With the assassination of former prime minister Benazir Bhutto, the political and economic landscape of Pakistan has changed dramatically.

Benazir Bhutto was killed today at an election rally in the garrison city of Rawalpindi when a gunman shot her and set off a bomb. The BBC reports that at least 16 others were killed in what appeared to be a suicide attack. While no one immediately claimed responsibility, it is widely believed that Islamic militants staged the assault. She was 54.

News of her death—and fears of a nuclear power possibly sliding into anarchy as a result—dragged down global stock markets and sparked a wave of buying of United States Treasury securities, a traditionally safe haven. In afternoon trading, the Dow Jones industrial average was down more than 150 points, or 1 percent. Crude oil futures rose above $97 a barrel, and gold prices also gained. (The attack took place after stock markets in Pakistan and elsewhere in Asia were closed.)

Despite the increasing violence and political unrest in the country, Pakistan's economy has so far thrived, growing at an average annual rate of 7 percent for nearly a decade. The stock markets in Karachi and Lahore have risen 1,000 percent since 1999.

But the economy is also in need of additional investments from the United States and Europe that had appeared to depend largely on the outcome of the election on January 8. Pakistan receives some $7 billion a year in foreign investment.

Foreign investors have been cautious since President Pervez Musharraf declared a state of emergency in November. Soon afterward, Shaukat Aziz, a former Citigroup executive who was the architect of Pakistan's economic recovery, resigned as prime minister, in an apparent private protest.

The United States—which buys nearly 25 percent of Pakistan's exports of textiles and agricultural products—has been particularly eager to see signs that Pakistan is moving toward a more democratic and more transparent system. The assassination today throws that outlook into doubt.

"Pakistan's economy has performed remarkably better than would be expected in a political crisis," said Anwer Sher, a Pakistani banker and real estate consultant based in Dubai, where Bhutto maintained a home and where her three children still live with their father, businessman Asif Zardari, as does her mother, Nusrat. "This can partially be explained on grounds that the civil disturbances have not been crippling and, largely, that the economic sector does see that, either way, an election in January and the settling of tensions domestically and with India will eventually happen.

"But now everything has been thrown off balance," he added. "Until the situation settles down, investors are going to be skittish, if not downright reluctant to pour more money into an economy that suddenly plunged into a political crisis of this dimension."

Martin Hutchinson writes on Breakingviews.com that Bhutto "represented the best opportunity for Pakistan to avoid authoritarian rule or chaos after the election."

Bhutto's murder is the fourth time that a member of her family was killed. Her father, former prime minister Zulfikar Ali Bhutto, was hanged by President Zia ul-Haq in April 1979. (General Zia was himself killed when a plane in which he was riding with several diplomats, including the U.S. ambassador, was mysteriously blown up.) The next year, Benazir's brother Shahnawaz was murdered under still-unexplained circumstances in France. And in 1996, another brother, Mir Murtaza, was also murdered.

There was no certainty that Bhutto's Pakistan People's Party would have won the parliamentary elections next month and quite possibly made her prime minister for the third time in two decades.

But foreign investors, particularly ones from the United States whom she had assiduously cultivated in her seven years of exile, seemed inclined to support the view that her political ascendancy would have meant opening up more sectors of Pakistan's economy to foreign investment.

These sectors included agribusiness, textiles, and manufacturing—sectors that lent themselves to badly needed job creation in a country of nearly 170 million mostly poor people, one where the unemployment rate is about 10 percent.

One leading investor based in Dubai said today that he had been assured that Pakistan's economy would become a "model of free enterprise" if Bhutto regained political power.

"Benazir did not think that there was an inherent contradiction between Pakistan being constitutionally an Islamic state but one which promoted laissez-faire economics," said the investor, who is a native of the United Arab Emirates. "On the contrary, she felt that the Islamic theocracy would welcome the creation of more jobs for the restless youth of Pakistan. Benazir felt that poverty wasn't ennobling and that even the mullahs had to worry about how their followers would obtain a gainful livelihood. She felt that nation building couldn't occur by harboring religious resentments. As much as their Muslim faith, Pakistanis needed jobs."

Bhutto's assassination follows disclosures that Pakistan's ruling regime diverted much of the $5 billion provided by the United States to combat Al Qaeda and the Taliban to weapons systems designed to counter neighboring India.

Indeed, both Bhutto and her husband have previously been accused of illegally taking more than $1 billion in commissions from foreign defense suppliers, including Dassault of France. The couple denied the accusations, but criminal charges were filed against them nevertheless, and Bhutto's husband spent several years in a Pakistani prison.

Bhutto's own economic views went through a significant metamorphosis during the eight years that she spent in political exile. Earlier, she was a staunch backer of a strong military budget, one that was primarily focused on developing weapons systems aimed at India, which is a nuclear power like Pakistan.

What is surprising is that despite the escalating arms race in the subcontinent, the economies of both countries have been performing remarkably well. India's abandonment of socialism and its embrace of more market-oriented policies—with increased investment from American companies in the manufacturing sector and the equity markets—have resulted in average annual economic-growth rates of between 7 and 9 percent for the past seven years.

Pakistan has not been far behind—at least until the present crisis.

Sher, the banker whose father, Brigadier Qayyum Sher, was Pakistan's first military administrator in the 1950s, expressed concern about his country.

"Benazir's assassination is tragic as it highlights the fragility of the nation to Islamic militants, on the one hand, and effectively cripples the political process at a crucial time with elections around the corner," he said.