AS WALL STREET veteran Hank Paulson settles into his new job as Treasury secretary, the conventional wisdom is that he can't accomplish much in the waning years of President Bush's second term. Paulson fiercely resists such assertions, and there is reason to believe he is right. But the arena in which he is most likely to shine is one the conventional wisdom has mostly ignored: crisis management with Iran.

Paulson is taking over Treasury at a momentous time. This month, the debate over Iran's nuclear program will turn to sanctions--an area where his experience will prove an immense asset. The best nonmilitary hope for turning back Tehran's decision to become a nuclear power is aggressive financial sanctions targeting Iranian leaders. Such sanctions would naturally be led by the Treasury Department, building on its expertise in suppressing money laundering and financial support for terrorism. It would be a significant achievement if Paulson were able to gain international agreement on sanctions and the cooperation needed to enforce them. At the G-7 finance ministers' meeting in Singapore this month, he will have an excellent setting to make the case.

So far, Iranian leaders have suffered little for their nuclear ambition--in fact they have gained as oil prices have risen. But if they were to suffer severe and personal financial losses, it might affect their calculus. Securing financial sanctions is no easy task. European cooperation is needed to get at Iranian bank accounts, and European political leaders face resistance from business leaders who prefer cozy relations. An

Even with punitive personal sanctions, Iran's leaders, fueled by a dangerous mixture of hate and religion, may not be deterred. A broader containment strategy may ultimately involve targeted strikes on Iran's key nuclear facilities. It is true that many foreign policy experts argue that taking on Iran militarily is highly unlikely. But given that Iran's leaders are pursuing a nuclear weapon and that President Bush is committed to preventing them from acquiring one, it is impossible to say military action will not be taken.

Should such a conflict happen, Paulson, again, would be in the spotlight. His role would be to ensure that someone who is sensitive to markets has a strong voice at the table. Oil prices would undoubtedly surge with any military action. But, if handled well, the administration would give oil traders a reason to take profits as early as possible. Buy stocks on the cannons, goes the old market saying--but the inverse should be true for oil.

The most important policy would be to announce without delay a coordinated release of strategic petroleum stocks led by Energy Secretary Samuel Bodman and International Energy Agency executive director Claude Mandil. Global government-controlled petroleum of IEA member countries could offset about 20 months of Iranian oil exports--a figure that should not only make Tehran nervous, but could also allow for an over-release, providing more oil to markets than was taken off-line. A coordinated oil release would shift supply from religious fanatics to known allies and demonstrate that oil vulnerability can be a two-way street. During the Persian Gulf war, a release of the Strategic Petroleum Reserve was announced on the same day that the war began. The price of oil fell by one-third over the next six weeks, as the military action proved successful. After Hurricane Katrina, the administration waited five days to announce a coordinated release of strategic oil--a period too long for traders experiencing pain with every tick.