Turkey and the United States are embroiled in a dispute over financial aid, the price Turkey is seeking for allowing the U.S. military to use its territory as a platform for a possible strike against Iraq.

The Turks have reportedly set $32 billion, as a price tag for the use of its military bases in the event of war with Iraq. Turkish support for the United States is critical as it shares a frontier with Iraq and is the only NATO member country with a Muslim-majority.

But war with Iraq is unpopular in Turkey and the country's three-month old government is treading softly. Isaac Tabor, a specialist on Turkey at the Merrill Lynch brokerage in London, said war would have negative consequences for the Turkish economy.

"We know, for example, that tourism is going to disappear," he said. "We know that the already negative effect of higher oil prices is going to intensify. Domestic confidence is going to suffer significantly and as a consequence will fall. There can be no talk of foreign direct investment inflows under those circumstances."

Turkey's economy is already in a mess. The new government, led by a party with Islamist roots, has a big parliamentary majority. But its early moves have failed to boost investor confidence. The International Monetary Fund has not yet resumed its lending to Turkey, a country that Bulent Aliriza, a researcher at Washington's Center for International and Strategic Studies, said is already on life-support.

"Turkey has a serious problem with the IMF. And a serious problem with the IMF means that its economic situation is going to get a lot worse," he explained. "The overall economic picture is not good. To give you one example, while other countries in Eastern Europe are receiving billions of dollars in foreign direct investment from the international private sector, Turkey received less than $300 million last year."

The new government, says Turkish analyst Aliriza, is not getting the endorsement it hoped from either the business community or the European Union, which has delayed membership negotiations with Turkey.

Under the circumstances, said Merrill Lynch analyst Tabor, Turkey's government needs the monetary compensation it is seeking from the United States.

'It has political advantages of a sort. To the extent that people perceive that even if they don't want to be involved in a war with Iraq, at least there is monetary compensation," he pointed out. "And that they're going to live better for a while based on that help. It may be politically admissible."

The analysts say an end to existing economic sanctions against Iraq would have a positive effect on Turkey's economy. However, they hasten to say that benefit could be outweighed by heightened unrest among Turkey's Kurds who live on both sides of the border.