"I keep hoping I will wake up and discover it's all a bad dream," said the Turkish businessman, crammed with seven other commuters into a battered, old Chevrolet taxi. His automobile had run out of gasoline.

"Our apartment has been without heat for two months," because of no fuel oil, lamented another squashed passenger.

Turkey is struggling through its worst economic crisis in history with chronic shortages in essential items including cokking gas, fats, construction materials, medicine, light bulbs and even Turkish coffee.

The annual inflation rate is running at 50 percent, factories are working at half capacity because of he lack of imported raw materials and one out of every five Turks is unemployed.

As a result, most Turks are facing drastically reduced living standards, rising as Turkey's NATO allies and the International Monetary Fund demand even more rigid belt-tightening in exchange for new economic aid.

Some Turks charge that the American arms embargo, which was applied for four years against the Turks to force their withdrawal from Cyprus, has been replaced by an economic blockade with the same aim. Two U.S. servicemen have been shot dead in the past month in anti-American violence.

Meanwhile the Soviet Union and the Arab states are stepping up aid to the Turks, prompting the Ankara government to temper its once strong pro-western line in world politics. Turkey was the only NATO nation to publicly criticize the U.S. -brokered Camp Middle East peace agreement.

Fearful of losing another Middle East ally after the shah's defeat in Iran, the Western powers have agreed on a crash aid plan. The Turks, with foreign exchange reserves down to about $500 million and overseas debts totalling $12 billion, desperately need an immediate infusion of $1.5 billion to get their crippled economy moving.

But new Western credits are conditional on imposition of tough austerity measures that the socialist government of Premier Bulent Ecevit-its parliamentary majority eroded by party defections and faced with mounting social unrest-considers politically too risky.

Among IMF demands are a national wage freeze and a hefty devaluation of the Turkish lira to boost exports and discourage imports. The West also wants the Turks to settle their dispute with Greece over Cyprus, which has seriously weakened the southeastern flank of NATO, and the United States is demanding the extension of agreements on the base facilities in Turkey that are due to expire this fall.

The Ecevit government has already gone part way to meeting Western demands. In April, it introduced price hikes of up to 93 percent on a wide range of state-produced goods in an effort to cut the $2 billion annual deficit of government enterprises, and this month it withdrew 1,500 troops from Cyprus.

But even if the IMF agrees to reopen Turkey's line of credit, which has been frozen since December, it would only bring temporary economic relief.

The Turks say they need $15 billion in foreign loands and investment over the next five years to restructure their import-oriented economy, which coupled with increased oil prices and years of free spending by former conservative prime minister Suleyman Demirel account for the present crisis.

Although the West is unlikely to let the Turks go bankrupt, current Western aid pleges, such as the $675 million promised by the United States over the next two years, meet but a fraction of Turkey's needs.

Continued economic decline, Ecevit says, will encourage the political terrorism that has killed more than 200 persons in street violence this year despite widespread marital law and could force Turkey to further modify its faltering pro-Western policies.

Despite such threats, most observers believe Ecevit will not go as far as pulling Turkey out of NATO. But wracked by internal unrest, the defense capability of its weapon-starved armed forces reduced by half, and embittered by the West's apparent indifference to its economic difficulties, Turkey is unlikely to prove a dependable military ally.