The action would also heighten Turkey's own security concerns along its border with Iraq.

Moreover, choking Iraqi oil exports would require cutting Iraq's second pipeline, through Saudi Arabia, which could place the Saudi kingdom at risk. A State Department official said that a decision by the United States to blockade the Persian Gulf might be considered as a way of taking the decision out of Saudi hands.

Other allies would be pressured by a broad oil embargo as industrial nations would have trouble replacing the oil supplies of Iraq and Kuwait.

Venezuela, Nigeria, and Mexico could all increase oil production, but Joseph P. Riva Jr., an oil specialist at the Library of Congress Legislative Reference Service, estimated that a global boycott of Iraq and Kuwait would remove 5 million barrels a day from world supply and oil-producing countries outside the Persian Gulf would not have enough unused crude production capacity to fill the need.

"The world would have to figure out a different way to live without that 5 million barrels a day," he said.

That would make it hard for Western Europe and Japan to go along with an embargo, said Riva. Japan gets 60 percent of its oil from Iraq, Kuwait, Saudi Arabia and the United Arab Emirates. Europe gets about the same -- 55 percent. Backing an embargo "would almost be crippling for their economies," Riva said.

Saudi Arabia has more than enough excess oil production capacity to make up for the loss of Iraqi and Kuwaiti oil, but central to Iraq's demands is the curtailment of oil production by the less populous Persian Gulf countries like Saudi Arabia. If the Saudis increase oil production they could court the very Iraqi military retaliation against the Saudi kingdom that the Bush administration is trying to avoid.

"Shutting the Saudi pipeline could be provocation Saddam would seize upon to mount an invasion," said John West, a former U.S. ambassador to Saudi Arabia. The only way to persuade Saudi Arabia to increase its oil production would be if the United States moved a bigger, more credible military force into the kingdom, Hormats said.

Staff writers Patrick E. Tyler and Stuart Auerbach contributed to this report.